Glossary
The terms behind the trade.
Plain definitions of the terms behind cross-venue funding trades and investment-company discounts: funding rates, basis, delta-neutral positions, liquidation, NAV discount and more.
Funding and perpetuals
- Funding rate
- The funding rate is a periodic payment between the holders of long and short positions in a perpetual future.
- Annualised funding (APR)
- Annualised funding expresses a funding rate as a yearly percentage: the rate per interval times the number of intervals in a year.
- Perpetual futures
- A perpetual future, or perp, is a futures contract with no expiry date.
- Funding-rate arbitrage
- Funding-rate arbitrage, or funding carry, collects the difference in funding between two positions that offset each other's price exposure.
- Funding spread
- The funding spread is the difference between two venues' annualised funding rates for the same coin.
- Basis
- Basis is the price difference between two instruments on the same asset: a perpetual and spot, a future and spot, or the same perpetual on two venues.
Execution and risk
- Delta-neutral
- A delta-neutral, or market-neutral, position is one whose value barely changes when the price of the underlying asset moves a little, because long and short exposure offset each other.
- Bid-ask spread and slippage
- The bid-ask spread is the gap between the best price a buyer offers and the best price a seller asks.
- Days to cover costs
- Days to cover costs is how many days of funding at current rates it takes to pay once for entering and leaving a position: the round-trip costs divided by one day's funding.
- Open interest
- Open interest is the total size of positions still open in a contract, usually quoted in US dollars.
- Liquidation and maintenance margin
- A position is liquidated when its collateral falls below the maintenance margin the venue requires.
- Legging risk
- Legging risk is the exposure between filling one leg of a paired trade and filling the other.
Investment companies
- NAV discount
- The NAV discount (substansrabatt in Swedish) is how far an investment company's share price sits below its net asset value per share: the value of its holdings minus net debt, divided by the number of shares.
- Implied value of unlisted holdings
- The implied value of unlisted holdings is what the share price says the market pays for everything that is not a listed stake: the share price minus the listed holdings at market value, plus net debt, per share.
- Replicating hedge basket
- A replicating hedge basket is a set of short positions in an investment company's listed holdings, sized in proportion to each holding's value per share.