Table of Contents
What Is an Axe?
Let me tell you directly: an axe, or 'axe to grind,' is what we call a trader's interest in buying or selling a security they already hold, and they usually keep this private to stop others from taking advantage.
If you're a trader with a long position but worried about short-term issues, your axe might lean toward short-term put options. Similarly, if you're exposed to rising interest rates, you could have an axe to hedge that risk.
Traders like you and me often hide this information because if the market knows your motivations, participants can exploit it by giving bad prices or avoiding trades that would help you.
Key Takeaways
- An axe (or 'axe to grind') refers to a desired position that a trader wishes to take.
- If a trader has an axe to grind, keeping that information private can prevent others from taking advantage of it.
- Axe has historically been used to reference bond markets, but now includes all types of securities.
- In conversation, the term is often used to speculate about a trader’s plans with regard to a security held.
Understanding an Axe
You should know that the term 'axe' comes from the phrase 'axe to grind,' which means having an ulterior motive or selfish aim. Historically, it meant holding a grievance and seeking revenge, possibly from sharpening an axe to harm someone.
As a trader, I use 'axe' to describe someone's interest in buying or selling a security already in their inventory, or hedging it. It started with bonds, but now covers all securities. In talks, we often use it to guess another trader's plans for what they hold.
Don't mix it up with 'ax,' which is a market maker key to a security's price action.
How an Axe is Used in Practice
Understand that 'axe' gets used in various ways, so context matters in any conversation.
Suppose you have a large position in a security and you're looking to sell by shopping for quotes. If the quoting trader doesn't know you have an axe—meaning plans to sell—they're at a disadvantage. They might ask, 'Do they have an axe on this security?' to mean 'Do they plan to sell?'
You might also use 'axe' for related securities. For example, if you hold a long position but are nervous short-term, your axe could be toward put options.
We keep axes secret because others can exploit that knowledge to their gain and your loss. That said, if you have good rapport with another trader, you might ask directly about their axe, hoping it's opposite yours so you can trade mutually beneficially.
Other articles for you
Perceived value is how customers assess a product or service's worth based on its ability to meet their needs compared to alternatives.
A loan shark is an illegal lender who charges exorbitant interest rates and uses threats to collect debts, differing from legal but high-rate options like payday lenders.
An agent is a legally authorized person who acts on behalf of another, called the principal, in various transactions and decisions.
This text explains what a taxpayer is, including individuals and businesses, their tax obligations, filing statuses, thresholds, rates, and related forms.
Alpha measures an investment's ability to generate excess returns over a benchmark, adjusted for risk.
Menu costs are the expenses businesses face when changing prices, leading to price stickiness in the economy.
A tracking stock is a specialized equity issued by a parent company to track the performance of a specific division, trading separately from the parent's stock.
A trade line is a record of credit activity on a borrower's credit report used to calculate credit scores.
A social enterprise is a business that prioritizes social and environmental goals over maximizing shareholder profits, using revenue to fund positive impacts.
A balance sheet is a financial statement that snapshots a company's assets, liabilities, and shareholders' equity at a specific time.