The derivatives glossary.

Assignment

The process that obligates an option writer to fulfill the contract’s terms. The resulting asset or cash obligation depends on the specific option.

Base currency

The first currency in a pair under the stated quotation convention. In EUR/USD, the euro is the base currency.

Basis

A difference between two related prices, such as spot and futures. Always specify which price is subtracted from which.

Basis point

One hundredth of a percentage point. A change from 4.00% to 4.01% is one basis point.

Basis risk

The risk that a chosen reference or hedge does not move in line with the exposure it is intended to offset.

Bid–ask spread

The difference between the quoted buying and selling prices. The spread at one level does not describe execution for every size.

Call option

An option providing a buying right, or a corresponding cash payoff under cash-settlement terms. The writer takes the other contractual obligation.

Cash settlement

Settlement by a financial payment determined under the contract, rather than delivery of the referenced physical asset.

Cheapest to deliver

The eligible security most economical for a short position to deliver under particular bond futures rules and market conditions.

Collateral

Assets accepted to support obligations. Eligibility, valuation haircuts, custody, and transfer access depend on the arrangement.

Contract multiplier

A factor translating the reference quotation into the amount represented by one contract. It is essential for calculating exposure and tick value.

Counterparty risk

The risk that a party fails to fulfill an obligation. Clearing or other protections must be understood through their actual terms.

Delta

A model-based local sensitivity of a derivative’s value to a change in the underlying. It can change with market conditions.

Duration

A measure of interest-rate sensitivity. Modified duration approximates percentage price change for a yield change under stated assumptions.

DV01

Dollar value of a one-basis-point change in yield. It is a sensitivity measure rather than a prediction of the next price move.

Exercise

Use of an option holder’s contractual right. Exercise can lead to a payment, asset transfer, or another position, depending on the terms.

Expiry

The contract’s specified end or exercise boundary. Last trading time and settlement can occur at different times.

Forward

An agreement on a future transaction or settlement under specified terms, often negotiated between the parties.

Funding

A contract-specific cash-transfer mechanism used by many perpetuals. Receiving a payment does not guarantee a profitable overall position.

Futures

A standardized contract with defined obligations, reference terms, and settlement provisions. Dated futures specify a maturity.

Implied volatility

A volatility input inferred from option prices under a pricing framework. It is not a guaranteed direction or magnitude of future movement.

Initial margin

Funds required to establish a margined position under the applicable rules. It should not be assumed to equal maximum possible loss.

Liquidation

A forced position reduction or closure under a provider’s risk procedures. Timing, pricing, and costs depend on those rules.

Maintenance margin

The minimum ongoing margin requirement under the applicable system. A shortfall can lead to cash demands or position action.

Mark price

A contract- or venue-specific valuation used for purposes such as risk calculations. It may differ from the last traded price.

Notional value

A measure of the scale of referenced exposure. For a simple linear contract it commonly combines price with the contract quantity.

Open interest

Outstanding contracts under the market’s counting method. It is different from the volume traded during a period.

Perpetual

A conventional derivative without a standard scheduled expiry, commonly using funding. Perpetual-style products still require checking for contractual maturity.

Premium

The price paid for an option. Its quotation convention and multiplier determine the full payment amount.

Put option

An option providing a selling right, or a corresponding cash payoff under the contract. The writer takes the opposite obligation.

Quote currency

The second currency in a pair under the stated convention. It expresses the price of one unit of the base currency.

Reference rate

A specified measure used to value or settle a contract. Its data inputs, calculation method, and fallback rules matter.

Roll

Closing one maturity and establishing another to continue exposure. Each transaction has its own price and costs.

Slippage

The difference between an expected or reference execution price and the achieved price, under the definition used for the analysis.

Strike price

The specified price relevant to an option’s exercise right or cash-settled payoff calculation.

Tick value

The monetary effect of one minimum price increment for a specified contract quantity.

Yield curve

A comparison of yields across maturities at a given time. Its shape can change rather than moving uniformly.

For the educational references behind these concepts, visit the source library. Definitions are simplified and are not legal interpretations of a specific contract.