Glossary of trading terms

The balance of trade sometimes referred to as the trade balance, is the difference between the value of a country’s exports and the value of a country’s imports over a set period.

Countries that import more goods and services than they export (in terms of value) have trade deficits, and countries that export more goods and services than imports have trade surpluses.

The Bank for International Settlements (BIS) is a global financial institution owned by central banks. Based in Basel, Switzerland, there are representative offices in Hong Kong and Mexico City.

The BIS's original members were Switzerland, Germany, Belgium, France, Britain, Italy, the United States, and Japan.

The Bank of China is one of China's four largest state-owned commercial banks. It is a subsidiary of the People’s Bank of China. However, it maintains close relations in management, administration, and cooperation in several areas with the subsidiary.

The Bank of England (BoE) is the central bank for the United Kingdom, acting as the government's bank and lender of last resort. With headquarters in the City of London, it issues currency and oversees monetary policy. It is the UK equivalent of the Federal Reserve in the United States.

The Bank of Japan (BOJ) is Japan’s central bank, responsible for monetary policy, issuing currency, maintaining a stable financial system, and providing settling and clearing services.

The Bank of Japan compiles economic data, research, and analysis, and then makes the information available to the public. The Bank of Japan is not independent of Japan’s government, and its headquarters are in Tokyo.

A type of chart which consists of four significant points: the high and the low prices, which form the vertical bar; the opening price, which is marked with a horizontal line to the left of the bar; and the closing price, which is marked with a horizontal line to the right of the bar.

A certain price of great importance included in the structure of a barrier option. If a barrier level price is reached, the terms of a specific barrier option call for a series of events to occur.

Any number of different option structures (such as knock-in, knock-out, no touch, double-no-touch-DNT) that attaches great importance to a specific price trading. In a no-touch barrier, a large defined pay-out is awarded to the buyer of the option by the seller if the strike price is not 'touched' before expiry. This creates an incentive for the option seller to drive prices through the strike level and creates an incentive for the option buyer to defend the strike level.

The base rate, or base interest rate, is the interest rate that a central bank – like the Bank of England or Federal Reserve – will charge to lend money to commercial banks. Adjusting the base rate helps a central bank regulate the economy by encouraging or discouraging spending as required.

A chart pattern used in technical analysis that shows when demand and supply of a product are almost equal. It results in a narrow trading range and the merging of support and resistance levels.

Basis points, also known as bps (pronounced ‘bips’), describe the percentage change in the value of financial instruments or the rate change in an index or other benchmark. Basis points mostly refer to changes in interest rates and bond yields. One basis point is equivalent to 0.01%.

A bear market is any market that experiences a fall of around 20% or more from its recent high. Most commonly applied to stock markets, the term can also be used for anything that is traded, including currencies and commodities. A bear market is the opposite of a bull market.

Bid price, or simply bid, describes what a buyer is willing to pay for a security. It is contrasted with the ask price, the amount a seller is willing to sell a security for. The difference between the two is known as the ‘spread’, which is the cost traders pay to open and close positions.

The bid/ask spread is the difference between a market’s buy (bid) price and sell (ask) price. For example, if the actual price of a market is $100, the bid price might be $101 and the ask price $99. This makes the spread $2.

Every trade that is made requires one seller to be willing to offer the market or asset at the same price that a buyer is willing to take that same market. Therefore, the bid price can also be considered as the highest price a trader is willing to enter a market at. The ask price is the lowest price a trader is willing to offer that market at.

As a market’s price moves, so too will the bid and ask prices. The spread often stays constant, even when the price rises or falls. An exception to this is when volatility hits and there’s added uncertainty to the markets.

Different markets will have different spreads. For example, spreads are often higher for volatile, unpredictable markets. There’s a greater risk to the broker as prices are more likely to move heavily in either direction.

To offset the increase in risk, market makers will set a higher spread by raising the buy price and lowering the sell price. If a market is experiencing a lack of liquidity, spreads may also be larger as it’s more difficult to match a buyer with a seller.

Scalpers, who look for small profits by opening and closing multiple trades over a short period, are particularly impacted by the bid/ask spread. Every position traded will incur the cost of the spread, so the small gains made from scalping must be greater than this cost to be profitable.

For those with a longer-term outlook, the spread is far less significant as it’s assumed the profit incurred from any long-term price move will greatly outweigh the cost of the spread.

The term used for systematic, model-based or technical traders.

A tool used by technical analysts that consists of a band plotted two standard deviations on either side of a simple moving average. It is used to find support and resistance levels.

A bond is a fixed-income investment that represents a loan made by an investor to a borrower (who is typically corporate or governmental). It can be illustrated as an I.O.U. between the lender and borrower that includes the details of the loan and its payments.

The British Retail Consortium (BRC) is a trade association made up of 170 members. The BRC aims to drive positive change in the retail industry and influence its members to thrive for the benefit of consumers.

The BRC releases several different pieces of monthly data, such as the Retail Sales Monitor (RSM) report and the Shop Price Index (SPI), that provide detailed insights into the performance of the retail industry.

Although not members, many banks and financial service providers such as Santander, Lloyds and PayPal are ‘associates’ of the BRC. Associates get access to exclusive data and analysis from the retail industry that contains valuable information such as consumer habits and behavior. They also gain direct commercial links to all retail members.

In joining the BRC, retail members get brand and profit protection, as well as expert regulatory and operational assistance.

Notable associate members:

• Barclays
• Google UK
• Lloyds Banking Group
• PayPal (UK) Limited
• Visa Europe

Notable retail members:

• McDonald’s
• Starbucks
• Asda
• Tesco
• Next
• Boots
• M&S

A financial broker is a third-party coordinating the sale of financial securities between parties selling securities and those purchasing them. Brokers are individuals or firms acting as intermediaries between investors and trading exchanges.

Exchanges only accept orders from their members, either individuals or firms. Therefore, traders and investors require exchange members' services to make financial transactions. Brokers get compensated for their services in several ways; commissions, fees, or paid directly by the exchange.

The word buck is a slang term for one US dollar. The word’s use traces back to 1748, forty-four years before the first US dollar became minted.

A bull market describes any market in which prices are rising or are expected to rise imminently. Typically applied to stock markets, the term can also be used for anything that is traded, including currencies and commodities. A bull market is the opposite of a bear market.

The Bundesbank (German Federal Bank) is the Federal Republic of Germany’s central bank. Established in 1957, it is the most influential member of the European System of Central Banks (ESCB). Like the European Central Bank (ECB), the Bundesbank is based in Frankfurt, Germany.

Taking a long position on a product.

‘Buy the dips’ is a phrase used in trading, referring to opening a trade on a market as soon as it experiences a short-term price fall. ‘The dip’ is quite literally a dip shown on a market’s chart when its price falls after a bullish period.