Arbitrage
The practice of taking advantage of a price difference between two or more markets; striking a combination of matching deals that capitalise upon the imbalance, the profit being the difference between the market prices;
Convergence Trading
A convergence trade is buying one asset forward – i.e., for delivery in future (going long the asset) and selling a similar asset forward (going short the asset) for a higher price, in the expectation that by the time the assets must be delivered, the prices will have become closer to equal (will have “converged”), and thus one profits by the amount of convergence;
Convertible arbitrage
Involves the simultaneous purchase of convertible securities and the short sale of the same issuer’s ordinary securities;
Convertible securities
An instrument that can be exchanged for shares of the issuer of that security;
Derivatives
Generally, a derivative is a financial contract whose value depends upon, or is derived from, the value of an underlying asset, reference rate or index. Derivatives may relate to securities, bonds, interest rates, currencies or currency exchange rates, commodities, and related indexes. Examples include options contracts, futures contracts, options on futures contracts, and swap agreements;
Future(s)
An agreement to buy or sell an asset or cash equivalent at a date in the future at a price agreed today;
Hedge/Hedged
An investment made in order to reduce the risk of adverse price movements in another investment;
LVR
Loan to Value Ratio;
Long
Where one has bought or who holds a position that will benefit from rising prices;
Long-short
The process of allocating a percentage of the assets to those investments believed will go up in value while allocating another percentage to those that are believed will go down in value;
Market neutral
Where a strategy seeks to entirely avoid some form of market risk, typically by hedging. An investment or portfolio is truly market neutral if it exhibits zero correlation with the unwanted source of risk;
Options
A contract between two parties giving the taker (buyer) the right, but not the obligation, to buy or sell a pre-existing underlying asset at a particular price on or before a particular date;
Preference shares
Are shares that rank before ordinary shares in the event of liquidation;
Rights
A privilege granted to shareholders to buy new shares in the same company at a predetermined price;
Securities Lending
Where securities are lent to a third party (borrower) by the securities’ owner (lender) for a period of time in return for a fee or other benefit;
Short / short selling / short securities
Shorting or short selling is selling a security you do not own. By short selling a security, one attempts to profit from a decrease in the value of the security. The difference between the higher sale price and lower purchase price is a profit (provided all the costs associated with the transaction are also recouped). However, if the subsequent purchase price is higher than the initial short selling price then one will incur a loss equal to the amount by which the purchase price exceeds the short selling price (plus any associated transaction costs). Short selling can be used as a strategy to try to improve returns and to manage risk;
Warrants
Are financial instruments that are broadly split into products with investment purposes and those for trading purposes.
Volatility
Is a measure of a security’s (or market’s) stability and is a measure of risk based on the standard deviation of the asset return. It is an important measure in quantifying risk; for example, a security/market with a higher volatility relative to another is considered to be a higher risk because it has the potential to increase or decrease more of its value.