Analyst

Person similar to a weather forecaster or astrologer, but not quite so accurate.  An analyst is paid to make similar predictions about future earnings as other analysts.  Derivation of ‘anal’ and ‘list’ since that is where most of the earnings estimates come from.  See Earnings Estimate.

Arbitrage

A sophisticated trading technique whereby one can simultaneously buy and sell the same financial instrument for a price that realizes a profit that is slightly less than the costs of doing the trade.

Back-fitting

A technique that identifies the best values for an automated trading system’s parameters to use after one invents a time machine and can go back in time and trade historically.  See Optimization.

Commission

A fee charged by a broker for moving a financial instrument from one customer account to another.

Covered Call

A clever technique invented by brokers that allows a customer to pay double commissions to purchase a financial instrument that behaves almost identically to being a put option seller.

Earnings Estimate

Random number generated by a group of analysts that attempts to predict what a company’s earnings per share will be next quarter.  See analyst.

Financial Advisor

Person who is forced by regulations to reveal that they have a serious conflict of interest due to them getting compensated for selling you investment products that they earn the most commission on rather than the ones that are best for you.  See Independent Financial Advisor.

Fundamentalist

A person who attempts to explain why financial instrument prices differ significantly in value and volatility to those derived from calculations of the instrument’s actual fundamental value.  Compare with Technician.

Independent Financial Advisor

Less well compensated version of a financial advisor.  See Financial Advisor.

Initial Public Offering (IPO)

A scheme whereby those with the most information (investment banks) attempt to sell part of a company to those with the least information (the public) using a compensation model that rewards the investment bank and company more the higher the IPO price is.

Monte Carlo Simulation

A technique that demonstrates what an achievement it is for a trader to generate actual trading results that are consistently worse than random.

Mutual Fund

A financial instrument that aims to match the performance of a theoretical index by buying exactly the same instruments that constitute the index and then deducting large fees to pay the mutual fund managers, for marketing the fund, and paying other associated expenses.

Optimization

An advanced technique that identifies the values for an automated trading system’s parameters that define the version of the system that is least likely to make a profit in the future.  See Back-fitting.

Option

A financial instrument that gives the owner the right, but not the obligation to wait until expiration before admitting he has been scammed.  See Option Writer.

Option Writer

Person who exchanges a small guaranteed profit immediately, for a chance of a huge loss in the future.  See Option.

Quiet Period

The time immediately before an IPO that effectively prevents the public from obtaining information that may give them some idea of the true value of the company for sale.

Technician

A person who attempts to explain why future financial instrument prices differ significantly in value and volatility to those derived from calculations of the instrument’s actual technical value.  Compare with Fundamentalist.