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Trading Glossary

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Magic of diversification: The effective reductions or risk (variance) of a portfolio, achieved without reduction to expected returns through the combination of assets with low or negative correlations (covariances). Related: Markowitz diversification

Maintenance margin requirement: A sum, usually smaller than but part of the original margin, which must be maintained on deposit at all times. If a customer's equity in any futures position drops to, or under, the maintenance margin level, the broker must issue a margin call for the amount at money required to restore the customer's equity in the account to the original margin level. Related: Margin, Margin call

Management fee: An investment advisory fee charged by the financial advisor to a fund based on the fund's average assets, but sometimes determined on a sliding scale that declines as the dollar amount of the fund increases.

Margin: Also called security deposit. An amount of funds that must be deposited with the broker for each contract as a good faith deposit on the contract. Related: Security deposit (initial).

Margin call: A demand for additional funds because of adverse price movement. Maintenance margin requirement, Security deposit maintenance.

Market conversion price: Also called conversion parity price, the price that an investor effectively pays for common stock by purchasing a convertible security and then exercising the conversion option. This price is equal to the market price of the convertible security divided by the conversion ratio.

Market-if-Touched (MIT): A price order, below market if a buy or above market if a sell, that automatically becomes a market order if the specified price is reached. Related: Market order

Market impact costs: Also called price impacts costs, the result of a bid/ask spread and a dealer's price concession.

Market model: This relationship is sometimes called the single-index model. The market model says that the return on a security depends on the return on the market portfolio and the extent of the security's responsiveness as measured, by beta (i). In addition, the return will also depend on conditions that are unique to the firm. Graphically, the market model can be depicted as a line fitted to a plot of asset returns against returns on the market portfolio.

Market order: An order for immediate execution given to a broker to buy or sell at the best obtainable price.

Marketplace price efficiency: The degree to which the prices of assets reflect the available marketplace information. Marketplace price efficiency is sometimes estimated as the difficulty faced by active management of earning a greater return than passive management would, after adjusting for the risk associated with a strategy and the transactions costs associated with implementing a strategy.

Market portfolio: A portfolio consisting of all assets available to investors, with each asset held in proportion to its market value relative to the total market value of all assets.

Market sectors: The classification of bonds by issuer characteristics, such as state government, corporate, or utility.

Market segmentation theory: A biased expectations theory that asserts that the shape of the yield curve is determined by the supply of and demand for securities within each maturity sector.

Market timer: A money manager who assumes he or she can forecast when the stock market will go up and down.

Market timing costs: Costs that arise from price movement of the stock during the time of the transaction which is attributed to other activity in the stock.

Markowitz diversification: A strategy that seeks to combine assets a portfolio with returns that are less than perfectly positively correlated, in an effort to lower portfolio risk (variance) without sacrificing return. Related: Naive diversification

Markowitz efficient frontier: The graphical depiction of the Markowitz efficient set of portfolios representing the boundary of the set of feasible portfolios that have the maximum return for a given level of risk. Any portfolios above the frontier cannot be achieved. Any below the frontier are dominated by Markowitz efficient portfolios.

Markowitz efficient portfolio: Also called a mean-variance efficient portfolio, a portfolio that has the highest expected return at a given level or risk.

Markowitz efficient set of portfolios: The collection of all efficient portfolios, graphically referred to as the Markowitz efficient frontier.

Mark-to-Market: The daily adjustment of an account to reflect profits and losses.

Matching concept: The accounting principle that requires the recognition of all costs that are associated with the generation of the revenue reported in the income statement.

Maturity date: For a bond, the date on which the principal is required to be repaid. In an interest rate swap, the date that the swap stops accruing interest.

Maturity phase: A phase of company development in which earnings continue to grow at the rate of the general economy. Related: Three-phase DDM

Maturity spread: The spread between any two maturity sectors of the bond market.

Maximum price fluctuation: The maximum amount the contract price can change, up or down, during one trading session, as fixed by exchange rules in the contract specification. Related: Limit price

Medium-term note: A corporate debt instrument that is continuously offered to investors over a period of time by an agent of the issuer. Investors can select from the following maturity bands: 9 months to 1 year, more than 1 year to 18 months, more than 18 months to 2 years, etc., up to 30 years.

Minimum price fluctuation: Smallest increment of price movement possible in trading a given contract. Also called point or tick. Related: Point, Tick minimum variance zero-beta portfolio. The zero-beta portfolio with the least risk.

Modified duration: The ratio of Macaulay duration to (1 + y), where y = the bond yield. Modified duration is inversely related to the approximate percentage change in price for a given change in yield.

Money center banks: Banks that raise most of their funds from the domestic and international money markets, relying less on depositors for funds.

Money market: The market for trading short-term debt instruments (those that mature in less than one year). Related: Capital market

Money market demand account: An account that pays interest based on short-term interest rates.

Mortgage bond: A bond in which the issuer has granted the bondholders a lien against the pledged assets. Collateral trust bonds.

Mortgage pass-through security: Also called a passthrough, a security created when one or more mortgage holders form a collection (pool) of mortgages and sell shares or participation certificates in the pool.

Most distant futures contract: When several futures contracts are considered, the contract settling last. Related: Nearby futures contract

Multiperiod immunization: A portfolio strategy in which a portfolio is created that will be capable of satisfying more than one predetermined future liability regardless if interest rates change.

Multirule system: A technical trading strategy that combines mechanical rules, such as the CRISMA (cumulative volume, relative strength, moving average) Trading System of Pruitt and White.

Mutual offset: A system, such as the arrangement between the CME and SIMEX, which allows trading positions established on one exchange to be offset or transferred on another exchange.