121 terms

Dictionary: L

Label: What a supervised model is trained to predict: the future return, its sign, or a category such as target-hit versus stop-hit.
Labour force participation rate: The share of the working-age population either employed or actively looking for work; it determines how much labour supply exists and how to read a falling unemployment rate.
Ladder spread: A vertical spread with an extra short option one strike further out, adding premium and an uncapped tail on that side.
Lagging indicator: A series that confirms a turn only after it has happened, such as the unemployment rate, core inflation, unit labour costs and corporate default rates.
Lambda: The percentage change in an option's price for a 1% change in the underlying; the honest measure of how much leverage a contract provides.
Large trader reporting: The daily filing regime under which clearing firms report the positions of any account above a per-product reporting threshold.
Large-cap: Companies worth roughly $10 billion or more; deep liquidity, wide analyst coverage, and generally the least volatile tier of stocks.
Largest loss: The single worst trade in a record, which tells you more about a strategy's real risk than its average loss does.
Largest win: The best single trade in a record, which should be checked for how much of the total profit it represents.
Last look: A liquidity provider's right to re-check the market after receiving an order and reject it if the price has moved against them in the interim.
Last notice day: The final day a delivery notice can be issued for a futures contract month, closing the delivery window.
Last traded price: The price of the most recent trade on a specific venue. What the ticker shows, and not usually what your liquidation is measured against.
Last trading day: The final session in which a futures contract can be bought or sold; after it, only settlement or delivery remains.
Latency: The time between an event happening and your system acting on it, made up of data delivery, decision time, network transit and exchange gateway processing.
Latency arbitrage: Profiting from a broker's price feed updating fractionally later than the real market, by trading against the stale quote.
Law of large numbers: Sample averages converge to the true mean as the number of observations grows. It says nothing about how fast, which is the part traders need.
Law of one price: The principle that an identical good should cost the same everywhere once converted into a common currency, because any gap invites arbitrage until it closes.
Layer 1: A base blockchain that settles its own transactions and runs its own consensus, such as Bitcoin or Ethereum.
Layer 2: A network that processes transactions off the base chain but posts data or proofs back to it for security.
Layering: An illegal manipulation in which a trader stacks non-bona-fide orders at several price levels on one side of the book to create a false impression of pressure.
Leading indicator: A data series that tends to turn before the wider economy, such as building permits, jobless claims, new orders, the yield curve slope and credit spreads.
Lean hog futures (HE): CME contracts on 40,000 pounds of lean hog carcass value, cash settled against a USDA index of pork carcass prices.
LEAPS: Long-term equity anticipation securities: options with more than a year to expiration, used as a lower-cost stand-in for stock.
Left tail hedge: Deep out-of-the-money put protection held continuously against a portfolio, designed to pay in the rare scenario where everything else falls together.
Leg risk: The exposure created between the first and last fill of a multi-leg trade, when the position is temporarily something other than what you intended.
Legging: Entering or exiting the parts of a multi-leg position one at a time, hoping for a better net price and accepting the risk of not completing it.
Legging risk: The risk that price moves between filling one part of a multi-leg trade and the next, leaving you with worse economics or naked exposure.
Lender of last resort: The central bank's role of lending freely against good collateral at a penalty rate to solvent institutions facing a run, so that a liquidity problem does not become a solvency one.
Lending protocol: A contract where depositors supply assets to earn interest and borrowers take overcollateralised loans, with rates set algorithmically by utilisation.
Level 1 data: The simplest market data tier: best bid, best offer, their sizes, and the last trade. Enough to trade with, and blind to everything behind the top of the book.
Level 2: A data feed showing multiple price levels and the market participants quoting at each one, not just the best bid and ask.
Level 3 data: Order-by-order market data showing every individual order's arrival, modification and cancellation, rather than aggregated size per price level.
Leverage: Controlling a position larger than your capital, which multiplies both gains and losses.
Leverage ratio: Total position value divided by account equity, stating how many dollars of exposure each dollar of capital controls.
Leveraged buyout: An acquisition funded mostly with borrowed money secured against the target itself, usually taking the company private.
Leveraged ETF: A fund using derivatives to deliver a multiple of an index's return for a single day, rebalanced every night, so its long-run return is not that multiple.
Leveraged loan: A senior secured floating-rate loan to a sub-investment-grade company, syndicated to institutional investors and priced at a spread over SOFR.
Liabilities: Obligations the company owes to someone else: supplier bills, wages, borrowings, lease obligations, taxes and revenue collected but not yet earned.
Liability-driven investing: Building a portfolio to match a known future stream of payments rather than to maximise return, with interest-rate sensitivity matched to the liabilities.
LIBOR: The retired benchmark based on banks' estimates of their unsecured borrowing costs, replaced by SOFR and other transaction-based rates.
Light sweet crude: The crude oil quality deliverable against the NYMEX WTI contract: low density (light) and low sulphur (sweet), which refiners prefer because it yields more gasoline and diesel.
Limit order: An order to buy at or below, or sell at or above, a price you set; it may never fill.
Limit up limit down: The US mechanism that bands a stock's price around a rolling average and pauses trading for five minutes if it cannot return inside the band.
Limit-if-touched (LIT): A resting order that submits a limit order once a trigger price trades, giving you both a trigger and a price ceiling or floor.
Limit-on-close (LOC): A closing-auction order that only participates if the official closing price is at or better than your limit.
Limit-on-open (LOO): An opening-auction order with a price cap: it participates in the cross only if the auction price is at or better than your limit.
Limited partnership: The standard legal form for private funds: a general partner runs the fund with unlimited liability, while limited partners contribute capital and are liable only for what they commit.
Line chart: A chart that connects only the closing price of each period, hiding the highs, lows and opens.
Linear scale: A price axis where equal distances represent equal dollar moves regardless of the starting price.
Liquid staking: Staking through a protocol that issues a tradable receipt token, so the staked capital keeps earning while the receipt can be sold or used as collateral.
Liquidation: The forced closing of a leveraged position by the exchange when losses consume the posted margin.
Liquidation bonus: The discount a liquidator receives on seized collateral, typically 5% to 15%, paid by the borrower as the penalty for letting a position go under.
Liquidation cascade: A self-reinforcing chain where forced closings push price further, triggering more forced closings, producing far larger moves than the original news.
Liquidation-only: An account or contract state in which new positions cannot be opened and only closing orders are accepted.
Liquidity: How easily you can buy or sell a meaningful size without moving the price against yourself.
Liquidity aggregation: Combining price streams from several providers into a single book, so the broker shows the best bid and best offer available across all of them.
Liquidity grab: A quick move beyond an obvious level that triggers resting stops, followed by a reversal back through it.
Liquidity lock: Depositing LP tokens in a contract that prevents withdrawal until a set date, so the pool's founding liquidity cannot simply be removed.
Liquidity mining: Paying depositors in a protocol's own token to supply liquidity, buying depth and users with issuance rather than with revenue.
Liquidity pool: A smart contract holding reserves of two or more tokens that traders swap against, funded by depositors who earn a share of trading fees.
Liquidity pool: An area of the chart where many resting orders are likely to sit, usually just beyond an obvious high, low or round number.
Liquidity provider (LP): Any firm that streams continuous two-way prices a broker can trade on, including banks and non-bank electronic market makers.
Liquidity risk: The risk that you cannot exit at a reasonable price because there are no buyers at the size you need, when you need them.
Liquidity sweep: A quick push beyond an obvious high or low that triggers resting stop orders, followed by a reversal back into the prior range.
Liquidity taker: The side of a trade that removes resting size from the book by crossing the spread, paying for immediacy in both spread and fees.
Liquidity-seeking algorithm: An algorithm that hunts for size across lit and dark venues, adapting its aggression to what it finds rather than following a clock.
Listing effect: The price and liquidity impact of a token being added to a major exchange, often a sharp move on announcement followed by give-back.
Listing standards: The quantitative and governance tests an exchange requires a company to keep meeting: minimum price, market value, shareholder equity, public float, and filing currency.
Lit market: A venue whose resting orders are publicly displayed before they trade, as opposed to dark venues where interest is hidden until execution.
Live cattle futures (LE): CME contracts on 40,000 pounds of finished steers, quoted in cents per hundredweight, physically delivered from approved feedlots.
Live versus backtest gap: The routine shortfall between simulated and realised performance, whose causes are mostly known and mostly avoidable in the simulation.
Live vs backtest divergence: The gap between what a strategy earned in simulation and what it earns with real money. Some gap is normal; the size and the cause are what matter.
Live-funded account: A prop firm account whose orders reach a real venue, so fills, slippage and fees are genuine and the firm carries actual market risk on the trader's positions.
LME nickel squeeze (March 2022): A short squeeze that doubled nickel prices to over $100,000 a tonne in hours, after which the London Metal Exchange cancelled eight hours of trades — an unprecedented intervention.
Loan loss provision: The charge a bank takes against profit for loans it expects will not be repaid, building a reserve on the balance sheet against the loan book.
Locals: Independent floor traders who bought and sold for their own account, providing the pit's liquidity.
Locate requirement: The rule that a broker must have reasonable grounds to believe shares can be delivered before accepting a short sale, satisfied by finding an actual borrow.
Lock limit: A market pinned at its daily price limit with unfilled orders queued on one side and no trading through the limit price.
Lock-up period: A contractual restriction, usually 180 days after an IPO, preventing insiders and pre-IPO holders from selling their shares.
Lock-up period: A contractual period during which an investor cannot redeem, giving the manager stable capital to run less liquid positions.
Locked market: A condition where the best bid on one venue equals the best offer on another, so the national spread is zero without any trade occurring.
Locus of control: Whether you experience outcomes as driven by your own actions or by outside forces - and the trap of being wrong in either direction.
Log return: The natural logarithm of the price ratio, which adds across time instead of multiplying and makes gains and losses symmetric.
Log returns: The natural log of the price ratio, ln(P1/P0). They add across time, which makes multi-period maths clean, and they are close to simple returns for small moves.
Logarithmic scale: A vertical price axis where equal distances represent equal percentage moves, so a rise from 10 to 20 looks the same as 100 to 200.
Lognormal assumption: The pricing model's premise that returns are normally distributed and prices lognormally, which bounds prices at zero but understates real-world tails.
London fix (LBMA price): The twice-daily auction that sets a benchmark spot price for gold, and a daily one for silver, used to value contracts, reserves and ETF holdings worldwide.
London fix (WM/Refinitiv 4pm): A benchmark exchange rate calculated from trading around 4pm London time, used by funds and index providers to value and rebalance portfolios.
London session: The European trading hours, roughly 3 a.m. to 12 p.m. Eastern, which carry the largest share of forex volume.
Long butterfly: Three strikes, four contracts: long one wing, short two at the body, long the other wing. A cheap, defined-risk bet on the underlying finishing near the body.
Long hedge: Buying futures to protect against a rise in the price of something you will need to purchase later.
Long premium: Any position that is net long extrinsic value, so time decay hurts and rising implied volatility helps.
Long volatility trade: A position that profits from movement and from rising implied volatility — long options, long volatility futures, or convex spread structures.
Long-legged doji: A doji with long shadows on both sides, showing a wide, violent range that resolved exactly where it began.
Long-short equity: A strategy holding long positions in preferred stocks and short positions in others, so part of the return comes from the spread rather than from market direction.
Long-term capital gain: A gain on an asset held more than one year, taxed in the United States at preferential rates well below ordinary income rates, with an additional net investment income tax at higher incomes.
Long-term capital gains: The lower tax rate applied to gains on assets held beyond a threshold period, one year in the United States, versus ordinary rates on shorter holdings.
Long-term debt: Borrowings that mature more than a year out: term loans, bonds and private placements, carried at amortised cost rather than market value.
Long/short ratio: The proportion of long exposure to short exposure in a portfolio, a quick statement of directional tilt.
Long/short ratio: The balance of long versus short positioning on a venue, reported by account count or by position size, used as a crowding gauge.
Look-ahead bias: Using information in a backtest that would not have been available at the moment the decision is made, which silently inflates results.
Lookback period: The number of bars an indicator uses in its calculation, the single choice that affects its behaviour more than anything else.
Loonie: The Canadian dollar, named after the loon bird on the one-dollar coin; the pair USD/CAD is often called the loonie too.
Looping: Depositing collateral, borrowing against it, buying more of the same asset and repeating, to build leverage without a derivatives venue.
Loss aversion: The tendency to feel losses roughly twice as strongly as equivalent gains, which pushes traders to hold losers and cut winners.
Loss given default (LGD): The fraction of exposure lost when a borrower defaults, equal to one minus the recovery rate; combined with default probability it gives expected credit loss.
Loss of control: Repeatedly trading more, longer, or larger than you intended, and being unable to stop when you decide to - the central marker of a behavioural problem.
Loss percentage disclosure: The regulated statement, required on marketing by brokers in several jurisdictions, giving the percentage of that firm's retail client accounts that lost money over the past twelve months.
Loss porn: Posting large losses for entertainment, common in speculative forums, where it functions as both honesty and a way to make ruin look funny.
Loss rate: The proportion of trades that lose, which governs how long your losing streaks will be and therefore how much drawdown to expect.
Lot: A standard quantity unit for a trade, such as 100 shares of stock or 100,000 units of a currency.
Lot size calculation: Working backwards from the money you are willing to lose and the distance to your stop to the trade size, rather than picking a size and hoping.
Lottos: Cheap, far out-of-the-money, short-dated options bought for a large payoff at very low probability.
Low volatility factor: The observation that low-volatility and low-beta stocks have delivered similar or better risk-adjusted returns than high-volatility stocks, contradicting a simple risk-return relationship.
Low volume node: A price on a volume profile where very little trading occurred, marking a level the market rejected and tends to travel through quickly.
Lower shadow: The thin line below a candle body, marking how far price fell before buyers lifted it back up.
Lower timeframe: A shorter chart interval used to refine entries and see the order of events inside a larger bar.
LP token: A token representing a proportional claim on a liquidity pool, issued when you deposit and burned when you withdraw your share plus accrued fees.
Luck versus skill: The problem of telling a real edge from a fortunate sequence, which cannot be settled by results alone over short horizons.
Luck versus skill: Separating what your process earned from what the market handed you, which short-run results cannot do on their own.
Lump sum investing: Deploying an entire available amount at once rather than spreading it over time; historically the higher-expected-return choice, at the cost of worse timing risk.

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