Glossary of Terms
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Account Balance The amount of money in an account at the start of a business day, including all deposits, withdrawals and/or other cash and cash equivalents (= credits minus debits). If a trader has decided to close an open position, the account balance will be changed in accordance to his/her profit or loss amount.
Accrued Interest The interest accumulated on a security from premiums and discounts that relate directly to deposit swap (interest arbitrage) deals over the period of each deal.
Active Market A market in which a lot of buying and selling is going on.
Aftermarket Trading of a company’s stock after the market has closed.
Aftermarket Report An Aftermarket report is the initial report released by a company after it has begun trading on the public stock exchange. Typically, before a company begins trading on the stock exchange, an investment bank evaluates the company’s worth, and determines how to break down that value in shares that will be sold to the public. After an initial sale of shares to large investors, known as the primary market. Once the primary market sales have been made, the company is able to be traded on a major stock exchange, such as the New York Stock Exchange (NYSE) or NASDAQ. This happens when some of the initial investors decide to sell some (or all) of their stock shares, and any investor of any size can purchase them. Once the offerings appear on the secondary market, the company releases an Aftermarket report, providing the name of the company, its ticker symbol, the offer date, and offer and closing prices. Often, Aftermarket reports will provide additional information, including financial data and ratios and a description of the company.
All Time High (ATH) The all-time high is the highest price any given asset has ever reached on the open market. An asset reaching a new ATH can provide both opportunities and pitfalls for traders. If the asset is reaching a new ATH on a regular basis, traders can recognize the upward trend, and invest accordingly. However, a strong technical and fundamental analysis is also necessary in order to determine when the asset price will hit its resistance and begin to drop again. An all-time high should not, in and of itself be used to develop a trading strategy, but it can – and should be – one of several tools taken into account.
Annual Percentage Yield (APY) The annual rate of return on an investment. For example, a $10,000 investment at 5% per year earns $500 a year and has an APR of 5%. Also referred to as the annual percentage rate or simply APR.
Arbitrage Affecting sales and purchases simultaneously in the same or related securities in order to take advantage of price differentials between markets.
Asian Trading Session During the summer, starts at 00:00 GMT and lasts to 9:00 GMT and during the winter starts at 23:00 GMT and lasts to 08:00 GMT. Also known as the Tokyo trading session.
Ask In the over-the-counter market, the term “ask” refers to the lowest price at which a broker is willing to sell a security (e.g. currency, stock, index or commodity) at any given time. The ask price, also known as the “offer” price, will almost always be higher than the “bid” price (= the highest price a broker is willing to pay to buy a security at any given time). Brokerage firms typically make money on the difference between the bid price and the ask price. This difference is called the “ask-bid spread.”
AUD The official code for the Australian dollar.Aussie A nickname for the Australian dollar.
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Bar Chart A type of chart, widely used by traders and financial professionals, which is represented by horizontal rectangular bars with lengths proportional to the magnitudes of what they represent. The top of the bar is the highest point the price reached during a defined period and the bottom of the bar is the lowest. A dash on the left-hand side of the bar denotes the opening price and a dash on the right-hand side the closing price for that period.
Barnie A nickname for the US dollar-Russian Ruble (USD/RUB) pair.
Base and Quote Currencies In currency pairs, the first currency is the “base” currency (numerator) and the second currency is the “quote” currency (denominator). The value of the base currency is always one. Therefore, the quoted currency expresses the amount of the second currency compared to one base currency. In the British pound sterling/United States dollar currency pair (EUR/USD), for example, the value of the dollar is expressed in terms of one pound.
Bear Market A market condition in which the prices of securities are falling 20% or more. It is generally accompanied with widespread pessimism that, in turn, sustains the flow of negative sentiments. Its opposite is a bullish market, in which the sentiment towards prices is positive.
Bear/Bearish A trader or a Market who believes that the price of a particular security will fall. The opposite of bull/bullish.
Benchmark A standard or average used for comparison or to indicate an overall trend of a certain stock, bond, commodity or other security.
Betty A nickname for the Euro-Russian rubble (EUR/RUB) pair.
Bid In the over-the-counter market, the term “bid” refers to the highest price at which a market maker or broker is willing to pay in order to buy a security (e.g. currency, stock, index or commodity) at any given time. The bid price will almost always be lower than the “ask” price (= the lowest price a market maker or broker is willing to sell a security at any given time). Market makers and brokerage firms make money on the difference between the bid price and the ask price. This difference is called the “bid ask spread”.
Bitcoin Bitcoin is the world’s largest cryptocurrency and digital payment system. It operates using blockchain technology, which is a public ledger recording all transactions. While Bitcoin is completely unregulated, which might make some investors think twice, it has also proven to be extremely secure, as no hackers have succeeded in compromising the blockchain technology. BTC (BTC/USD) The currency code for Bitcoin.
BME An abbreviation for Bolsas y Mercados Españoles, the Spanish company that runs the four major stock exchanges in Spain.
BOC The central Bank of Canada.
BOE The central Bank of England.
BOJ The central Bank of Japan (also known as Nippon Ginko).
Bond A legal contract in which a borrower (bond issuer) such as a government, credit institution or company issues a certificate by which it promises to pay a lender (bondholder) a specific rate of interest for a fixed duration and then redeem the contract at its principal value once it reaches maturity.
Brent Crude Oil is crude oil that is drilled in one of the four oil fields in the North Sea, between England, Germany and Scandinavia.
Broker An individual agent or party who arranges transactions between buyers and sellers for predetermined fees or commission rates.
Bull Market also known as Ascending Market is a market condition in which the prices of securities are rising, the general public’s views on the market are positive. Its opposite is a bearish market, in which the sentiment towards prices is negative. Bull/Bullish A trader who believes that the price of a particular security will rise. The opposite of bear/bearish.
Buy Taking a long position on a tradable security such as a currency pair, stock, index or commodity. Opposite of “sell” (or short position).
Buy Limit Order When a trader sees a financial instrument that he wishes to purchase, but only at a price lower than where it currently stands, he may place a buy limit order, which would instruct his broker to automatically open the position if and when the price reaches what the trader is willing to pay for it. In essence, it is the trader’s way of instructing his broker to open a position at a better rate than the current market price.
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Cable A slang word for the British pound sterling/United States dollar currency pair (GBP/USD). It is also used simply to refer to the GBP.
CAD The official code for the Canadian dollar. Also known as the “Loonie”, or the “Funds”.
Candlestick Chart One of the more effective charts for tracking what the price of a financial instrument has been doing, and to indicate what it is likely to do in the foreseeable future is the candlestick chart. Each candlestick is a rectangular block that represents a particular time period of trading for the asset. Day traders generally use charts in which the candlesticks represent 1- or 5-minutes, while long-term traders are more likely to measure with candlesticks that represent daily, weekly, or even monthly periods. Analysts and traders are able to gather all of the raw data they need about how an asset price behaved in a given time period. If the candlestick is green or white, the asset price rose during the time period, with the bottom of the colored rectangle representing the opening price, and the top representing the closing price. A red or black candlestick means that the asset price fell, with the top representing the opening price and the closing price at the bottom of the rectangle. A long rectangle indicates that there was a great deal of price movement on the asset, while a smaller, shorter candle indicates that traders were not particularly active on the asset during the time frame in question. At the top and bottom of the rectangle are straight lines, known as wicks, or shadows. The upper wick represents the highest point the price reached during the trading period, and the bottom wick shows the lowest that it reached. The length of each wick, combined with the size of the rectangle, provides insight as to how the trading went during the session. For example, a long upper wick would show that buyers controlled trading for much of the session, driving the price up, before giving in to the sellers who were able to bring the price down by closing time.
Traders and analysts use the candlestick chart to recognize movements and trends trading in a stock price, and, together with other technical tools, attempt to discern how the price will move in the coming sessions, and to predict if and when it will reverse its direction. Accurate predictions help traders to decide when the best time is to buy or sell their shares for maximum profit, or when to best cut their losses.
Cap-Weighted Index A stock index in which each stock is weighted according to its market capitalization. As a result, companies with a larger market-cap have more influence on price movements than companies with a lower market-cap. NASDAQ-100, the UK’s FTSE 100, France’s CAC 40 and Spain’s IBEX 35 are examples of cap-weighted indices.
Cash and Carry Trade An arbitrage trading strategy in which a trader holds a “long” position in a security or commodity together with a “short” position in a future contract on the same security or commodity. In this case, the security is held up until the future’s delivery date, thus covering the short position through the previously-placed investment in the long position.
CBOE An abbreviation for Chicago Board Options Exchange, the largest market in the world for the trading of exchange-traded securities and options.
Central Bank (CB) A government or quasi-governmental institution that manages and controls a country’s (or group of countries’) monetary policy. Its responsibilities normally include issuing notes and coins, managing the country’s credit system and supervising its commercial banking system. Prominent central banks include the Federal Reserve Bank, the Bank of England (BOE), the European Central Bank (ECB), the Bank of Japan (BOJ), and the People’s Bank of China (PBC).
Centralised Market A national or local exchange in which securities and financial instruments are traded at fixed prices without the influence of any competing market. The quoted prices of the securities listed on the market represent the only price that is available for traders looking to buy or sell a certain security. Major centralised markets around the globe include stock markets such as the TSE, security and commodity markets such as the CME and the ASE. The foreign exchange market, in contrast, is a decentralised market since there is no single, physical place where investors can go to trade on currencies.
CFD A contract for difference, i.e. an open-ended contract with no fixed settlement date that can be closed out by the holder on demand for which the amount of the cash settlement represents the difference between the underlying asset’s price agreed at the outset of the contract and its market price at the date of the settlement of the contract.
CFD Rollover When traders hold CFD positions, whether long (buy) or short (sell), the brokerage has in place predetermined dates that the contracts are closed. Traders may, on these dates, close out their positions, buying or selling, as the case may be, and either pocket their earnings or incur their losses, depending on the price movement of their CFD. In the event that a trader does not specifically close his position, the brokerage will automatically rollover the position to the next trading period, charging or crediting the trader with the difference between the closing price on the old contract and the opening bid on the new one.
Champagne Stocks Champagne stocks are stocks whose value have risen very high, very quickly, very often unexpectedly so. Champagne stocks can come from any sector of any industry. A prime recent example would be the stock of American Airlines group, which dramatically increased between September 2013 and the end of 2014 by more than a staggering 233%. The term “champagne stock” derives from the idea that stockholders are so excited by huge earnings over a short period of time that they will open a bottle of champagne to celebrate. Also, the sudden rise of stock prices brings to mind the image of a champagne cork popping and shooting upwards. Champagne stocks can be extremely profitable for traders who get in on them early enough. The danger is that just as the value of a Champagne stock can rise so dramatically, the proverbial bubble could also burst, and the stock could just as quickly depreciate. Knowing exactly the optimal time to buy and to sell requires a keen understanding of market trends as well as excellent fundamental and technical analysis.
CHF The official currency code for the Swiss franc.
Chunnel A nickname for euro to British pound (EUR/GBP) currency pair.
Close a Position The process of closing an active trade by either selling a long position (also referred to as simply “buy”) or covering a short position (also referred to as simply “sell”).
Closing Price The Closing price, also known as the closing quote, is the price of an asset in the trading market at the end of the trading day. It is important to note that the closing price of one day is not necessarily the same as the opening price of the same asset on the following day. Fluctuations in the asset value can, and often do, continue even when the markets are closed while the asset is not being traded.
CME An abbreviation for Chicago Mercantile Exchange, one of the largest and most influential options and futures exchanges in the world.
CNY The official currency code for the Chinese yuan, when traded in Hong Kong (sign: ¥). Often interchangeable with RBN, “renminbi”, the People’s Republic of China) official form of currency.
Commodity Commodities are agricultural products or raw materials that can be bought, sold or traded. Commodities are broken down into four basic groups:
- Energy (such as gasoline, crude oil and natural gas)
- Agriculture (such as wheat, coffee, sugar, and corn)
- Livestock (such as pork bellies and cattle)
- Metals (such as gold, silver, and copper)
Commodity prices are heavily dependent on supply-and- demand, and as such are often greatly influenced by weather, natural disasters and geopolitical events. As a result, strong fundamental analysis is crucial to successful commodities trading
Traders can trade on the price of a commodity, most commonly as a futures contract. This is a contract in which a trader purchases shares of the commodity at a future time, but in which a certain price is guaranteed, in the event that external factors, such as weather-related disasters or geopolitical events, affect the price of the commodity.
Compounding Compounding is when an investment increases exponentially in value over time. The growth is exponential because both the principal investment and the interest continue to earn interest. For example, if a person invests $20,000 in a company, and earns 25% interest on that investment in the first year, at the end of the year, his investment will be worth $25,000. The following year, it is the full $25,000 that earns the same interest, bringing its value to $31,250 the following year. That means, with compounding, the net amount earned from interest every year is higher than the previous year. Compounding is a primary tool in money management. The longer you leave an investment without cashing it out, the more money you are able to earn from your initial investment. The biggest advantage of exponential earning rather than linear earning, is that if the earning was linear, the net increase would remain the same every period. That is to say, if a person earns $2,000 in interest per year, then that is the increase – no matter how much money is in the investment at the time. Compounding, on the other hand, ensures that the more an investment is worth every year, the higher the net increase will be. As a result, Investors are encouraged to leave both the principal and the interest earned in the investment, and watch it grow more quickly than if they kept only the principal.
Cross Currency Pairs Foreign currencies are always traded in pairs – the value of one currency compared to a counterpart. Cross currency pairs, also known as minor currency pairs, are pairs that do not include the U.S. dollar, but do include at least one of the world’s other three major currencies. That is to say that the Japanese yen, British pound or the euro are at least one, if not both of the currencies included in the pair. Cross currency pairs are not to be confused with the seven major currency pairs, all of which include the U. S. dollar against one of the six other most liquid currencies in the world.
Cryptocurrency Cryptocurrencies, also known as digital currencies or recently known as digital assets, are virtual currencies that many analysts and experts believe will eventually replace paper money. The cryptographic technology (hence the name cryptocurrencies) makes the currencies extremely hard to counterfeit, which makes the currencies very enticing. Because the digital currencies are decentralized, and not regulated by any government agencies anywhere in the world, they have an independence that many traders like. However, no regulation also makes transparency a potential issue for other traders.
Currency Pair The exchange of one currency unit against another currency unit. The currency that is quoted (=denominator) is referred to as the base currency and the currency used as reference is called the counter currency or quote currency (=numerator). The result of a currency pair is its exchange rate.
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Daily Change The daily change represents the fluctuation of any given security over the course of a trading session. It is measured very simply by comparing the price of the security at the end of a trading session to its closing price at the end of the previous session.
Day High The highest price at which a security or financial instrument has traded during the day.
Day Low The lowest price at which a security or financial instrument has traded during the day.
Demo account is just like a regular forex trading account in every way except for one – the trader does not invest, earn, or lose any real money. It provides traders with the opportunity to learn forex trading and develop effective trading strategies through experience, without the risk inherent in actual trading.
Derivatives are contracts whose values are based on underlying assets, and are determined by the rise and fall of that underlying asset. Prime examples of this include futures contracts and Contracts for Difference (CFDs). Derivative markets are markets on which these derivatives can be traded. Most derivatives are traded over-the- counter (OTC), and are not regulated by government authorities, which means they are far riskier than the derivatives that are traded on regulated exchanges.
Derivative Markets are markets for buying and selling derivative instruments. There are two major types of derivative markets: regulated futures and option markets and over-the-counter markets.
Deutsche Börse Group The Deutsche Börse Group owns and operates all seven stock exchanges in Germany, the largest of which is the Frankfurt Stock Exchange. Since 1997, the Frankfurt Stock Exchange has used a completely electronic trading platform, called Xetra, which was developed by the Deutsche Börse Group, and has since been adopted by several other European exchanges.
Deutsche Bundesbank The central Bank of the Federal Republic of Germany (equivalent to the Federal Reserve Bank), and the most important member of the European System of Central Banks (ESCB).
Devaluation An official change in the price of a security or financial instrument, especially in regards to a currency (where it means a decrease in the value of its exchange rate). The opposite of revaluation.
Dividends A dividend is a way of a company to distribute a percentage of its net earnings to its shareholders. The dividend amount is decided by the company’s board of directors, and can be issued as a cash payment, shares or other assets.Most commonly, the dividend is determined in terms of money per share, which means that each shareholder will get a dividend respectively to his holdings.
DKK The official currency code for Danish krone.
Downtrend A situation in which each successive peak or trough on a security’s price chart is lower than the ones preceding it. The opposite situation is an uptrend.
Downward Trend refers to events in which analysis of an underlying product indicates that it may decrease in price.
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Economic Calendar An economic calendar is a detailed list of economic events, including financial policy statements as well as regular weekly, monthly and quarterly economic reports and economic indicators that are expected to have an effect on trading markets. The events appear on the calendar in chronological order, and are all rated on a scale of 1-3 as to how large an impact the event is expected to have on the markets. Finally, when an economic report is scheduled, the calendar includes analysts’ predictions as to what the numbers of the report will be, and whether they will represent a rise or fall from the previous report. The economic calendar can help traders predict if the markets will be bullish or bearish, active or quiet, and by doing so, enable traders to develop strong strategies based on the scheduled events and the fundamental analysis made possible by the calendar.
Economic Indicator A government-issued statistic (such as a country’s Gross Domestic Product (GDP), Consumer Price Index (CPI), industrial production or unemployment rate), which allows analysis of the economy’s performance as a whole.
Equally Weighted Index An index calculated by averaging the percentage change of each of the listed stocks included in the group, regardless of their market cap or economic size (i.e. sales and earnings). In this sense, it is different from a cap-weighted index, in which stocks are weighted on a daily basis according to their total market value. Most of the widely used indices such as the S&P 500 offer equal weight versions in addition to their cap-weighted indices.
Equity The amount of money in an account that is available for trading. Equivalent to the trader’s ‘Open P&L’ + ‘Account Balance’.
Equity Market Equities are the value of assets that traders have at their disposal. An equity market, also known as a stock market, is the place where investors meet to buy and sell stocks. Equity markets can be privately held stocks dealt via dealers on over-the-counter (OTC) markets, or can be publicly traded stocks, on regulated exchanges such as NASDAQ, New York Stock Exchange, and the Dow Jones in the United States, or stock exchanges in Europe, Asia, and the Middle East, such as the London Stock Exchange, IBEX (Spain), Hang Seng Hong Kong), and Tadawul (Saudi Arabia). Most developed countries in the world have stock exchanges. Stock exchanges are heavily regulated, as opposed to the unregulated OTC markets.
EUR The official currency code for the official currency of the Eurozone.
European Central Bank (ECB) The central bank for Europe’s single currency, the euro. Its main task is to maintain the euro’s purchasing power and ensure the stability of the Eurozone.
European Trading Session Starts at 7:00 GMT and lasts to 16:00-17:00 GMT. Also known as the London trading session for Forex.
Execution The carrying out of an order to purchase or sell a security or financial instrument.
Exotic Currency Pairs (Exotics) Most forex trading involves the major currencies (USD vs. one of the six other major currencies – EUR, GBP, JPY, CHF, CAD, AUD, NZD) or the minor currencies (which do not involve the USD, but do include either the EUR, GBP or JPY). When the USD, or one of the other major currencies is traded against a currency with a far lower trading volume, this is referred to as an exotic trading pair.
Expiration Time The time at which an option or future contract lapses.
Expiry Date The date at which a security or financial instrument expires or becomes due for settlement. Also called “maturity date”.
Exponential Moving Average (EMA) A type of moving average that gives more weight to recent price changes, meaning it reacts much quicker than a simple moving average.
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Federal Reserve Bank The central banking system for the United States. Considered the largest monetary authority in the world.
Fiat Money Fiat money is the term given to most currencies that are established as legal tender by governments, without being rooted in a physical commodity, such as gold or silver.
Financial Conduct Authority (FCA) is an independent body responsible for regulating more than 56,000 financial brokers and markets in the United Kingdom.
Financial Instrument In its most basic form, a financial instrument is any asset that can be bought, sold, or traded. Financial instruments can be currency, shares in a company or bonds. Financial instruments can also be derivatives, which are contracts whose values are based on underlying assets, and are determined by the rise and fall of that underlying asset.
Financial Report A summary of all transactions and positions (both long and short) between a broker and a client. Also known as an “Account statement”.
Financial Strength With regard to online trading, financial strength reflects a trader’s ability to open new trades from within a trading platform. It is calculated according to his/her free margin (i.e., the difference between equity and used margin).
Flat A term with three different meanings: with regard to market movements, a flat market is neither rising nor falling; when referring to a specific asset, a flat asset is a financial instrument that has neither gained nor lost interest; with regard to trading, a trader is said to have a flat trading position if he is neither long nor short.
Foreign Exchange Foreign exchange, otherwise known as forex, or FX, refers to the exchange – or purchase – of one currency for another. Rates of exchange are constantly fluctuating, sometimes greatly, other times only slightly. Exchange rates are always presented in pairs, known as currency pairs. The first currency in the pair is known as the base currency and is always equal to 1. The second currency is the quote currency, and is the equivalent of one unit of the base currency. For example, if the EUR/USD is trading at 1.1650, that means that one euro is the equivalent of 1.1650 U.S. dollars. If the rate of exchange goes up, that indicates that the euro has grown stronger against the dollar, because one euro will be able to buy more dollars than previously. If the rate drops, then the U.S. dollar has grown stronger against the euro. Three types of currency pairs are traded on forex markets:
- Majors pair the U.S. dollar with each of the six major currencies – the euro, Japanese yen, British pound, Swiss franc, Canadian dollar, Australian dollar, and New Zealand dollar.
- Minors/Cross currencies pair the euro, Japanese yen or British pound with other majors, except the U.S. dollar.
- Exotics pair one of the seven Majors with a currency not on that list, generally with a lower trading volume.
Foreign Exchange Market A global decentralized market for the trading of foreign currencies. In terms of trading volume, the FX market is the largest financial market in the world, with a daily turnover of more than 5 trillion dollars.
Forward A forward contract, colloquially known as a forward, is an agreement to buy or sell a commodity, security or financial instrument at a specified future date at a specified price. It is a completed contract and the commodity or financial asset will be delivered, unlike an option which offers a choice of whether or not to complete the trade. Unlike futures contracts forwards are not contracts with standard terms. They are tailor-made between the buyer and seller for each trade and are bought and sold over the counter (OTC) and not on an exchange.
Forward Contract A forward contract is an agreement between a buyer and seller to trade an asset, usually a currency, at a mutually agreed upon fixed price and set date. Unlike futures contracts, forward contracts are private arrangements between the buyer and seller, and, as such, they are not traded on the centralized exchange, but rather are considered part of the OTC market. This makes forward contracts a riskier venture than futures contracts. The primary factors in determining the price of a forward contract are the market value of the asset and the time at which point the contract will be fulfilled, which is influenced by the swap rates.
Free Margin Refers to the available margin a trader has in order to open a trading position in a security or financial instrument. Free margin is therefore equivalent to the trader’s ‘Equity’ – ‘Used Margin’. Free margin increases or decreases according to the trader’s total profits earned or losses realized.
Front Fee A front fee is the initial payment made by an investor when he purchases a compound option. Compound option is the term given to what is essentially an option on an option. That is to say, the trader may wish to buy or sell an option at a future date, and the front fee is what he must pay in order to have that opportunity. The four types of compound options are:
- Call on a call option
- Put on a put option
- Call on a put option
- Put on a call option
Futures Contract An agreement to purchase or sell a financial instrument or security (e.g. a commodity, stock, index), at a future date and at a fixed price. Futures contracts are traded on a futures exchange or futures market according to standardised terms (i.e. predetermined quantities for each specific type).
Futures Market A market for purchasing and selling futures contracts of a financial instrument or security at a future date and at a fixed price.
FWB An abbreviation for Frankfurt Stock Exchange (also referred to as Börse Frankfurt
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GBP The official currency code for the British pound sterling.
GDP An abbreviation for gross domestic profit, one of the primary indicators used to measure the health of a country’s economy.
Germany 40 The GER 40 (indicative of the DAX 40) is an index that tracks the 40 largest companies being traded on the Frankfurt Stock Exchange (FWB), as measured by market capitalization and order book volume.
Government Bond A debt security issued by a national government, generally with a promise to pay periodic interest payments at the security’s maturity or end date. In most cases, a government bond is issued in the country’s own currency. Also called “sovereign bond”.
Gross Earnings An individual person, business or company’s taxable income before deducting expenditures (credits and taxes).
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Hedge Hedging against investment risk means strategically using financial instruments or market strategies to offset the risk of any adverse price movements. Put another way, investors hedge one investment by making a trade in another.
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Illiquid securities and other financial instruments are considered illiquid if there are few traders buying and selling them. An illiquid market is one with few participants and a low-volume trading activity. The opposite of liquidity.
IMF An abbreviation for International Monetary Fund. The IMF promotes global monetary cooperation and provides policy advice, financing and technical assistance to help countries build and maintain macroeconomic stability. It consists of over 180 member countries.
Index A statistical measure of the change in value of an economy or a securities market. The US’s S&P500, the UK’s FTSE100 and Germany’s DAX30 are just a few examples of indices.
Initial Margin Requirement The percentage of the purchase price of securities that the trader can purchase for (either in cash or in marginable securities).
Interest The money periodically paid by a lender to a creditor in return for use of money lent or for postponing the payment of a debt. It is usually predetermined according to the size of the loan/debt, duration and interest rate.
Interest Rate Interest rates reflect the amount that a creditor charges for borrowing money, or other tradable assets. The size of an interest rate is generally expressed in terms of a percentage of the amount being borrowed, and the size of the interest rate may vary depending on how high- or low-risk the borrowing party is considered to be. Interest rates are most commonly given on an annual basis, known as the annual percentage rate. Interest rates take into account the projected inflation rate for the lending period.
Intraday Trading A trading activity in which traders frequently buy and sell securities, foreign currencies or derivatives throughout the day in the hope of making a substantial profit in a short period of time.
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Kiwi A common name for the New Zealand dollar.
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Last Dealing Day The last day (during the month) in which a trader can deal in a particular product. May differ from the contract’s expiry date.
Last Dealing Time The last time (during the day) in which a trader can deal in a particular product. May differ from the contract’s expiry date.
Leverage The use of borrowed capital for an investment in order to significantly increase the profits that can be made from it. For example, with a leverage ratio of 1:200, a trader can trade a notional amount 30 times greater than his/her available capital (i.e. $200 for each $1).
LSE An abbreviation for London Stock Exchange.
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Major Currency Pairs (Majors) Foreign currencies are always traded in pairs – the value of one currency compared to a counterpart. Major currency pairs match up the U.S. dollar with each of the other six major currencies – the euro, Japanese yen, British pound, Swiss franc, Canadian dollar, Australian dollar. And the New Zealand dollar.
Margin In financial markets, margin refers to the required collateral an investor must deposit to hold a trading position in a security or financial instrument.
Margin Call If a trader or investor has an account that has fallen below the brokerage’s minimum margin requirement, then the brokerage can place a margin call on the account, in which case the investor would have to either deposit additional funds into his account, or sell off some of the shares he is holding for which he took a loan in order to invest to begin with. Barring that, the brokerage has the authority to sell some of the investor’s shares, even without his permission, to make up the difference.
Market Capitalization Market capitalization is the monetary amount that a publicly traded company is worth, as determined by the value of the company’s outstanding shares. The market capitalization is calculated by the value of one company share times the number of outstanding shares (shares held by stockholders). For example, a company that has 3 million outstanding shares that are valued at $45 per share, will have a market capitalization of $105 million dollars.
Market Maker An investment company or broker who maintains firm bid and ask prices in a given security or financial instrument by continuously standing ready to buy or sell that same security at its publicly-quoted price
Market Order An order to buy or sell at the current market price.
Market Risk The possibility that the value of a security of a financial instrument will experience losses due to performance factors such as adverse price movements, national or global macroeconomic changes. Also called “systematic risk”.
MetaTrader 4 (MT4) is a popular forex trading platform used by many leading online brokers. The MT4 can be downloaded for free and provides an effective tool for trading forex, futures markets and CFDs online, both from a PC as well as from tablets and smartphones. The platform offers trading signals and expert analytics, which enable users to develop effective trading strategies. The platform can be accessed from anywhere that there is an internet connection.
Minor currency pairs (Minors) Foreign currencies are always traded in pairs – the value of one currency compared to a counterpart. Minor currency pairs, also known as cross currency pairs, are pairs that do not include the U.S. dollar, but do include at least one of the world’s other three major currencies. That is to say that the Japanese yen, British pound or the euro are at least one, if not both of the currencies included in the pair. Minor currency pairs are not to be confused with the seven major currency pairs, all of which include the U. S. dollar against one of the six other most liquid currencies in the world.
Moving average (MA) An indicator frequently used in technical analysis to identify and demonstrate the average value of a security or financial instrument’s price over a specific period of time. The MA is used to smooth out price data and to help confirm price trends and directions. Also referred to as a simple moving average or SMA. There are three main types of moving averages used in the field of forex trading: simple, weighted and exponential
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NASDAQ An abbreviation for National Association of Securities Dealers Automated Quotations. It is the second-largest stock market both in the US and worldwide.
Net Earnings An individual person, business or company’s taxable income after detecting expenditures (credits and taxes). The formula for calculating net earnings is: total revenue – total expenses = net earnings.
Net Position The difference between a trader’s long (buy) and short (sell) positions at any given time. For example, if he/she has 4 long positions and 2 short positions, his/her net position would be: 4 – 2 = 2.
Ninja A nickname for the US dollar-Japanese yen (USD/JPY) pair.
NOK The official currency code for the Norwegian krone.
North American Trading Session Starts at 12:00-13:00 GMT and lasts to 21:00-22:00 GMT. Also known as the New York trading session.
NYSE An abbreviation for New York Stock Exchange.
NZD The official currency code for the New Zealand dollar.
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OECD An abbreviation for Organization for Economic Co-operation and Development.
OPEC Basket A weighted average of oil prices collected from the Organization of Petroleum Exporting Countries (a group of 13 major oil producing countries). OPEC Basket’s average oil price is based on the production and exports of each country.
Open P&L (Profit & Loss) An Open P&L (Profit & Loss) is a financial statement that forex traders receive summarizing all open positions that he has in terms of profits earned and losses incurred.
Open Position Any trade that has been entered and has not yet been closed with an opposite trade. An open position can exist following a long position (also referred to as simply “buy”) or short position (also referred to as simply “sell”).
Open Price The Open price, also known as the Opening quote, or Opening price, is the price of an asset on the trading market at the outset of the trading day. It is important to note that the opening price of one day is not necessarily the same as the closing price of the same asset from the previous day. Fluctuations in the asset value can, and often do, continue even when the markets are closed and the asset is not being traded.
Open Trades Any and all open buy (long) and/or sell (short) positions in a trader’s online trading account.
OTC Market An OTC (over the counter) Market, is a decentralized market where assets, including some currencies, that are not traded on centralized stock markets can be traded. Because OTC markets are not centralized, and not regulated by any governmental authority, they will often be less transparent than centralized markets, and therefore riskier.
Outperform A situation in which a security or financial instrument is believed to be more profitable than the overall market. Also known as “market outperform”. Opposite of underperform.
Overnight Position A trade that remains open overnight from one business day to another.
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P&L Statement A financial statement that summarizes the trader’s total profits earned or losses realized from his/her current trading positions. Also known as a “statement of profit and loss”.
P/E Price/earnings ratio.
Peak The highest point (i.e. price, rate, value) of a specified security or financial instrument at a specified time.
Pending Order An order that has not yet been executed and therefore has not yet become an actual trade. It can, for example, be an order that a trader states his/her intention of ‘buying’ or ‘selling’ a financial instrument only when it reaches (touches) above or below a certain price level.
Penny Stocks Penny stocks are essentially stocks that trade for very small sums, generally defined by under $5.00, and by and large are traded over-the- counter (OTC). In the United Kingdom, a penny stock is defined as any stock with a share price below 1 GBP.
People’s Bank of China (PBC) The central bank for the People’s Republic of China, and the second largest national monetary authority after the Federal Reserve Bank of the United States.
Pip A numeral points to a security or financial instrument’s price which denotes the smallest amount by which it can change. In forex, most currencies have four decimal places, and a pip is therefore one unit of the fourth decimal point (i.e. 0.0001 of the currency’s value). In some currencies, such as the Japanese yen, a pip may be at the second decimal point – making it worth 0.01 of the currency.
Pip-Squeak Pop When a stock price shows a moderate, but not extreme increase, in a relatively short period of time, this is known as a Pip-Squeak pop. Not to be confused with a Champagne stock, which is a stock whose value has shown an extremely dramatic increase, a Pip-Squeak pop is generally considered to be an increase of 25-50% over a period of days or weeks.
Pivot Point Pivot points are technical analysis indicators that reflect upward and downward trends, as well as predicting when a price can be expected to change direction. Pivot points are determined by accounting the averages of an asset’s high, low, opening and closing prices, as well as support and resistance levels for the previous trading period.
Portfolio A collection of investments held by an individual trader or financial entity.
Position The net balance of trades held by a trader in his/her account at any given time. There are three types of positions a trader can hold: flat (i.e., no security bought or sold), long (i.e., more security bought then sold) or short (more security sold then bought).
Position Size The amount of a security or financial instrument a trader buys (a long position) or sells (a short position).
Premium Buy/Sell Rate With regard to currency and foreign exchange markets, a premium rate is the interest rate a broker or brokerage firm quotes to a certain security or financial instrument in order to compensate for the difference in national interest rates.
Previous Close Rate A security or financial instrument’s closing rate on the previous day of trading.
Profit A financial gain, especially the difference between the amount earned and the amount spent in security or financial instrument trading.
Pullback A reduction in price or demand of a certain security or financial instrument (from its peak). Also referred to as a price reversal.
Put/Call Ratio The number of puts (options to sell traded assets) in relation to the number of calls (options to buy traded assets). Acts as an important indicator for determining the general market trend.
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Quantitative Denoting or relating to something measured by quantifiable data (i.e. objective properties such as amount, percentage or ratio).
Quarterly Occurring every three months.
Quote/Price Quotation The quote, also referred to as the price quotation, is the indicative cost upon which the buyer and seller agree for a financial instrument. When trading forex and CFDs, there are two quotes – Buy (Ask) and Sell (Bid).
The Bid/Sell quote is the highest price that the broker is willing to sell an asset or security to the trader (or the trader to the broker), and the Buy/Ask quote is the lowest price that the trader is willing to buy from the broker (or the broker from the trader). The Buy/Ask quote is higher than the Bid/Sell quote, and the difference between them is known as the spread.
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Rally A sustained increase in the price of a security or financial instrument. Typically refers to a recovery from a period of decline.
Range The difference between the highest and lowest price of a security or financial instrument during a given trading session.
Rate of Exchange The value of one currency for the purpose of conversion to another currency unit. For example, the exchange rate of the euro (EUR) against the US dollar (USD).
RBA Reserve Bank of Australia, the central bank of Australia.
RBNZ Reserve Bank of New Zealand, the central bank of New Zealand.
Realised Gain The amount of money gained liquidating a position.
Realised Loss The amount of money lost from liquidating a position.
Resistance Resistance or resistance level is a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at that specific price level. This means people may sell at this level and stop any further upward trend developments.
Resistance Level A price “ceiling” above which it is supposedly difficult for a market, security or financial instrument to rise. The opposite of support level.
Revaluation An official change in the price of a security or financial instrument, especially in regards to a currency (where it means an increase in the value of its exchange rate). The opposite of devaluation.
Rollover Date A particular predetermined date at which a trading contract is rolled-over, hence automatically renewed by the broker or brokerage firm.
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Segregated Account A separately-managed account used by a brokerage firm to keep clients’ money separate from its own funds.
SEK The official currency code for Swedish krona.
Sell Taking a short position on a tradable security, such as a currency pair, stock, index or commodity. Opposite of “buy” (or long position).
SGD The official currency code for Singapore dollar.
Short Covering The buying back of a security or financial instrument that was earlier sold (in a short position) so as to close out (exit) that position.
Short Squeeze A short squeeze happens when traders who took a short (sell) position, are squeezed into buying back assets at a higher rate than they had hoped to, thus creating an even sharper spike in the price of that asset.
Essentially a short squeeze occurs when traders have anticipated that an asset price would drop, so they sell the asset at a higher rate and with the expectation of buying it back at the lower rate for a healthy profit. However, if the market proves to be surprisingly bullish and the asset price continues to rise, some traders may panic and close their position, even at the higher price, in order to limit their losses. In doing so, they cause the demand of that asset to be even greater than it already was, thus driving the price even higher.
Slippage Slippage refers to the change in an asset price between the time a trader places an order (either long or short) with his broker, and the time that the position is opened. Slippage occurs with financial instruments that are extremely volatile, as well as when extreme movement has taken place on a usually illiquid asset. In general, slippage is viewed unfavorably by traders, but there are times when it can work in the trader’s favor.
SNB Swiss National Bank, the central bank of Switzerland.
Spot A trade which requires immediate settlement (in most cases: two business days after its execution).
Spread The difference between a bid (the price a broker or dealer is willing to buy a security or financial instrument) and ask (the price a broker or dealer is willing to sell a security or financial instrument).
SSL Secure Sockets Layer. Provides and maintains a consistent connection between browsers and websites, allowing secure transmission of users’ personal data.
Sterling A nickname for the British Pound (GBP).
Stop Loss (S/L) A market order which automatically closes the position of an unprofitable security or financial instrument when it reaches a specified price, for the purpose of limiting loss and preventing slippage. A S/L can be used in both long (buy) and short (sell) positions. Also known as a “stop order” or “stop-market order”.
Stop Out A margin level (depicted in percent) at which a trading platform will automatically close open trading positions (starting from the least profitable position and until the margin level margin level requirement is met) in order to prevent further potential losses.
Support Support or support level refers to the price level below which, historically, an underlying instrument has had difficulty falling. It is the level at which buyers tend to enter a Buy position and therefore stop the downward trend.
If the price of a stock or other financial asset falls toward the support level, it is a test for the stock; the support is either confirmed or eradicated. Confirmation occurs as buyers move into the stock, causing it to rise. If the price moves past the support level, it means the support level failed, and the market is looking for a new level.
Support Level A price “floor” below which it is believed a market, security or financial instrument will not reach. The opposite of resistance level.
Swap Swap is the overnight charge/credit amount for an open position. The amount reflects the interest rate difference between the central banks (based on market rates and spreads) of the two assets involved. Swaps are credited or debited once for each day of the week, with the exception of Wednesday, on which they are credited or debited 3 times their regular amount. The swap charge is accrued daily at 20:59 GMT.
Swissy A “Swissy” has two meanings in the world of forex. The general term is slang for the Swiss franc (CHF). More commonly, the term “Swissy” refers to the currency pair USD/CHF, which measures the strength of the U.S. dollar to the Swiss franc. It is considered one of the major currency pairs.
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Take Profit (T/P) A market order which automatically closes the position of a profitable security or financial instrument when it reaches a predetermined price level that is suitable for the trader. A T/P can be used in both long (buy) and short (sell) positions.
Tenor The time left from the value date of a loan, contract or option until its expiry date (expressed in years, months or days).
Three Session System The foreign exchange market is divided into three trading sessions: the Asian (or Tokyo), European (or London) and North American (or New York). Also referred to simply as The Forex Three.
Tick The smallest possible change in the price of a security or financial instrument (either up or down).
Trading Amount Specified blocks or portions of trades. The value of a trade corresponds to an integral number of trading units.
Trading Sentiment The general and prevailing attitude of traders towards a certain market, security or financial instrument, depicted in percentages of currently open buy and sell orders.
Trailing is the term used to describe a recently completed time frame, in reference to a set of financial data being gathered. For example, when reading the financial report of a company, the data could be “trailing 12 months,” meaning it covers the previous year, or “trailing 3 months,” meaning it covers the previous quarter. Trailing is also used as a risk management technique, a “trailing stop” order, in which a trader instructs his broker to close out his position when it hits a certain point above/below the stock price’s peak. It is referred to as “trailing,” because that peak moves as the share price does, so the stop order refers to the latest time frame before the share price reverses direction.
Trailing Stop A trailing stop is an excellent method with which forex and CFD traders can either minimize their potential losses on a position, or secure potential earnings. It is a standing order that the trader gives his broker to close out his position when it hits a certain point above/below the stock price’s peak. While a trailing stop can be in a dollar amount, it is more commonly a percentage above/below the high/low of a stock price.
Trend The general direction of a market or of the price of a security or financial instrument. The terms “bull” and “bear” are often used to describe the two main types of trends – upward and downward, respectively.
TRY The official currency code for Turkish lira.
TSE An abbreviation for Tokyo Stock Exchange.
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Underperform A situation in which a security or financial instrument is believed to be less profitable than the overall market. Also known as “market underperformer”. Opposite of outperform.
Uptrend A situation in which each successive peak or trough on a security’s price chart is higher than the ones preceding it. The opposite situation is a downtrend.
Upward Trend refers to events in which analysis of an underlying product indicates that it may increase in price.
US Treasury Securities Interest-bearing debt-instruments issued by the United States Department of the Treasury to finance the federal debt of the United States. In CFD trading, the three most actively-traded treasury securities are: the US 5 year treasury note (often symbolised as US5Y), the US 10 year treasury note (often symbolised as US10Y) and the US 30 year treasury bond (often symbolized as US30Y).
USD The official currency code for the United States dollar.
USDX Symbol for US dollar currency index
UTC Coordinated universal time. Often interchangeable with Greenwich mean time (GMT)
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Volatility A tendency in a market, security or financial instrument to fluctuate sharply on a regular basis.
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Weighted Moving Average (WMA) A type of moving average that gives even more weight to recent price changes than an exponential moving average (EMA), meaning it reacts very quickly to potential market trends.
WTI Crude Oil WTI (West Texas Intermediate) crude is crude oil that is drilled from wells in the United States. It is one of the two major benchmark oils in the world, the other being Brent crude. Crude oil is defined as natural, unrefined petroleum that can be refined into thousands of products, known as petrochemicals. The most common uses of refined crude oil include gasoline, diesel fuel, kerosene, and heating oil. Because crude oil is a nonrenewable source, and poses many dangers to the environment and world ecosystem, in recent years, much progress has been made in finding alternative energy sources – including solar and wind – which are safer and will never run out. As a result, it is difficult to know how much longer crude oil will be considered a critical commodity. However, for now, it certainly is, and many countries are major.
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XAG The official standard code for 1 troy ounce of silver (considered as a currency)
XAU The official standard code for one troy ounce of gold (considered as a currency).
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Yard Currency market slang for one billion units of a currency. Derives from the French milliard.
Yield The amount of money that a trader earns on an asset or security, as measured by a percentage rate of annual dividends, is the yield. As a general rule, the lower the risk, the lower the yield potential, and stocks are seen as higher risk investments (with correspondingly higher yield potential) than bonds. In most cases, a potential yield does not guarantee a return on the investment, but rather reflects the prediction of the future performance of the asset. Forex and CFD traders are able to use potential yields as one of the indicators regarding the projected performance of an asset. Depending on the asset, some traders reinvest the annual yield into additional assets, while keeping the principal in the original, thus enabling themselves to earn additional yields rather than use the dividends at that time.