The term “handle” refers to the whole number part of a price quote and is commonly used in the context of futures and equities markets. For example, if a stock is trading at $256.75, the handle would be $256.
Definition and Explanation
What Constitutes the Handle?
A handle is formed by the integer component of a price, excluding any decimals. In financial markets, this term is crucial for traders as it quickly conveys the primary price level of a security without concern for smaller, potentially more volatile price changes.
Why Use a Handle?
Handles simplify communication among traders by allowing them to reference a price level clearly and succinctly. This practice can be particularly useful in fast-paced trading environments, where precision and speed are paramount.
Examples of Handles
To better illustrate the concept, let’s consider two distinct scenarios:
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Stock Market Example:
- If Google stock is trading at $1,482.34, the handle is $1,482.
- If Apple stock is trading at $212.56, the handle is $212.
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Futures Market Example:
- If a Gold futures contract is trading at $1,750.50, the handle is $1,750.
- If a Crude Oil futures contract is trading at $45.20, the handle is $45.
Historical Context and Importance
Origin of the Term ‘Handle’
The term “handle” has a rich history rooted in the practice of simplifying price references on trading floors. Historically, floor traders needed a quick way to communicate prices, especially amidst noise and time constraints. The whole number (handle) was ideal for this purpose.
Related Terms
- Tick: A tick is the smallest unit of movement in the price of a security. It varies based on the security and the market in which it is traded.
- Basis Point: A basis point is one-hundredth of a percentage point (0.01%). It is used to express changes in interest rates, bond yields, and other financial percentages.
FAQs
Q1: Is the handle used in all financial markets?
- Yes, handles are widely used in most financial markets, including stocks, futures, and forex, to convey price levels quickly.
Q2: Do handles change with shifts in price?
- Yes, handles will change as the price of the security changes, reflecting the current whole number part of the quote.
References
- Investopedia. (2021). Handle Definition.
Summary
In summary, the handle is a crucial concept in financial markets, simplifying the communication of price levels. By understanding and using handles, traders and investors can more efficiently interpret and discuss price quotes, improving the overall clarity and speed of their market interactions.
