Glossary terms beginning with B
- Basis point
- A one one- hundredth of one percent (i.e., 0.01%), used to express interest rates and bond yield differentials. The smallest measure used in quoting yields on bonds and notes.
- Basis risk
- The risk of a movement between two different interest rate profiles, for example, prime lending rate and US Treasury rates.
- Basis
- The difference between the current cash price and the futures price of the same commodity. The basis is determined by the costs of actually holding the commodity versus contracting to buy it for a later delivery (i.e. a futures contract). The basis is affected by other influences as well, such as unusual situations in supply or demand. Unless otherwise specified, the price of the nearby futures contract month is generally used to calculate the basis. (See Carrying Charge)
- Bear Market (bear/bearish)
- A market in which prices are declining. A trader who believes prices will move lower is called a “bear.” A period of generally failing prices and pessimistic attitudes.
- Beta
- A measure of an investment's volatility. The lower the beta, the less risky the investment.
- Bid
- An indication of a trader of a willingness to buy a security. The price at which an investor can sell.
- Beta coefficient
- A means of measuring the volatility of an individual market (security, future, financial instrument) in comparison with the market as a whole. A beta of 1 indicates that the individual market’s price will move with the overall market.
- Bid-offer spread
- The difference between the bid price and the offer price.
- Board of Trade
- Any exchange or association of persons who are engaged in the business of buying or selling any commodity or receiving the same for sale on consignment. It usually means an exchange where commodity futures and/or options are traded. Sometimes referred to as Contract Market or Exchange.
- Break
- A rapid and sharp price decline.
- Break-even point
- (1) The point at which gains equal losses. (2) The price a market must reach for an option buyer to avoid a loss if he exercises. For a call, it is the strike price plus the premium paid. For a put, it is the strike price minus the premium paid.
- Bull Market (bull/bullish)
- A market in which prices are rising. A trader who believes prices will move higher is called a “bull”. A news item is considered bullish if it is expected to bring on higher prices.
- Buy in
- A purchase to offset, cover or close a short position.
- Buy on close
- Buying securities, futures or other financial instruments at the end of a trading session at a price within the closing range.
- Buy on opening
- Buying securities, futures or other financial instruments at the beginning of a trading session at a price within the opening range.
- Buy Stop Order
- An order to buy a market that is entered at a price above the current offering price and that is triggered when the market price touches or goes through the buy stop price.
- Buying Hedge (or Long Hedge)
- Buying futures contracts (or other financial instruments) to protect against possible increased cost of inputs slated for futures uses. See Hedging.
- Back-end Load
- A sales charge paid when mutual fund shares are sold. Also may be called deferred sales charge.
- Back Months
- Those futures delivery months with expiration or delivery dates furthest into the future; in other words, futures delivery months other than the spot, or nearby, delivery month.
- Backspread
- A spread strategy in which the net position has more long options than short ones. To create a call backspread you might sell one lower strike call and buy two higher strike calls. This position offers limited risk and unlimited profit potential. It's also worth noting that backspreads are often initiated as delta neutral positions.
- Backwardation
- A futures market in which the relationship between two delivery months of the same commodity is abnormal. The opposite of Contango. See also Inverted Market.
- Bear Spread
- A position consisting of multiple options that benefits from a decline in the stock price. The position may include stock as well as options.
- Bear Call Spread
- This strategy involves selling a call with a lower strike and buying a call with a higher strike. The maximum profit is achieved when the stock trades at or below the lower strike.
- Bear Put Spread
- This strategy involves buying a put with a higher strike price and selling a put with a lower strike price. In this case, the maximum profit is achieved at or below the lower strike price.
- Best Ask or Best Offer
- The lowest quoted offer of all competing market makers to sell a particular security at any given time.
- Best Bid
- The highest quoted bid of all competing market makers to buy a particular security at any given time.
- Bid Size
- The number of futures or options contracts bid at a certain price.
- Black-Scholes Model
- A mathematical formula provides theoretical values for options given the various factors that impact an option's price (i.e., the strike price, the price of the underlying, the current interest rate, the amount of time remaining until expiration, dividends, and volatility).
- Bond
- A security that represents the debt of a corporation, municipality or any other entity.
- Book Value per Share
- The book value of a company divided by the number of shares outstanding.
- BOX
- The Boston Options Exchange.
- Buffered limit
- Desired limit price will be applied as an offset to the triggered quote, at the time the order is sent to the exchange.
- Bull Spread
- A position consisting of multiple options that benefits from an increase in the stock price. The position may include stock as well as options.
- Bull Call Spread
- This strategy involves buying a call with a lower strike and selling a call with a higher strike. The maximum profit is achieved when the stock trades at or above the higher strike.
- Bull Put Spread
- This strategy involves selling a put with a higher strike and buying a put with a lower strike. Again, the maximum profit is achieved at or above the higher strike price.
- Butterfly Spread
- A limited risk, limited reward strategy that involves 4 options (all calls or all puts) at 3 different strike prices. For example, to buy a butterfly, you might buy one call at a lower strike, sell two calls at the middle strike, and buy one call at the higher strike. In this case, the highest and lowest strikes are "wings" while the middle strike makes up the "body" of the butterfly.
- Buy-write
- see Covered Call.
- Bear flag
- A technical charting pattern that looks like a flag with a mast on the left side. Flags result from price fluctuations within a narrow range, they mark a consolidation before the previous move resumes.
- Bull flag
- A technical charting pattern that looks like a flag with a mast on right side. Flags result from price fluctuations within a narrow range, they mark a consolidation before the previous move resumes.
- Back office
- Departments in a financial institution in which the majority of their work is accounting, balancing, clearing, and bookkeeping, not directly in dealing with clients.
- Broker
- An individual or firm that charges a fee or commission for executing buy and sell orders placed by another individual or firm, floor broker in commodities futures trading, a person who actually executes orders on the trading floor of an exchange; an account executive (associated person) as the person who deals with customers and their orders in commission house offices.
- Buy Limit order
- An order to a broker to buy a specified quantity of a security at or below a specified price (called the limit price).