AIMA

The Alternative Investment Management Association

Alternative Investment Management Association

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Glossary

AIMA's Glossary has been developed for all those with an interest in the alternative investment industry - from the beginner to the advanced practitioner.

You will find a considerable overlap of content with the traditional fund management industry - the instruments used, the service providers employed, etc.  However, the hedge fund industry is individual in the way in which it uses these resources.

For reasons of law and accuracy, this is not a wiki.  It is a work-in-progress, however, and we invite you to submit new items for inclusion below (including the proposed definition).

  • We express our sincere thanks to Stanley Marchon, Vincent Kuhn, Nicolas Watin-Augouard, Stephen Foster and Sunil Gopalan for the creation of this resource. 
  • Special thanks are also extended to Anne Taulbut and Jennifer Nye of Katten Muchin Rosenman Cornish for the extensive legal review.
   
back months

In futures and options trading, the months with the expiration dates furthest away in time. Futures delivery months other than the spot or front month (also called deferred months).

back office

A department of an investment firm (fund manager, broker-dealer, bank) not directly involved in sales or trading, but which processes all activities related to the settlement of financial transactions, the compilation and verification of reports and settlement of trades, as well as performing record keeping and regulatory compliance functions.

back-test

Attempts to determine the effectiveness of a technical and/or systematic trading model by applying the system to past periods and comparing those results with the actual performance of other strategies. It is not a measure of projecting future performance. See comparative back test.

backwardation

A Market situation in which futures prices are progressively lower in the distant delivery months than in the nearest delivery month. For instance, if the gold quotation for January is $360.00 per ounce and that for June is $355.00 per ounce, the backwardation for five months against January is $5.00 per ounce. (Backwardation is the opposite of contango).

bankruptcy/distressed

Long undervalued securities of companies that are usually in financial distress.

basis point

A measurement of price fluctuation in an instrument, equal to 1/100 of one per cent.

basis swap

With a basis swap, each party pays a floating rate of interest, and each is tied to different floating rates. The basis swap sets a spread between two indices for the life of the transaction. Basis swaps are used by banks to hedge the mismatch between the index of their assets and the index of their liabilities, and by swap dealers to create structures for companies to hedge indices other than Libor.

bear

An investor who believes securities prices will fall: the opposite to a bull.

bear market

A market in which share prices are falling and the volume and value of securities being traded is low.

bear market rally

A temporary rise in prices during a bear market. See Correction. Also a temporary decrease during a bull market. A market correction is a sometimes defined as a drop of at least 10%, but not more than 20% (25% on intraday trading).

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