AIMA

The Alternative Investment Management Association

Alternative Investment Management Association Representing the global hedge fund industry

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.
 
margin lending

A loan facility secured against a portfolio of securities, where the loan may be up to 75% of the value of the portfolio. Also see Cost of borrowing.

margin loan

A line of credit from a broker that provides an investor/manager with capital for the purpose of purchasing securities. The loan may finance up to 75% of the securities purchase and is secured by stock owned by the client. Hedge funds can usually leverage themselves far more than that through other means, such as joint back offices. Like any form of leverage, a margin loan allows investors to boost their buying power, while at the same time increasing their risk. The value of the securities an investor holds in a margin account must be maintained above a minimum level in order for the loan to remain in good standing. If the value of the collateral falls below the threshold, the investor will get a margin call.

margin price

The prevailing price at which to buy or sell a security on the open market.

mark-to-market

The practice of valuing positions at readily available close out prices, sourced independently, e.g. by reference to exchange prices, screen prices or quotes from independent market makers.

market maker

A professional securities dealer or person with trading privileges on an exchange who has an obligation to buy when there is an excess of sell orders and to sell when there is an excess of buy orders. By maintaining an offering price sufficiently higher than their buying price, these firms are compensated for the risk involved in allowing their inventory of securities to act as a buffer against temporary order imbalances. In the futures industry, this term is sometimes loosely used to refer to a floor trader or local who, in speculating for his own account, provides a market for commercial users of the market. Occasionally a futures exchange will compensate a person with exchange trading privileges to take on the obligations of a market maker to enhance liquidity in a newly listed or lightly traded futures contract. See Specialist system.

market neutral

Denotes an approach to investment where the emphasis is on the value of securities relative to each other and the use of arbitrage techniques, rather than market direction forecasting. By emphasizing the relative value of securities and the exploitation of pricing anomalies between related securities, practitioners of market neutral approaches aim to generate profits regardless of the overall direction of broad market prices. Market neutrality is generally achieved by offsetting long and short positions or maintaining balanced exposure to the market. The term market neutral can be applied with some justification to the majority of alternative investment styles because of their ability to capitalize on both upward or downward price moves or to profit in a wide range of market environments.

market order

An order to buy or sell a futures contract at whatever price is obtainable at the time it is entered in the ring, pit, or other trading platform. See At-the-Market Limit Order.

market risk

See Systemic risk.

market timer/timing

A hedge-fund manager that makes portfolio asset allocations based on his anticipation of movements in the broad market.

market-on-close

An order to buy or sell at the end of the trading session at a price within the closing range of prices.

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