American Style Option
An option contract that can be exercised at any time on or before the expiry date.

At the money
An option where the strike price equals the spot price.

Bid Price
The price at which a party is prepared to buy.

Call Option
An option contract giving the right, but not the obligation, to buy a specified asset at a pre-determined price and date in the future. (See American Style Option and European Option).

Equity Contract for Difference (CFD)
A CFD is an agreement made between two parties to exchange, at the closing of the contract, the difference between the opening and closing prices of the underlying share, multiplied by the number of shares detailed in the contract.

European Style Option
An option contract that can only be exercised on the expiry date.

Exchange
An exchange acts as a regulated market for the buying and selling of equities, futures and options contracts.

FSMA Act 2000
The Financial Services Act 2000 has, as its main regulatory objectives, the establishment of market confidence, public awareness, the protection of consumers and the reduction of financial crime. Under the FSMA, the Financial Services Authority (FSA) is responsible for overseeing investment business.

Futures Contract
A contract for the future delivery of a standardised quantity and quality of an asset specified in the contract.

Initial Margin
The total cash (or other acceptable security) deposited in respect of all open margined transactions.

In-the-money/Out-of-the-money/At-the-money
An option is 'in-the-money' when, for example, the strike price of a call option is lower than the spot price. It will be 'out-of-the-money' when the strike price is greater than the spot price. The converse applies to put options.

Intrinsic Value
This is the amount an option holder can realise by exercising the option immediately. For a call option, intrinsic value is the underlying product - strike price. For a put option, the intrinsic value is the strike price - the underlying product price. Intrinsic value is always positive or zero. An out-of-the-money option has zero intrinsic value.

Margin
The deposit of cash or other acceptable security to meet the Initial Margin and/or the Variation Margin requirement or Option Premium. The minimum margin requirement is set by the relevant Exchange and may be varied at any time without prior notice having regard to regulatory and market conditions.

Margined Transactions
A transaction in a futures or option contract or contract for difference, where a deposit of cash or other acceptable security is required to secure the performance of the obligations under such a contract.

Mark-to-Market
The daily or intra-daily valuation of an open position with regard to the current market price.

Off-Exchange Transactions
A transaction in an investment which is not traded on an Exchange.

Offer Price
The price at which a party is prepared to sell.

On-Exchange Transactions
A transaction effected on an Exchange, under the rules and regulations of that Exchange.

Option Contract
A contract which confers the owner the right, but not the obligation, to buy (Call Option) or sell (Put Option) a specified quantity of an asset at a given price (Strike Price) at any time on or before a pre-determined date (American Style) or on a pre-determined date (European Style).

Option Premium or Value
The value of price of an option.

Put Option
The right, but not the obligation, to sell the underlying instrument or commodity at a pre-determined price and date in the future.

Spot Price
The price or exchange rate of a currency for settlement two days ahead.

Spread
In its simplest interpretation, the difference between the Bid and Offer Prices or, in the case of interest rates, the difference usually between the cost of funds and the earned rate.

Strike Price
The price at which an option contract may be exercised.

Time Value
The time value of an option is the difference between the total value of an option and its intrinsic value. Time value arises because of the prospect that the share price may move even more favourably in the future. The time value of an option is largely determined by the period to expiry and the expected volatility of the share price.

Time Decay
As an option approaches its expiry date, the time value of an option will gradually decrease.

Variation Margin
Variation margin is the cash to be deposited when an adverse price movement in the underlying asset has caused the contract market value to fall. Conversely, when the price movement is positive the resulting variation margin is, in most cases, available to be withdrawn. Variation margin is normally derived from the close of business, mark-to-market revaluation but in times of extreme market volatility it may be calculated on an intraday basis.