FAQ

A broker is a person or company that acts as an intermediary between buyers and sellers of financial instruments such as stocks, bonds, currencies, or commodities. A broker acts as a middleman and facilitates trading by providing customers with access to trading platforms, market information, and order execution. Brokers typically earn through fees or commissions based on the trading volumes o...

A call option or "call" is a financial instrument that gives the holder the right, but not the obligation, to buy a specific underlying asset (e.g. a stock) at a predetermined price (the exercise price) within a certain period of time. A call is usually purchased by investors who expect the underlying asset to rise in price, either to protect against losses or to profit from rising prices. If ...

Credit Default Swaps (CDS) are a financial instrument that allows investors to hedge against the default risk of borrowers. A CDS works like an insurance policy. The buyer of the CDS pays a premium to the seller, who in turn agrees to take on the losses that may arise if the borrower defaults or becomes insolvent. Essentially, the buyer of the CDS is betting that the borrower will default, wh...

Central depositories are organizations that manage securities and other financial instruments on behalf of their clients, and store them in a centralized database. They also handle the settlement of transactions and ensure that all trades are properly executed. Central depositories play an important role in the financial system, as they increase the efficiency and safety of trading securities,...

Clearing refers to the process by which the buyer and seller of a transaction agree on the terms of the transaction and settle it. This includes the exchange of securities and funds, confirmation of the transaction, and verification of financing. Usually, clearing is done through a specialized clearinghouse that acts as an intermediary between buyers and sellers, ensuring that all transactions...

The collective custody account is a system in which banks and brokers consolidate their customers' stocks and hold them as a single position in a central management system. This means that the broker or bank does not have to physically hold each share, but only holds a position in the system. This facilitates the management of stocks and reduces costs for brokers and banks.

A Dark Pool is a private trading venue that takes place outside of regular exchanges. Institutional investors can trade large blocks of stocks or other securities on a Dark Pool without their trades being publicly disclosed. Unlike the public market where all orders and transactions are publicly visible, a Dark Pool allows investors to trade anonymously. A Dark Pool can offer advantages such a...

The Direct Registration System (DRS) is a system that allows shareholders to register their stocks directly with the issuing company instead of holding them through a broker or bank. This skips the step of depositing the shares into a broker or bank account, which can lead to faster transactions and lower administrative costs. For retail investors, the DRS can offer some advantages. For exampl...

FTD stands for "Failed to Deliver," which means that the seller of a stock has not fulfilled their obligation to deliver the stock. This can happen when a short seller shorts stocks but is unable to deliver the stocks at the agreed-upon time. An FTD also occurs when the buyer of a stock is unable to pay for the stock on the agreed-upon date. The consequences of FTDs can be different for indivi...

A hedge fund is an investment fund managed by professional investors that typically uses complex and speculative investment strategies to achieve high returns. Unlike traditional investment funds, hedge funds typically have greater freedom in choosing their investments and can also engage in short selling, use derivatives, and invest in alternative asset classes such as private equity and real ...

An IOU (I Owe You) is an informal written agreement between two parties in which one party commits in writing to owe something to the other party at a later time. In the stock market, the term IOU is sometimes used to refer to a stock that is held or owned by another party but is not physically present. This can occur, for example, when a market maker or broker sells a stock to a customer befo...

A market maker is a company or individual who operates in the market for a specific stock or other financial product. The market maker continuously provides buy and sell quotes for this product to ensure sufficient liquidity in the market. Essentially, the market maker ensures that there is always a buyer when a seller wants to sell their stock, and that there is always a seller when a buyer wa...

Naked Short Selling is a practice where investors sell shares they do not own and have not borrowed. This practice can lead to an artificial flood of the market with shares, which lowers the price of the stock. It can also result in investors selling more shares than are actually available, which is known as "naked shorting." The impact of Naked Short Selling on retail investors can be similar...

OTC trading on the stock market refers to the trading of securities that is not conducted through an official exchange. OTC trading takes place directly between buyers and sellers, often through an electronic network or a broker. OTC trading can be used for companies that are not listed on an exchange or for rare and complex securities such as derivatives or bonds. For retail investors, OTC tr...

OTM is an abbreviation for "out of the money" and refers to options where the exercise price is above the current market price of the underlying asset (e.g. a stock). In the case of call options, this means that the exercise price is higher than the current market price of the underlying asset. In the case of put options, this means that the exercise price is lower than the current market price...

PFOF stands for Payment for Order Flow and refers to a practice where brokers are paid for directing customer orders to market makers or other traders. These traders pay brokers for access to customer orders and can use this information to execute their own trades. For retail investors, PFOF can mean that their orders may not always be executed at the best possible price, as the broker may not...

A prime broker is a financial service provider that offers specialized services to institutional clients and hedge funds. These services typically include facilitating transactions, providing credit, and managing assets. Prime brokerage services are often necessary to implement complex and high-risk investment strategies that are difficult for individual investors and smaller financial institut...

A put option or "put" for short is a financial instrument that gives the holder the right, but not the obligation, to sell a certain underlying asset (e.g. a stock) at a predetermined price (the strike price) within a certain period of time. Puts are usually purchased by investors who expect a decline in the underlying asset's price in order to protect themselves against losses or to profit fr...

Settlement refers to the process in which securities and cash are exchanged between the buyer and seller of a transaction. After a transaction is executed, there is an agreed-upon time frame within which settlement must occur. This can typically range from a few hours to several days, depending on the type of security and the exchange on which the transaction is taking place. During the settle...

Short Selling is a type of stock market transaction in which an investor bets on a decrease in the price of a stock. In this case, the investor sells stocks that are borrowed from a broker, hoping that the price of the stock will fall in the future. If the price actually drops, the investor can buy the stock back and return it to the broker to realize their profit. The investor profits from a f...

"Street Name" and "Book Name" refer to the different types of stock registration. With Street Name registration, stocks are registered in the name of the broker or bank instead of the actual owner's name, while with Book Name registration, stocks are registered in the name of the actual owner. For individual investors, the choice between Street Name and Book Name registration can have some imp...

Shorts, naked shorts, and FTDs can have different impacts on retail investors depending on how they have invested in a particular stock. Short sales can lower the stock price and thus decrease the value of the stock for retail investors. If a large number of investors short a stock, it can cause the stock price to plummet, which can affect retail investors who have already invested in that sto...