Trading Glossary

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ADI

Abbreviation for Average Directional Index. It is a technical indicator that is used to gauge the strength or weakness of a trend in the financial markets.


Altcoin

The term altcoin originated when there was a much larger gap between bitcoin and the other cryptocurrencies in terms of adoption, market cap and trust. At the time, cryptocurrencies other than bitcoin were referred to as altcoins (or alternative coins). The term has stuck among cryptocurrency traders and is still used to refer to lower cap cryptocurrencies.


Anonymous Trading

Bids and offers that are present on the financial markets without disclosing the identity of the market participants.


Appreciation

A condition whereby the value of a financial instrument increases in response to the demand in the market.


Arbitrage

The concurrent purchasing and selling of a financial asset at two separate prices in two separate markets, yielding profits with minimal risks.


Ask Rate

Also referred to as offer. It is the lowest price at which a seller agrees to sell a financial asset.


Asset

The underlying instrument essential for determining a contract. It can be a precious metal, stock, currency pair, or bond.


Asset Allocation

A strategy that segregates investment portfolio over various asset classes with the intention of maximizing returns and also minimizing risks.


At the Money

When a trade breaks even – the trader neither profits or loses.


Authorised Dealer

A financial entity that has been given the certification to engage in foreign currency transactions.


Away from the Market

A situation in which the bid on a limit order is lower than the present market price or the offer price is more than the present market price for a financial instrument.


 

Base Currency

In terms of Forex Market trading, currencies are quoted in terms of a currency pair. The first currency in the pair is the base currency. The base currency is the currency against which exchange rates are generally quoted in a given country. Examples: USD/JPY, the US Dollar is the base currency; EUR/USD, the EURO is the base currency.


Bear

A trader who believes that the price of an asset will fall.


Bear Market

The financial market in which asset prices are falling.


Bid

The selling price of a particular financial asset.


Bid Figure

The first two or three digits of a foreign exchange price or rate. Examples: USD/JPY rate of 108.05/10 the big figure is 108. EUR/USD price of 1.1325/28 the big figure is .13


Blockchain

A blockchain is essentially a ledger of transactions. Unlike the ledgers kept by banks, they are public and distributed. They are the underlying technology of all cryptocurrencies and allow users to transact with each other without the need for trusted third parties (like banks, PayPal, Western Union etc).


Break Even

A term used to describe when there is no overall profit or loss experienced in a transaction.


Broker

An individual or an organization that works as the middleman between retail traders and large, established financial corporations.


Bull

A trader who believes that the price of an asset will rise.


Bull Market

The financial market in which asset prices are rising.


Buy Limit Order

An order to execute a transaction at a specified price (the limit) or lower.


 

Call Option

Also known as a “High option.” When a trader believes that an asset price will rise, he purchases a Call option.


CFD

Initials for Contract for Difference. It is basically an agreement between an investor and an investment institution. When the agreement expires, the parties exchange the difference between the opening and the closing prices of a particular financial asset through cash payments.


Commission

The fee paid to a brokerage firm for the service rendered in facilitating transactions.


Commodities

A general name that refers to basic physical items that are either grown or mined. Examples include coffee, precious metals, and oil.


Commodity Pairs

The three pairs of currencies in the foreign exchange market that are from countries with the most extensive quantities of commodities. These pairs are USD/CAD, AUD/USD, and NZD/USD.


Correlation

A statistical term that refers to a relationship between two seemingly independent things. In forex for example, one could argue that the Euro and the Sterling have a higher correlation than, for example, the Euro and the Brazilian Real.


Counter Currency

The second currency in a currency pair quotation. Also called quote currency. This reflects the value of one unit of the first currency in the pair (Base Currency).


Cross Currency Transaction

A type of transaction in which two or more currencies are traded at the same time.


Currency

A type of a financial asset that can be traded. Currencies are usually traded in pairs.


Currency Trading

The act of participating in the exchange of one currency for another currency.


 

Day Trading

The opening and closing of positions in the market on the same day without holding them overnight.


Dealing Desk

Used loosely as the place where dealers facilitate pricing and executing trades.


Deficit

A state in which liabilities exceeds the value of assets or losses exceeds profits.


Demo Trader

A trading account that enables a potential investor to review and get accustomed to the features of a trading platform using virtual money before engaging in actual trading.


Depreciation

A condition in which the value of a financial instrument decreases according to the demand in the market.


Depth of Market

The volume of buy and sell orders waiting to be transacted for a particular currency pair at a particular point in time.


Derivative

A financial contract whose worth relies upon or is derived from the performance of one or more underlying assets. Examples of underlying assets are stocks, bonds, or indices.


Dividend

A portion of a company’s profits paid to every shareholder.


 

Earnings per Share (EPS)

The fraction of an organization’s earnings apportioned to every outstanding share of common stock.


European Central Bank (ECB)

Established in Frankfurt in 1998, the ECB is responsible for all monetary policy decisions that influence the Euro currency. Based on the Maastricht Treaty, the ECB’s main responsibility is to ensure price stability. To this end, it is authorized to issue the Euro and is responsible for setting interest rates for those countries that have converted to the Euro.


Exotic

As opposed to the major currencies which are heavily traded, exotics are the less traded currencies.


Expert Advisor

A script that enables the analytical and trading processes in the trading platform to be carried out with little or no manual control.


Expiry Time

Also called expiration. It’s the time and date when a trade of a financial instrument expires.


 

Federal Reserve

Also commonly referred to as Fed. It is the central bank of the U.S. and the most influential financial institution in the globe. It oversees the monetary and financial system in the U.S.


Fiat

In the cryptocurrency space, the word fiat is used to describe traditional currencies as opposed to cryptocurrencies. The word means “it shall be” in Latin, referring to the fact that traditional currencies are simply declared to be legal tender by governments and are rarely backed by anything.


Fibonacci

A popular tool used by technical analysts to identify potential support and resistance levels based on some key numbers.


Fill

The process of executing an order on the trading platform.


Financial Instrument

Any type of a tradable asset. Examples include currencies, futures, options, and CFDs.


Flat

A situation whereby a trader does not have any running position in the market.


Forex

The short form of foreign exchange.


Fundamental Analysis

A type of market analysis that evaluates the related economic, financial and other qualitative and quantitative aspects that affect the performance of a particular financial instrument.


 

Gap

The disparity that exists on charts between the closing price of one trading session and the opening price of the subsequent trading session.


GDP

Abbreviation for Gross Domestic Product. It’s an indicator that measures the economic health of a country by determining the total worth of finished goods and services produced within its borders in a certain period of time.


GTC

Abbreviation for Good Till Cancelled. It is an order to purchase or sell a particular financial instrument at a set price but this order is only valid, said to be good, until the trader chooses to cancel it.


 

Hedging

A trading strategy that involves developing techniques of reducing or avoiding extensive losses when trading in the financial markets.


 

In the Money

A phrase used to illustrate when a trader makes profit.


Index

Represents a group of representative stocks within a stock exchange. Some of the most popular indices are the S&P 500, NASDAQ and the FTSE 100.


Inflation

The progressive rise in the price levels of goods and services in a country. When this happens, the purchasing power consequently decreases.


Initial Margin

The first deposit by a customer which determines a corresponding maximum trade size.


Initial Margin Requirement

When entering a position, the minimum amount that must be paid in cash.


Interbank Rate

The interest rate at which banks offer loans to one another so that they can manage liquidity and comply with the statutory conditions.


Interest Rate

The rate charged or paid for the use of money. An interest rate is expressed as an annual percentage of the principal. Interest rates often change as a result of inflation and Central Bank policies.


Introducing Broker

A person or firm that introduces customers to the broker often in return for commission or a portion of the spread.


 

Jobber

Also called a scalper. It is used to describe a trader who opens and closes short-term positions with the intention of making accumulated profits.


 

Lagging Indicators

Statistics that change after the economy has already started to change or has started to follow a particular direction or trend.


Leading Indicators

Statistics that are used to forecast the economic performance of a country since they change before (ahead of) the economy begins to follow a particular direction or trend.


Leverage

A financial tool that enables an investor to amplify his or her market exposure to a level that surpasses his or her initial capital.


Limit Order

An order to transact at a specified price or better.


Liquidity

The extent to which a financial instrument can be bought or sold with minimal or no effect to its price.


Long

The act of opening a buy position in the market.


Lot

Standardized method of trading in forex which requires a trade of 100,000 units of a particular currency.


 

Margin

It is basically the amount of deposit needed to ensure the running positions in the market are kept active.


Margin Account

An account provided by brokers that gives traders the opportunity to borrow funds to engage in securities transactions.


Margin Call

The assertion by a brokerage firm that a trader adds more money to make up for probable losses.


Market Maker

A brokerage company that is willing to buy and sell financial instruments to provide the needed liquidity to the markets.


Market Price

The present price at which a financial instrument is being traded in the market.


Market Risk

The likelihood that a trader will incur losses when the market conditions do not behave as initially expected.


Maximum Leverage

The biggest position that a margin deposit would cover. At a leverage of 50, one could enter a maximum leveraged position of $100,000 by depositing $2,000 worth of margin.


Metatrader 4

MetaTrader 4 is the cutting-edge online trading platform designed by MetaQuotes Software Corp. to provide brokerage services to customers in Forex, CFD and Futures markets.


Moving Average

Oscillators Method of smoothing out data on price charts so that trends are easier to spot. Average refers to a mathematical average or a statistical mean that is plotted over the original curve.


Moving Average Convergence Divergence (MACD)

A common and versatile technical indicator used for determining the trend or the momentum of the market.


 

Net Position

Currency positions that have not been offset with opposite positions.


News Trader

An investor who bases his/her decisions on the outcome of a news announcement and its impact on the market.


NFP – Non-Farm Payroll

economic indicator released monthly by the United States Department of Labor as part of a comprehensive report on the state labor market.


Noise

Frequent price fluctuations in the market that can make it difficult to make a trading decision.


 

Offer

Also known as the Ask Price, it is the price at which a seller is willing to sell.


One Cancels the Other Order (OCO)

Two orders that are submitted simultaneously. If either one is executed, the other one is automatically cancelled.


Open Order

An order that is running in the market until the trader chooses to close it.


Options

The right, but not the obligation, to buy (long call) or sell (long put) an underlying asset.


Order

An instruction to a brokerage firm to either buy or sell a financial instrument at the said price.


Out of the Money

A phrase that is used to illustrate a loss in a trade.


Overnight Position

A trading position that continues to run until the next trading day.


Overtrading

The dangerous habit of engaging in uncouth and excessive trading practices without carrying out appropriate due diligence.


 

Payout

The amount of money earned from a successful trade.


Pip

The smallest unit of measurement used in determining exchange rates between currencies.


Platform

The system or technology provided by brokers.


Price/Earnings Ratio (P/E)

A common valuation method used to gauge a company’s profitability by assessing the connection between its stock’s price and its earnings per share.


Principal Value

The initial capital that an individual invests for trading in the financial markets.


Private Key

Your private key is the digital signature used to unlock your cryptocurrency wallet and to sign transactions. It is essentially the password for your cryptocurrency holdings and as such should be kept secure and not shared with anyone.


Public Key

Your public key is basically your cryptocurrency address. This is the code that you give out when requesting a payment.


Pump and Dump

Pump and dump schemes are a type of market manipulation in which an asset is bought up in order to raise its price. The rise in value attracts other traders wanting to benefit from the move, who also buy in, raising the price even more. Eventually the perpetrators of the scheme dump their holdings at the new inflated price, and everyone follows suit, dropping its price back down to former levels or even lower. Latecomers to pump and dumps are the ones who lose the most as they tend to buy in at the most inflated prices.


Put Option

Also known as a “Low option.” When a trader believes that an asset price will fall, he purchases a Put option.


 

Quote

When both a bid and ask price are provided for a currency pair.


Quote Currency

The second currency in a currency pair quotation. Also called counter currency. This reflects the value of one unit of the first currency in the pair (Base Currency).


 

Rate

The price of one currency compared to another one. Also referred to as the exchange rate.


Rebate

Also called refund. It is the portion, or the entire invested amount given back to the investor at the end of a trade.


Relative Strength Index (RSI)

A technical oscillating indicator used to measure the overbought and oversold conditions of a financial instrument.


Resistance

Price level at which technical analysts note persistent selling of a currency.


Risk Capital

The amount of cash that an individual is ready to invest in the financial markets.


Risk Management

The use of strategies to control or reduce financial risk. An example is a stop-loss order that minimizes maximum loss.


Robot

Software designed with pre-set trading signals that gauge when to open or close a position in the market without human intervention.


Rollover

The act of prolonging the settlement date of a running position in the market.


 

Satoshi

A Satoshi is the smallest unit of a bitcoin, which is the eighth decimal place. It was named in honour of Satoshi Nakamoto, the inventor of bitcoin.


Scalping

A trading strategy that involves opening and closing short-term positions with the intention of making accumulated profits.


Security

A tradable financial instrument of any kind.


Sell Limit Order

An order to execute a transaction only at a specified price (the limit) or higher.


Sell Stop

A limit order with a limit placed below the current market price. Once triggered, the limit order becomes a market order.


Short

The act of opening a sell position in the market.


Short Position

In Forex Market, when a currency pair is sold, the position is said to be short. It is understood that the primary currency in the pair is ‘short’, and the secondary currency is ‘long’.


Slippage

The difference between the price displayed on a financial instrument and the actual price when a trade is entered on the trading platform.


Spot

Buying and selling forex with the current date’s price for valuation, but where settlement usually takes place in two days.


Spot Price

The present exchange rate at which traders can buy or sell a particular financial instrument.


Spread

The difference between the ask price and the bid price of a financial instrument.


Stochastic

An oscillating indicator that determines the level of change of the price of a financial instrument from one closing period to the next.


Stock

Representation of a share in the ownership of a company that is available for trading on the financial markets.


Stop Loss Order

An order designed to limit an investor’s loss by buying (or selling) a financial instrument once its price sails above (or falls below) a certain stop price.


Stop-buy

A buy order for a currency price that is above the current market, or current price. It becomes a market order when the specified price is reached.


Strike Price

The value of a financial instrument at the time when it is bought or sold.


Swap

A transaction that moves the maturity date of an open position to a future date.


 

Take Profit

A limit order that is placed above the market with a long position or below the market with a short position. When the market reaches the limit price, the position is closed thereby locking in a profit.


Technical Analysis

A method of evaluating the movement of financial instruments through studying past market data, such as charts of price and volume, as a basis for forecasting future price behavior.


Trader

An investor engaging in transactions in the financial markets.


Trading Platforms

A software application used for trading forex, usually over the Internet.


Trailing Stop Loss

Similar to a stop loss in that it limits potential losses in an open order. But unlike a simple stop loss where the threshold does not change, a trailing stop loss can be instructed to automatically adjust the limit price closer to the market price when the market price moves in your favour.


Transaction

Buying or selling a currency pair.


Transaction Date

The date upon which the trading of a financial instrument takes place.


Trend

The current direction of the market, whether up or down or sideways (which is sometimes referred to as non-trending or trading market).


 

Under-Valuation

An exchange rate that is usually regarded to be undervalued. This happens if it does not exceed its purchasing power parity.


Unemployment Rate

The percentage of people within the labor force who are considered to be without jobs.


 

Value Date

It is also called maturity date. It is the date upon which the different parties involved in a financial deal consent to make the final settlement.


Variation Margin

Additional amount of money needed by a broker to make up for losses when the balance drops below the required minimum level due to adverse price movements.


Volatility

A measure of the rate of fluctuation of the price of a financial instrument over a period of time.


 

Wire Transfer

The electronic transfer of money from one financial institution to another.