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Hedging
Taking an offsetting position to reduce an exposure. Every hedge costs something, and the cost is frequently less visible than the risk it removes.
Portfolio Heat
The total amount at risk across every open position at once. Individually sensible positions can add to an exposure nobody chose.
Tail Risk
The rare, large losses that dominate long-run outcomes. Standard risk measures are built on a distribution that understates exactly these events.
Correlation Between Strategies
Running several methods at once diversifies only to the extent they fail at different times. Most methods within one style fail together.
FOMO and Chasing
Entering because a move is already happening rather than because a plan said to. It is the most expensive common error because it systematically buys the worst prices.
Loss Aversion and the Disposition Effect
Losses are felt more intensely than equivalent gains. The documented consequence is selling winners early and holding losers too long, which is the opposite of what the arithmetic wants.
Confirmation Bias
Seeking and believing evidence that supports a position already held. In markets it is amplified by the sheer volume of evidence available on every side.
Overtrading
Taking more positions than a method supports. Costs scale linearly with frequency while edge does not, so activity beyond a point is a direct transfer of capital to costs.
Keeping a Journal
Memory reconstructs past decisions to fit what happened afterwards. A contemporaneous record is the only defence, and it is the only route to knowing what a method actually does.
Process and Outcome
In any domain with substantial randomness, a good decision can produce a bad result and vice versa. Judging decisions by their outcomes teaches the wrong lesson at exactly the wrong moment.
Anchoring
An arbitrary number influences a subsequent judgement. In markets the anchor is usually a price, and the most common one is what you paid.
Recency
Recent events are weighted more heavily than their frequency warrants. It is why risk feels lowest after a long calm period and highest after a decline.
Herding
Following what others are doing. It is frequently rational for the individual and produces outcomes that are collectively poor.
Overconfidence
Estimates that are too precise and abilities that are rated too highly. It shows up in trading as too much activity and too little diversification.
Regret Aversion
Avoiding decisions that could produce regret, which biases toward inaction and toward doing what everyone else did.
Account Types
The account a security is held in changes what can be done with it, how it is taxed and who has a claim on it. It is a structural decision, not an administrative one.
Cash and Margin Accounts
A margin account borrows against the securities in it. That changes settlement, enables short selling, and introduces a lender with the right to close positions.
Margin Mechanics and Margin Calls
Two separate requirements govern a margined position: what is needed to open it and what is needed to keep it. A call arrives when equity falls below the second.
Buying Power
The number a platform shows as available is a calculation with several inputs, and it is not the same as the money in the account.
Order Routing and Payment for Order Flow
An order does not go to an exchange because you sent it there. It goes wherever your broker routes it, and the routing decision has a disclosed economics behind it.
SIPC, FDIC and What Is Actually Protected
Account protection covers the failure of the firm holding your assets. It has never covered the possibility that an investment loses money.
Checking a Broker Before Sending Money
Registration, disciplinary history and custody arrangements are all public and take a few minutes to check. Almost every large fraud fails at the first of them.
Reading a Brokerage Statement
A statement reconciles a period. The sections that get skipped are the ones that reveal costs, corporate actions and errors.
How Corporate Actions Reach Your Account
Splits, spin-offs, mergers and dividends are processed by the broker on dates set by the company. What arrives, and when, follows rules that are not always obvious.
Transferring an Account
Moving positions between firms is a standardised process that preserves holdings and cost basis. Selling and rebuying is a different thing entirely.
Fractional Shares
A fraction of a share is a position held by the broker on your behalf. It behaves like a share in most respects and differs in several that matter.
Dividend Reinvestment
Automatic reinvestment buys more of the same security with each distribution. It compounds, and it makes every distribution a purchase with tax and record-keeping consequences.
Securities Lending
Shares held in a margin account can be lent to short sellers. The holder usually keeps the economics and loses some rights while the loan is outstanding.
Trade Confirmations
A confirmation is the legal record of a transaction and it carries disclosures that appear nowhere else, including how your broker acted and what it was paid.
Corporate Bonds
A loan to a company, with terms set out in an indenture. The yield compensates for the time and for the possibility that the company does not pay.
Credit Ratings
An opinion on the likelihood of repayment, expressed on a letter scale, produced by firms paid by the issuers they rate.
Credit Spreads
The extra yield over a government bond of the same maturity. It compensates for default risk and for liquidity, and it is one of the better-watched indicators of financial conditions.
Embedded Options
A call gives the issuer the right to repay early; a put gives the holder the right to demand repayment. Each is an option, and someone pays for it.
Municipal Bonds
Debt issued by states, cities and their agencies. The interest is generally exempt from federal tax, which changes how the yield should be compared to anything else.
Inflation-Linked Bonds
Bonds whose principal adjusts with a price index. They pay a real yield, and the difference against a nominal bond is the market's inflation expectation.
Ladders, Barbells and Bullets
Three ways of arranging maturities across a bond portfolio, each with a different response to a change in the shape of the yield curve.
Bond Funds and Individual Bonds
An individual bond matures; a fund does not. That single difference produces most of the distinction between them, and it is smaller than it is usually made to sound.
Money Market Funds
Funds holding very short-term debt, designed to maintain a stable value. They are not deposits, they are not insured, and the distinction has mattered twice.
Defaults and Recovery
A default is a failure to meet the terms of the indenture, which is not always a failure to pay. What holders recover depends on their position in the capital structure.
What an Option Price Is Made Of
A premium splits into intrinsic value, which is arithmetic, and extrinsic value, which is entirely a function of time and expected movement.
The Greeks
Sensitivities of an option's price to each of its inputs. They are the vocabulary for describing what a position is actually exposed to.
Implied Volatility and the Expected Move
Option prices translate into a market expectation of how far a security will move. It is useful information even to someone who never trades an option.
Covered Calls
Selling a call against shares already held. The premium is received in exchange for capping the position's upside, which is a trade rather than a free income stream.
Protective Puts
Buying a put against shares held, which caps the loss below the strike. The protection is real and it is paid for, repeatedly.
Vertical Spreads
Buying one option and selling another of the same type and expiry at a different strike. Both the cost and the maximum outcome are capped.
Calendar Spreads
Selling a near-dated option and buying a longer-dated one at the same strike. The position is a bet on time and on volatility rather than on direction.
Assignment and Exercise
Exercise is the holder's action; assignment is what happens to a seller. Both convert an option into a position in the underlying, sometimes unexpectedly.
Long-Dated Options
Options with expiries measured in years. Time decay is slower, the premium is larger, and the exposure to volatility and rates is correspondingly greater.