Glossary of trading terms
A negative balance of trade or payments.
The apportionment of premiums and discounts on forward exchange transactions that relate directly to deposit swap (interest arbitrage) deals, over the period of each deal.
An adjustment can be defined as the impact of a company paying out dividends on the ex-date. The share price takes a slight dip because money flows out of the company and to the shareholders. The dividend adjustment occurs at the close of business before the ex-dividend date.
Appreciation is defined as the increase in an asset’s price over time. Capital appreciation refers to the price increase of financial assets such as property, pensions, commodities, etc.
The stock price and perceived value of a quoted company might appreciate due to the company’s improved financial performance, investor confidence, and speculation. Alternatively, the stock price could depreciate if performance worsens affecting investor sentiment.
Arbitrage describes the practice of buying and selling an asset in order to profit from a difference in the asset's price between markets. It is a trade that profits by exploiting the price differences of identical or similar financial instruments in different markets.
Asian Central Banks
Asian Central Banks are the monetary authorities of Asian countries. These institutions have been increasingly active in major currencies as they manage growing pools of foreign currency reserves arising from trade surpluses. Their market interest can be substantial and influence currency direction in the short-term.
23:00 – 08:00 GMT.
The ask price, ask, or offer price is the price a seller will accept for a security.. An ask quote often stipulates the amount of the asset available at the stated price. The ask price is the opposite of the bid price, which is what a buyer will pay for a security – the ask is always higher than the bid.
An instruction given to a dealer to buy or sell at the best rate that can be obtained at a specific time.
At or Better
An instruction given to a dealer to buy or sell at a specific price or better.
A term for the Australian Securities Exchange (ASX 200), which is an index of the top 200 companies by market capitalization listed on the Australian stock exchange.
Refers to the AUD/USD (Australian Dollar/U.S. Dollar) pair. Also known as ‘Oz’ or ‘Ozzie’.
Balance of trade
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.
Bank for International Settlements
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.
Bank of China
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.
Bank of England
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.
Bank of Japan
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.
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.
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 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.
British Retail Consortium (BRC)
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:
- Google UK
- Lloyds Banking Group
- PayPal (UK) Limited
- Visa Europe
Notable retail members:
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.
The GBP/USD (Great British Pound/U.S. Dollar) pair. Cable earned its nickname because the rate was originally transmitted to the US via a transatlantic cable beginning in the mid 1800s when the GBP was the currency of international trade.
The Canadian dollar, also known as Loonie or Funds.
Call options are financial contracts that give you the right, but not the obligation, to buy a market at a specific price within a specific time. The buyer of a call option can profit when the underlying market rises in price.
The Canadian dollar is the currency of Canada. Managed and overseen by the Bank of Canada, it is frequently traded as part of pairs such as USD/CAD, GBP/CAD, and EUR/CAD.
Although not as popular as its US counterpart, the Canadian dollar is still one of the most commonly traded currencies in forex and is often known as a ‘commodity currency’ due to the correlation between its value and commodity prices.
It was first used in 1858 as a replacement for the Canadian pound, and the Canadian dollar has since become a benchmark currency that is kept in reserve by countries across the world. The nickname ‘Loonie’ is used in trading to refer to the currency, with the deriving from the aquatic bird ‘the loon’ that is featured on the nation’s $1 coins.
A candlestick chart is a type of chart used to analyze a market’s price in trading. Unlike bar charts, candlestick charts show the market’s high, low, open, and closing price within each period.
Its name comes from its candlestick-like appearance, with the body resembling the candle and the lines above and below resembling the wick. Although its origin can be traced back to 18th century Japan, the candlestick chart was adopted and popularized in the US much later.
Candlesticks have now become a staple of trading and are one of the most popular ways to view and track a market’s price. This is due to the extensive amount of information shown and the relative ease with which this can be interpreted. For day traders, candlestick charts are especially useful because of this abundance of information.
A bar chart is similar to a candlestick chart as it shows the same information. There are some subtle differences, however, one being the bodies in bar charts are thinner than in candlestick charts.
Capitulation is the act of surrendering or giving up. In financial market trading, the term indicates when investors and traders have decided to stop trying to recapture lost gains or maintain their positions, due to falling or rising prices.
A carry trade is a strategy that involves borrowing at a low-interest rate and investing in an asset that provides a higher rate of return.
Carry trades typically involve borrowing in a low-interest rate currency and converting the borrowed funds into a high-interest rate asset. The proceeds of the high-interest rate asset are then close out in the original low-interest currency.
Carry trades can be used in forex, stock, commodities, or any other asset denominated in a currency with a higher-interest than your own base currency.
A cash market is a marketplace where securities are immediately paid for and delivered at the point of sale. For example, a stock exchange is classed as a cash market – because investors receive their shares as soon as they have paid for them.
Cash markets are also called spot markets, because the transactions get settled on the spot. They differ from futures markets, where buyers pay for the right to receive goods at a specific future date.
Cash market transactions may take place on exchanges like stock markets or via over-the-counter (OTC) methods.
Regulated exchanges offer institutional and structured protection against counterparty risks. OTC markets, on the other hand, allow the parties involved to customise their contracts.
What is the difference between cash and futures markets?
A cash market is where financial instruments get traded and where, for example, the delivery of stock/shares occurs. The total amount of the transaction value must be paid in cash when buying the shares.
In contrast, a futures market is where only futures contracts are bought and sold on agreed dates in the future and at predefined prices.
Trading in futures doesn’t involve owning shares, and no delivery occurs as the contract expires on the expiration date.
Traders can trade on margin with futures, and they don’t have to pay cash at the point of sale. With futures contracts, settlement takes place on a contract’s expiration date.
Futures contracts don’t have dividend pay-outs, and they’re used more for hedging, speculation or arbitrage purposes, unlike buying shares for investment reasons.
A central bank is a financial institution with special authority to issue government-backed currency. It is often responsible for formulating monetary policy and regulating member banks. Examples of central banks include the Bank of England in the UK and the Federal Reserve in the US.
A chartist is a trader that analyses a market’s price history to determine future price trends. A chartist will use a range of analytical tools, as well as indicators, to conduct technical analysis on a market’s price chart.
Chartists look for patterns in a market’s price behavior. By identifying these patterns, chartists can then try to predict future price movement and make trades to capitalize on them. For example, they might try to identify a trend as it forms, then profit from the resulting move.
A chartist’s trading strategy relies heavily, but not always exclusively, on technical analysis. Sometimes, a chartist can incorporate fundamental analysis along with technical analysis into their trading strategy.
A choppy market is when an asset’s price shows no clear trend but instead experiences many smaller fluctuations.
A choppy market can occur when buyers and sellers of a market are at an equilibrium. If there is high liquidity (large trading volumes) in a market and neither bears nor bulls can dominate, the result is often a choppy market.
Choppy markets are associated with rectangular price ranges. A rectangular price range is a pattern that occurs on charts that continuously hits the same support (the lower limit) and resistance (the upper limit) levels. This prevents the market from breaking out into a trend, as its price is instead confined between these two levels – creating a rectangle.
Traders often look to profit from price trends, so can find it difficult to successfully trade a choppy market. Those who do trade choppy markets to try take advantage of small price movements over a short-term period, but more volatile markets are likely to present greater opportunities for most traders.
Cleared funds refers to the balance in a trading account and means that these funds are ready to be traded with. Once funds have cleared, they are free from any obligation and can be used to either make a trade or be withdrawn. If funds aren’t cleared, they might be pending, which will limit what a trader can do with them.
On occasion, a deposit of funds can take some time to arrive in a trading account. As a result, a $100 deposit could show up in the account but just not be cleared. At that point, restrictions on how the funds can be used are also likely to apply until the funds are fully cleared.
The process of settling a trade.
A clearing house is an organization, institution or third party that settles a financial obligation between a buyer and seller. It’s the job of a clearing house to ensure that all parties in a financial transaction honor the agreements that they’ve committed to and settle them as such.
Clearing houses ensure that transactions run efficiently. The buyer receives what they paid for, and the seller receives the amount of money agreed on for the sale.
The idea of a clearing house has been around for centuries. Various forms existed in Japan, Italy and France before the first modern-day clearing house as we know them was established in London in 1773.
They make up an integral part of financial ecosystems and play a vital role in instilling financial stability.
A closed position is a trade that is no longer active and has been closed by a trader. To close a position, you need to trade in the opposite direction to when you opened it.
For instance, if you take a long position on a stock, you will have to sell an equal amount of stock to close your position. Once a position is closed, it cannot be reopened. At the point of closure, any profit or loss is realized, and your account balance will be updated accordingly.
Closing a position is not always a manual task. Stop-loss and take-profit orders, for example, automatically close your position if a market’s price falls or rises to a certain level.
The process of stopping (closing) a live trade by executing a trade that is the exact opposite of the open trade.
A closing price is a market’s final price level before it closes for the day. A market’s closing price is used as the price level shown on a typical line chart.
Closing prices are the benchmark used to measure a market’s daily performance. A market’s price can fluctuate during the day, but a close price is a fixed number that can not only be compared with previous close prices, but also compared with close prices of other markets.
Collateral is something pledged as security for the repayment of a loan, which can become forfeited in the event of loan default. Examples of collateral include real estate, vehicles, cash, and investments.
Commodity trading advisors
A commodity trading advisor (CTA) is a type of financial advisor that only supplies advice on commodities trading: typically the buying and selling of futures contracts, commodity options or swaps.
US commodity trading advisors must be certified. Registration requires CTAs to advise on all forms of commodity investments.
To register as a CTA, the applicant must pass proficiency requirements, such as the Series 3 National Commodity Futures Exam – although alternative tests can also prove proficiency.
CTA finance explained
Investments in commodities can involve significant leverage, requiring a high level of expertise. Regulations came in from the 1970s onwards to help avoid the potential of substantial losses for firms and individuals, including moves to regulate CTAs.
A CTA fund is a hedge fund that uses futures contracts to reach its investment targets. CTA funds typically use various trading strategies to meet their investment goals, such as automated and trend-following systems.
Some fund managers might apply discretionary strategies, such as fundamental analysis, combined with systematic trading methods.
These fund managers run different strategies using futures, options on futures contracts and FX forwards. CTA funds were originally commodity-focused, but they’ve now expanded their expertise to invest in all futures markets: including commodities, equities and currencies.
The dollar pairs that make up the crosses (ie EUR/USD and USD/JPY are the components of EUR/JPY). Selling the cross through the components refers to selling the dollar pairs in alternating fashion to create a cross position.
Symbol for NASDAQ Composite Index.
A document signed by counterparts to a transaction that states the terms of said exchange.
In technical analysis, a consolidating market is a market that is neither continuing nor countering a long-term trend. Instead, its price is only experiencing rangebound price activity.
This is also seen as market indecisiveness. A market’s price during a period of consolidation will still fluctuate, but it won’t break out of a certain price range. As soon as the market breaks out and moves either above or below the stagnant trading pattern, the period of consolidation ends.
Sometimes a market’s trend will reverse after a continuation. This is known as a transition. For example, if EUR/USD consolidates after an uptrend then experiences a selloff, it has transitioned from bullish to bearish.
Many successful trading strategies involve identifying and capitalizing on consolidation periods. The aim is not necessarily to trade the consolidation itself, but rather anticipate the market’s next move and benefit from entering the market early before the next move comes. One way to do this is by identifying bullish or bearish flag formations.
A period of range-bound activity after an extended price move.
Construction spending is the amount of money the government or businesses have spent on construction, labor, and materials over a monthly period. This can refer to either residential and non-residential construction and includes engineering costs.
Residential construction refers to the construction of housing and other forms of accommodation. This is significant to traders as the housing market can often reflect the economic health of a country.
Non-residential construction refers to businesses and corporations spending money on infrastructure like new factories, offices, or branches. Non-residential construction has an even stronger correlation with economic performance as gross domestic product (GDP) is derived from the output of these businesses, which is a direct measure of economic strength.
Although construction spending is not the strongest economic indicator, its relation to GDP makes it significant to traders. If construction spending is high, this implies economic growth as new infrastructure is being built – increasing the capacity of an economy.
The tendency of an economic crisis to spread from one market to another.
Contract size is the deliverable amount of a market that makes up a futures or options contract or spot forex. These vary between markets and assets.
For instance, in forex the standard size of one contract is typically 100,000 units of the currency. Whereas for stocks, the typical size of a futures contract is 100 shares.
A benefit of having contract sizes is that traders and investors know how much of a market they trading are. The size of the contract is a definitive quantity that is often standardized across the board, meaning regardless of the broker, the size of one contract for a market is usual the same.
It’s crucial to know the size of the contract you are trading as this will help you know exactly how much exposure you have. This is also significant when thinking about risk management, as you’ll need to know how much you might potentially lose based on the amount you are trading.
Contracts for difference (CFD)
A contract for difference (CFD) is a financial contract in which you agree to exchange the difference in the settlement price between the open and closing trades on a particular asset. CFDs enable traders and investors to speculate on whether a market will go up or down, and profit from the price movement without owning the underlying asset.
Controlled risk is where the amount of risk on a trade is capped at a certain level, typically through a guaranteed stop-loss order. This enables you to set the maximum possible amount you can lose on a trade, giving you full control of your risk.
A guaranteed stop is a stop-loss order that you set at a price level of your choosing. Once the price of the market you’re trading hits the level of the guaranteed stop, your position is automatically closed out. Using guaranteed stops to control your risk are effective as, unlike regular stops, they close out your position regardless of market slippage or gapping.
Convergence of mas
A technical observation that describes moving averages of different periods moving towards each other, which generally forecasts a price consolidation.
A corporate action is an effort made by a public company to alter or change its securities (equity or debt). Corporate action is agreed on by the company’s board of directors with authorization from shareholders.
For most events, shareholders and/or bondholders get to vote on corporate action proposals.
Refers to corporations in the market for hedging or financial management purposes. Corporates are not always as price sensitive as speculative funds and their interest can be very long term in nature, making corporate interest less valuable to short-term trading.
The second listed currency in a currency pair.
A counterparty is any other party who participates in a financial transaction. Every transaction must have a counterparty for the deal to become completed. Buyers need pairing with sellers, and vice versa.
Counterparties can be individuals, businesses, governments, or any other organization.
Risk associated with a cross-border transaction, including but not limited to legal and political conditions.
CPI (Consumer Price Index)
CPI stands for Consumer Price Index. It is the most popular reference for day-to-day inflation. CPI gets calculated as a measurement of price change using a weighted average basket of consumer goods and services purchased by households.
The market is ready to sell-off hard.
Refers to CAD (Canadian dollar), Aussie (Australian dollar), Sterling (British pound) and Kiwi (New Zealand dollar) – countries off the Commonwealth.
Cup and handle
The cup and handle is a technical analysis pattern that got its name by resembling a tea cup. It features candlesticks that resemble a shallow, rounded saucer with a downward trending handle extending from the cup’s righthand side. The formation can occur over a timeframe as short as several weeks up to an entire year.
Currency is the money underpinned by the legal tender system unique to a particular country or economic area. Currency gets used as a medium of exchange for goods and services.
Currency in the form of paper or coins gets issued by governments and central banks, and is usually accepted at face value as a payment method.
A currency pair is a price quote of the exchange rate for two different currencies traded in FX markets: They are known as the base currency and the quote currency. The exchange rate of a currency pair indicates how much of the quote currency is needed to purchase one unit of the base currency.
Currency risk is the danger of losing capital due to changes in forex prices. In the context of trading, this is the risk to a trader’s portfolio if currency markets experience strong price changes.
Trading forex itself can be risky, but it’s not just the forex markets that can be directly affected by currency risk.
Due to the interconnectivity of the financial markets, a significant price change in one currency can impact several other currencies, or even other markets such as shares, indices or gold. Imagine you’ve bought gold in USD. If a Federal Reserve interest rate decision causes a depreciation of the dollar, your position would profit as a result of currency risk. This is because gold is a safe-haven asset that’s invested in during times of volatility or market uncertainty due to its intrinsic value.
A currency symbol is a graphical representation of a currency’s name, often used when referring to an amount of money. Currencies like the US dollar ($) and the British pound sterling (£) are immediately recognized throughout the world by their symbols.
In forex trading, you may also see three-letter codes used to abbreviate a currency. This shorthand often appears in international markets instead of using formal currency names.
The current account records a nation’s global transactions such as imports and exports of goods and services, payments to and from investments abroad, and transfers such as foreign aid and remittances. Together the current account and the capital account make up a nation’s balance of payments.
A day order is a limit or stop order given to a broker to execute a trade at a specific price before the markets close that day. If the price is not reached before the markets close, the order is canceled.
A day order is the most common of the several types of limit orders. Other limit orders include good ‘til canceled (GtC) and fill or kill (FoK) orders.
Day trading takes advantage of small, short-term changes in the market to buy and sell a financial instrument multiple times within one trading day. Day trading typically has a lower success rate than other methods of trading, but it can pay off for well-educated, well-funded traders.
A deal, also known as a trade, is the name given to any forex transaction. The most common deal is a spot contract, a purchase or sale of a foreign transaction based on the exchange rate at that current moment. Other deals include forward contracts, window forwards, limit orders, stop loss orders, and fx swaps.
A dealer is a financial institution working with their country’s regulatory body to trade foreign currencies. Most dealers are banks who trade securities on their own behalf and in such large amounts that they help maintain liquidity in the market and regulate bid and ask quotes.
The dealing spread is the difference between the bid (sell) price and the ask (buy) price for different currency pairs. It is also known as the ‘spread’ or ‘bid-offer spread’ and is represented by the number of pips between the bid price and the ask price.
Defend a level
Action taken by a trader, or group of traders, to prevent a product from trading at a certain price or price zone, usually because they hold a vested interest in doing so, such as a barrier option.
A deficit occurs when more money is spent than received. This term can be used to describe imports and exports, expenses and revenues, and liabilities and assets. Governments may intentionally spend in a deficit to help raise countries out of recessions or create future economic growth.
Delisting is removing a quoted security from an exchange. Delisting can either be voluntary or involuntary.
Involuntary delisting usually occurs when a company fails to meet the compliance or listing requirements of the exchange. Listing requirements for an exchange usually involve operating in a specific sector and achieving a specific market cap threshold.
Delta spread is an options trading strategy where traders adopt delta neutral positions by buying and selling options simultaneously in direct proportion to the neutral ratio.
Delta is either positive or negative: between 0 and 1 for a call option and negative 1 to 0 for a put option.
The negative value for call options occurs because a rise in the underlying asset’s price makes call options more expensive.
Department of Communities and Local Government (DCLG) UK House Prices
A monthly survey produced by the DCLG that uses a very large sample of all completed house sales to measure the price trends in the UK real estate market.
The deposit rate is the interest rate paid by financial institutions on cash deposits such as checking, savings, and Money Market accounts in exchange for the institutions use of that cash while on deposit.
Depreciation is an ongoing decrease in the value of a currency caused by dovish financial policies, a weakening economy, or even a surge in imports. This currency depreciation is viewed in terms of its exchange rate versus other currencies on the forex market.
A derivative is a financial security with a value derived from one or more underlying assets. Common derivatives are futures contracts, forwards, options, and swaps. Derivatives are often traded over the counter but can also be traded on an exchange. Many derivatives are leveraged.
Divergence occurs when a financial security’s price displays deviation from the indicator you might see on your chart.
For example, a specific technical indicator might indicate bullish trading conditions, but the price is falling. Alternatively, the indicator might be showing bearish signals, but the price is rising. Price is moving in the opposite direction to the trade direction the indicators are suggesting.
A dividend is a share of profits and retained earnings a company usually pays out annually to its shareholders after it has used a portion to reinvest in the business.
A dividend is often regarded as a measurement of a company’s health and good management. Mostly profitable or cash-rich firms pay out dividends and some investors rely on these annual returns for investment income.
Like bull and bear market descriptors, dovish is one of two ways to describe monetary policy from the Federal Reserve. A dovish policy advocates for low interest rates aimed at reducing unemployment and stimulating economic growth.
Dow Jones Industrial Average
The Dow Jones Industrial Average is an equity index. It tracks the performance of thirty large public firms quoted on the NYSE and NASDAQ in the USA. The index also gets called the DJIA and DJIA 30. Many financial brokers refer to the index as the US30 on trading platforms.
A downtrend is a sustained decrease in price over time, which is created when bearish traders (sellers) take control of a market. The chief characteristic of a downtrend is a step-like descent of candlesticks or bars making lower highs and lower lows.
Technical analysts will attempt to identify a downtrend because they’re more significant than a temporary decline in price. Downtrends are usually spurred on by changes in the valuation of an asset, whether that’s as a result of macroeconomic factors, technical indicators reaching key levels, negative news, or disappointing company earnings. These can have a lasting impact on the market price.
While most traditional trading takes place within an uptrend, you can go short on market prices with derivatives, enabling you to take advantage of downtrends.
The term dry powder refers to the amount of cash reserve or liquid securities kept readily on hand by an investor to cover potential future costs and obligations. Dry powder includes any and all marketable securities that can be liquidated on short notice.
Symbol for the US Dollar Index.
ECB stands for the European Central Bank, which is the central bank for the euro and Euro Area. The headquarters are in Frankfurt, Germany.
It administers monetary policy within the Eurozone, which comprises 19 member states of the European Union, one of the world’s largest trading blocs.
An economic indicator is economic data used by analysts, traders, and investors to determine investment and trading opportunities. The data is usually delivered on a macroeconomic level and defines the overall health of an individual economy.
End of day order (EOD)
An end of day order (EOD) is an instruction to your broker to keep a buy or sell order open only until the end of a trading day. An EOD, also known as a day order, can be to open a new position or close an existing one, but either way it will close on the same business day it’s placed, usually by way of a stop or limit.
EST stands for Eastern Standard Time. It is five hours behind Coordinated Universal Time (UTC) and Greenwich Mean Time (GMT). The EST time zone gets used during standard time in North America, Central America, and the Caribbean. EST is often called Eastern Time Zone.
The Euro Short-Term Rate (ESTR) is the interest rate benchmark for overnight borrowing costs throughout the euro area. It’s calculated and published by the European Central Bank (ECB) as a replacement for the Euro Overnight Index Average (EONIA) and the Euro Interbank Offered Rate (EURIBOR).
The ESTX50 is a common abbreviation for the Euro Stoxx 50, which lists the top 50 most highly-capitalised stocks on the EURO STOXX – another European index. It’s weighted based on each company’s free float market capitalisation.
EURIBOR is an interest rate benchmark for the eurozone, standing for Euro Interbank Offered Rate. It is calculated using the average rates that eurozone banks offer each other on unsecured short-term loans of various maturities.
EURIBOR represents the rate at which banks will lend capital to each other for short periods (short in this instance meaning less than one year). The rates quoted by various different banks are averaged together to make the benchmark, which is quoted daily.
Like other IBORs, EURIBOR rates are used in various financial products – including OTC derivatives.
The Euro is the single European currency that replaced national monetary systems for 19 member states of the European Union. In forex markets, the Euro is abbreviated to EUR, and is the second-most traded currency after the US Dollar.
It came into being on January 1, 1993, at which point only 11 EU members used the currency –France, Germany, Spain, Italy, Greece, Portugal, Luxembourg, Austria, Finland, the Republic of Ireland, Belgium, and the Netherlands. However, as the EU has expanded, so has the adoption of the currency. Now, 19 of the 27 member states are part of the eurozone.
European Economic and Monetary Union (EMU)
The European Economic and Monetary Union (EMU) was introduced when the founding members of the European Union (EU) set up a centralized economic system for the supranational body.
The EMU was formed in 1991 and was enshrined in the Treaty on European Union or the Maastricht Treaty. The policies of the EMU are aimed at establishing free trading among EU member states and was also the body behind the adoption of the euro currency.
The European session is the second session of the forex trading day. While the FX market is open 24 hours a day, it’s split into three major sessions – Asian, European, and North American, also known as Tokyo, London, and New York.
The European session in forex runs from 2:30 am to 10:30 pm EST, while the City of London is within business hours. This is the session that experiences the most volatility but is most active when it overlaps with the other major session hours.
Eurozone labour cost index
Measures the annualised rate of inflation in the compensation and benefits paid to civilian workers and is seen as a primary driver of overall inflation.
Eurozone Organisation for Economic Co-Operation and Development (OECD) leading indicator
A monthly index produced by the OECD. It measures overall economic health by combining ten leading indicators including average weekly hours, new orders, consumer expectations, housing permits, stock prices and interest rate spreads.
Ex-dividend means without dividend, referring to the sale of a security after a dividend payment is announced but before it gets distributed.
Ex-dividend is the interval between the recorded date and the payment date during which the stock trades without its dividend. Buyers of stocks sold ex-dividend do not receive the recently declared dividend.
Expiration date and options values
An expiration date for derivatives – such as options or futures contracts – is the last day that the contract is valid. Either before or on this day, traders usually decide what to do with their financial position.
Before an option expires, the owner can choose to take up the option, close the position to realise the profit or loss, or let the contract expire as worthless.
An exporter is a person, company, or country that sends goods or services to a counterparty in another country. Exporting is a global trade function whereby goods produced in one country get moved to another country to trade or sell.
A market that is thought to have travelled too far, too fast.
Factory orders are a common economic indicator, used to assess the dollar value of goods from factories. The data for factory orders are released in monthly reports by the US Census Bureau and are split into two major groupings: durable and non-durable goods. Each factory orders report includes new orders, unfilled order, shipments, and inventories.
The Federal Reserve System, referred to as the Federal Reserve or the Fed, is the United States of America’s central banking system.
On December 23, 1913, the Federal Reserve Act created the system after a series of financial shocks caused the need for central control of monetary policy to prevent future crises.
Refers to the price quotation of '00' in a price such as 00-03 (1.2600-03) and would be read as 'figure-three.' If someone sells at 1.2600, traders would say 'the figure was given' or 'the figure was hit’.
A filled order, of fill for short, is simply an executed order in the markets. It is an order that has had its parameters filled, whether it was an order to buy or sell an asset, to open or close a position. For example, if you were to create an order to buy a stock at $45, and your order is accepted, it would be said to have been ‘filled’ and $45 would be the ‘fill price’.
Fill or kill
A fill or kill (FOK) order is an instruction sent to a broker or directly to a trading venue that must be carried out immediately and in its entirety. If either of those stipulations cannot be met, the order is canceled. No partial or delayed execution of the order is allowed.
A financial analyst conducts financial analysis for external or internal clients. Their primary duty is to examine data to identify opportunities or evaluate outcomes for investment recommendations or business decisions.
In the financial services industry, analysts provide regular reports on forex, equity, commodity, and cryptocurrency markets to assist traders’ decision making.
A financial contract is a legally binding document between at least two parties that defines and governs the parties’ rights and responsibilities under the agreement.
A financial contract is legally enforceable when it meets the law’s requirements and approval. It usually involves exchanging money, goods, services, or promises to trade any of these products.
A financial liability is an obligation that a company or individual has to pay for or deliver. Examples include bank loans, leasing agreements, other payables, and interest-bearing financial liabilities.
Financial liabilities get classified into two main types based on the period they become payable: current liabilities and non-current liabilities.
Current liabilities are typically payable within 12 months from the time of receipt. Examples include salaries, monthly utilities, and rent due.
Non-current liabilities are due for payment after 12 months. For instance, if a debt is payable over 5 years, then the amount owed after one year would be classified under long-term liabilities.
First-In-First Out, also called FIFO, is an asset-management and valuation method where assets acquired or produced get used, sold, or disposed of first.
FIFO is often used for tax purposes. Assets with the oldest costs get included in the income statements for the cost of goods sold (COGS). The remaining inventory assets then become matched with assets that were recently purchased or produced.
One of approximately five times during the forex trading day when a large amount of currency must be bought or sold to fill a commercial customer’s orders. Typically, these times are associated with market volatility. The regular forex fixes are as follows (all times EST):
5:00am - Frankfurt
6:00am - London
10:00am - WMHCO (World Market House Company)
11:00am - WMHCO (World Market House Company) - more important
8:20am - IMM
8:15am - ECB
A flat market describes when the price for a certain security neither rises or falls for a significant time period. Flat markets can occur when there is low trading volume or when increasing price movements on some securities are offset by declining price movements of other securities in the same index.
In forex, a flat market occurs when a currency pair fails to move significantly up or down and does not contribute a significant loss or gain to the forex trading position.
Flat or square position
Dealer jargon used to describe a position that has been completely reversed, eg you bought $500,000 and then sold $500,000, thereby creating a neutral (flat) position.
Economic data readings matching the previous period's levels that are unchanged.
Fresh buying or selling interest after a directional break of a particular price level. The lack of follow-through usually indicates a directional move will not be sustained and may reverse.
FOMC minutes are a detailed record of the Federal Open Market Committee (FOMC) meetings and are released three weeks after every meeting. The minutes offer more concise insights on the monetary policy stances of all members of the committee and how individual members see the value of the USD and other securities.
Analysts comb through these minutes to determine if individual committee members are striking hawkish or dovish tones in their remarks, regardless of what tone the statement took weeks prior.
Forex, also known as foreign exchange or FX, is the conversion of one country's currency into another. It forms the basis of forex trading, one of the world’s most-traded asset classes.
A forward contract is a non-standardized type of derivative instrument. It’s an agreement between two parties to buy or sell an asset at a specified future time at a price agreed on at the time of the contract’s conclusion.
It differs from a futures contract, which is an agreement between parties to buy or sell the underlying financial asset at a specific rate and time in the future.
The party who agrees to buy the underlying asset at a future date assumes the long position, and the party deciding to sell the asset takes a short position. The price agreed is the delivery price, equal to the forward price when the contract is agreed.
The FRA40 is a benchmark index containing 40 of the biggest companies on the Euronext Paris exchange. It’s commonly referred to as the French 40. Most of the companies included are international, representing 35 different sectors.
The FTSE 100 is an index of the 100 companies with the highest market capitalisation on the London Stock Exchange. Although, many of the listed companies are international, making it a somewhat weak indicator of the UK economy.
A fund is an investment vehicle that enables people to pool their money together to invest in different securities like stocks, bonds, currencies, property, or commodities.
Funds might have different objectives; either to deliver a regular income or capital growth for the investor.
Fundamental analysis is involves using related economical and financial factors to determine the value of a security. Both macro and microeconomic factors are considered when performing fundamental analysis from the overall economic health of an industry or country to specific details pertaining to one company such as specific management decisions made by the company to its revenue and profit. Fundamental analysis can be used on a range of securities including indices and individual stocks, forex, and commodities.
A futures contract is a standardized legal agreement to buy or sell a product at a set price at a specified time in the future. The contracts are standardized for both quantity and quality and are traded through exchanges.
The Group of Seven is an international governmental organization that includes France, Germany, Italy, Japan, the United Kingdom, Canada, and the United States.
During recent decades, the G7 claimed to have ‘strengthened security policy, mainstreamed climate change, and supported disarmament programs’.
The Group of Eight (G8) was an international governmental political forum that existed from 1997 until 2014.
The discussion forum originated in 1975 as the Group of Six (G6) after France held the first summit.
Gapping describes when the price action of a security jumps to a new price not directly adjacent to the previous price, creating a gap between ticks on a price chart. Gapping can occur during a trading day, often when there is low liquidity and the asset price is heavily affected by a lower level of trading.
More commonly, gapping occurs when a financial security opens above or below the previous day’s market close. This gap is caused by the trading that has occurred outside normal hours which isn’t represented on the price chart.
Gapping can be partial or full:
- Partial gapping occurs when opening prices are lower or higher than the previous day’s close but inside the last day’s price range.
- Full gapping occurs when the open is outside of the previous day’s range.
The gearing ratio is a financial ratio comparing a business owner’s equity (or capital) to the company’s overall debt and borrowed funds. It’s a measurement of financial leverage, illustrating how much of a firm’s operations get funded by equity capital instead of debt financing.
Germany 30 index
The Germany 30 index is FOREX.com’s name for its market based on the DAX 30, a German stock market index of the thirty biggest companies measured by market capitalization trading on the Frankfurt Stock Exchange. Prices get taken from the Xetra trading venue.
Refers to a bid being hit or selling interest.
Giving it up
A technical level succumbs to a hard-fought battle.
GMT stands for Greenwich Mean Time. Due to its maritime connection, back in 1884, the village of Greenwich, London, England, was chosen as the reference point for all time on Earth.
Together with coordinated universal time (UTC), GMT is regarded as the standard time globally. Earth has been divided into twenty-four equal time zones, making it simple to convert GMT to local time.
The term gold bullion describes a large quantity of physical gold that is at least 99.5% pure metal, it can be cast in bars, ingots, or coins.
Investors often purchase gold bullion as an alternative physical investment to hedge their risk against other financial exposure to markets. Gold bullion is a tangible asset that is regarded as both an alternative and safe-haven asset.
A certificate of ownership that gold investors use to purchase and sell the commodity instead of dealing with transfer and storage of the physical gold itself.
The standard unit of trading gold is one contract which is equal to 10 troy ounces.
Good for day
An order that will expire at the end of the day if it is not filled.
Good 'til cancelled order (GTC)
A good ‘til cancelled (GTC) order is an instruction to execute a trade that will remain active until the order is fulfilled or the trader cancels it. Brokerages typically limit the length a GTC order can remain open to 90 days.
Good 'til date
A good ‘til date (GTD) order is an instruction to execute a trade that remains open until a future date specified by the trader. Once the date is reached, the order is canceled if it has not been fulfilled or canceled already.
Greenback is a slang term for US paper dollars. The name is derived from the note’s color. Dollars were called greenbacks because the backs of the notes were printed in green. The term greenback originated in President Lincoln’s administration.
Gross domestic product
Gross domestic product (GDP) is a measure of the market value of all the final services and goods produced in a specific period by a country or economic area.
It’s a measurement of an economy’s size and health over a period, usually one quarter or one year. GDP is used to compare different economies’ sizes at various points in time.
Gross national product
Gross national product (GNP) is an estimate of the total value of all products and services produced by a country in a specific period, often a financial quarter or year.
GNP is calculated by adding personal consumption, private domestic investment, government expenditure, net exports, and income earned by residents from overseas investments. Income earned inside the domestic economy by foreign residents gets deducted.
An order type that protects a trader against the market gapping. It guarantees to fill your order at the price asked.
A guaranteed stop-loss order (GSLO) is a type of order that ensures your position is closed out at the price you specify, regardless of market volatility, slippage, or gapping. Guaranteed stops are often free to attach, but your brokerage will charge you a premium if the order is triggered. This is due to the risks your broker is taking on for you.
Refers to traders pushing to trigger known stops or technical levels in the market.
Every 100 pips in the FX market starting with 000.
Hawkish is a term used in economics to describe a monetary policy that takes rigorous steps to control inflation, principally by means of raising interest rates. An inflation hawk will be less concerned with economic growth than they with reducing the likelihood of a recession.
Although hawkish individuals are often viewed negatively, as high interest rates reducing borrowing and investments, the monetary policies often encourage saving and can lead to imported goods becoming cheaper.
Hedging is an investment technique to offset potential investment losses by purchasing correlated investments that are expected to move in the opposite market direction.
Hedging techniques are popular methods for investors to protect themselves from risky positions; they hedge their bets. It’s like having investment insurance. If a sudden price reversal occurs, the damage gets limited due to the hedge position.
Hit the bid
The phrase ‘hit the bid’ refers to the bid-ask spread, the price difference between the highest price a buyer is willing to purchase a security at and the lowest price the holder of that security is willing to sell at. A trader willing to sell immediately at the given bid price will ‘hit the bid.’
Names for the Hong Kong Hang Seng index.
IBOR stands for Interbank Offered Rate – a type of interest rate benchmark that represents an average of the rates that banks will offer each other for loans of various maturities.
The most well-known and widely used IBOR is LIBOR. However, you might also encounter EURIBOR, TIBOR and other rates.
IBORs have been used in financial markets for a long time and feature in a huge variety of different products and transactions. Over-the-counter (OTC) derivatives in particular have long been associated with IBORs.
An illiquid market is a market that is difficult to sell assets in due to a lack of interested buyers, available assets, or because the market itself is not viable as a financial asset. Assets in these markets are often difficult to convert to cash without losing a significant portion of its value because of their large bid-ask spreads.
Illiquid markets can hold high-value assets, but if no willing buyers are found, sellers may be forced to lower their price or hold on to their assets longer than preferred.
An index’s components are the individual companies that are listed on a stock index. For example, Apple is a component of the Nasdaq stock index.
Components are also known as constituents. There is no set number of components an index must have.
Industrial production is a measure of the output of the industrial sector of an economy. The industrial sector includes manufacturing, mining, utilities (like gas and electricity), and, at times, construction output.
Industrial production is calculated over a period by recording the change in the volume of output produced.
Inflation is the decline of a specific currency's purchasing power over time. It’s calculated by measuring the cost of a basket of widely consumed goods and services in an economy.
Inflation reduces each unit of currency's purchasing power and increases living costs; consumers must spend more to fill a shopping basket or get a haircut. As prices rise, money buys less, so inflation can reduce living standards over time.
Initial margin requirement
The initial margin requirement is the amount of money required to open a position in a given market through a brokerage. It is usually represented as a percentage of the total amount you seek to open as a position.
A trader looking to trade $100,000 in the forex marketplace may pay $10,000 to a brokerage as a 10% initial margin requirement and would still get the total $100,000 exposure through the brokerage.
The interbank rate is the interest rate charged by banks when conducting transactions of foreign currency with other banks. These rates are typically lower than interest rates paid by retail traders, but they are used to set those higher interest rates paid by individuals and institutions. Like all foreign currency exchange rates, these fluctuate constantly.
An interest rate is the percentage of money charged above the lender's principal – the amount of money loaned – for using its capital. Global central banks set base interest rates to manage their domestic economies. Base rates are the benchmark all banks use to decide their borrowing and investment rates.
Action by a central bank to affect the value of its currency by entering the market. Concerted intervention refers to action by a number of central banks to control exchange rates.
Symbol for S&P 500 index.
IPO stands for initial public offering, a process by which a company can offer its shares for sale on a stock exchange for the first time. An IPO enables retail investors to take a stake in the company – turning it from a private enterprise into a public one.
Businesses undertake IPOs to help them raise capital by selling stock to public investors. Listed companies tend to be subject to far more rules and regulations than private ones, though, so getting a business ready for an IPO can be a lengthy process.
Once a company is ready to list, it will decide how many shares it wants to sell. It will then work with an investment bank to set an initial price for those shares and begin the selling process.
ISM manufacturing index
The ISM manufacturing index is a survey of over 300 purchasing managers and supply management executives. The report is regarded as a vital indicator of the state of the US economy as it can affect investor and business confidence.
The ISM manufacturing index gives equal weighting to production, employment, supplier deliveries, new orders, and inventories and seasonally adjusts each factor.
ISM non-manufacturing index
The ISM Non-Manufacturing Index (now called the Services PMI) is an index used to assess the performance of services companies in the US. The reading, published monthly, is based on surveys of more than 400 purchasing and supply managers in non-manufacturing (services) firms.
Monitoring the ISM Services PMI helps traders and investors gain insight into the country’s economic conditions.
The index is compiled and published by the ISM (Institute for Supply Management) as part of the ISM Report On Business.
Japanese economy watchers survey
Measures the mood of businesses that directly service consumers such as waiters, drivers and beauticians. Readings above 50 generally signal improvements in sentiment.
Japanese machine tool orders
Measures the total value of new orders placed with machine tool manufacturers. Machine tool orders are a measure of the demand for companies that make machines, a leading indicator of future industrial production. Strong data generally signals that manufacturing is improving and that the economy is in an expansion phase.
Commonly referred to as “The Nikkei,” the JPN 225 is a Japanese index based on the market capitalization of the top 225 companies traded on the Tokyo Stock Exchange (TSE). The Nikkei is a price-weighted index calculated daily since 1950 by the Nihon Keizai Shimbun, Japan’s largest financial newspaper.
The Nikkei operates in the Japanese Yen and displays a positive correlation to the value of the currency. When the Yen depreciates, prices of Japanese stocks listed on the index rise. Overall the Nikkei is popular for its day-to-day volatility.
Keep the powder dry
To limit your trades due to inclement trading conditions. In either choppy or extremely narrow markets, it may be better to stay on the side lines until a clear opportunity arises.
Kiwi is the colloquial name for the New Zealand Dollar (NZD), coined after the flightless Kiwi bird featured on the island nation’s $1 coin. In forex pairs the NZD is often referred to as the ‘Kiwi.’
A knock-in option is a type of options contract that is not activated until a predetermined price is reached. The knock-in options contract is inactive until that price is reached.
Knock-in options are one example of a barrier option: options contracts with earnings dependent on whether the underlying asset reaches a specific price level, referred to as the barrier price.
In the case of a knock-in option, the barrier price must be achieved or surpassed before the option’s expiration in order to become active. There are two types of knock-in options:
- Down-and-in options, which are activated when the underlying asset’s price dips below the barrier price
- Up-and-in options, which are activated when the asset’s price rises above the barrier price
Knock-in options are mainly used in commodity and currency markets and can be traded over-the-counter. Premiums on these options are usually cheaper than regular options, but buyers run the risk of not realizing any profits if the barrier price is not hit before expiration.
Option that nullifies a previously bought option if the underlying product trades a certain level. When a knock-out level is traded, the underlying option ceases to exist, and any hedging may have to be unwound.
A knock-out option is a type of option that expires or “knocks out” if the asset surpasses or falls below a certain price. The knock-out options contract is active until the predetermined price is hit.
Knock-out options are one example of barrier options: options contracts with earnings dependent on whether the underlying asset reaches a specific price level, referred to as the barrier price.
Until the asset reaches the barrier price or expires, the knock-out options contract is active. If the barrier price is reached, the options contract expires prematurely. There are two types of knock-out options:
- Down-and-out options are active until the asset dips to or below a predetermined barrier price.
- Up-and-out options give the holder the right to buy or sell an asset at a specific price if the option does not rise to or past a specific barrier price.
Knock-out options are mainly used in commodity and currency markets and can be traded over-the-counter. Premiums on these options are usually cheaper than regular options, but buyers run the risk of not realizing any profits if the price target is hit.
Last dealing day
The last day you may trade a particular product.
Last dealing time
The last time you may trade a particular product.
Last trading day
The last trading day is one day prior to the expiration date of a derivatives contract. The last trading day is the final day you can trade or close out your position before the commodity is delivered or settled in cash the following day. Once the last trading day passes, the derivative is no longer tradable, and the settlement process begins.
Leading indicators are economic data that correspond with future movements or changes in an area of business interest. They can help predict and forecast future events and trends in markets and the economy. Leading indicators vary in their accuracy and precision.
The purchasing managers’ index (PMI), consumer confidence index, initial jobless claims, average hours worked, and average earnings are examples of leading indicators.
A price zone or particular price that is significant from a technical standpoint or based on reported orders/option interest.
Leverage is a trading tool that enables you to control a large amount of capital without paying for the full value of your position upfront. Several financial products make use of leverage, including futures, options, and forex trades.
Instead of paying for the total value of a leveraged trade, you put down a smaller amount known as your margin. When buying $10,000 of EUR/USD, for example, you might only have to put down 5% of your position’s value as margin ($500).
Your profit or loss would still be based on the $10,000, however. It's important to remember that leverage will magnify both your profits and your losses.
Short-term traders, referring largely to the hedge fund community.
Liabilities are sums owed by a person or company, usually cash, that are settled through the transfer of cash, goods, or services. On balance sheets, liabilities are recorded on the right side against the figure’s assets. Liabilities include loans, accounts payable for goods or services, mortgages, deferred revenues, bonds, warranties, and accrued expenses.
Liabilities may also refer to a legal or regulatory risk or obligation.
LIBOR is a leading interest rate benchmark, set each day according to estimates from up to 18 global banks. It stands for London Interbank Offered Rate. There are LIBOR rates for multiple different currencies: including GBP, USD, EUR and more.
LIBOR is calculated by surveying banks to find out the rates they would charge each other on loans of various maturities, based on the current economic outlook. The LIBOR rate is an average of what the banks will charge each other, and is then used across the global financial system, particularly for pricing derivatives.
Usage of LIBOR (and other IBORs) is being phased out, to be replaced with a near-risk-free rate (RFR).
A limit order is an instruction to your trading provider or broker that tells them to execute a trade at a more favorable price than the current market price. You can use a limit order to enter or exit a position.
Say, for example, that you have an open long position on Glencore stock, which is trading at $2.90. You decide that you want to take your profits if it hits $3.00.
$3.00 is a better price for you than $2.90 because you'll earn more profit from your position. So, you could use a limit order to tell your trading provider to sell your stock if it hits $3.00. Then, if Glencore moves to $3.00, your position will automatically close.
The opposite of a limit order is a stop. These execute a trade at a price that is worse than its current level and are a crucial part of .
A liquid market is any market with a high volume of activity, allowing traders ample opportunity to buy or sell large quantities at any time and for low transaction costs.
While the exact requirements of a liquid market vary among securities, liquid markets generally have tighter spreads, facilitate immediate transactions, have many available assets, and are resilient – meaning the asset’s price is largely unaffected by purchases and sales of that asset.
Liquidation can have two meanings on the markets. The first is the process of distributing a company's assets as it ceases to operate. The second is when you exit a position on a market, usually by selling an asset for cash.
If a company goes into liquidation, then its available assets are used to pay the outstanding obligations it has to creditors – and sometimes to investors. In most countries, shareholders will only receive assets once all creditors have been paid.
means the ease with which a market can be traded without affecting its price. A market with lots of buyers and sellers at any given time is said to be highly liquid because you'd be able to find a counterparty to buy or sell it easily.
If there are very few people interested in an asset, then it is illiquid. In this case, you might find it tricky to trade.
Major forex pairs are an example of a highly liquid market. The extremely high volume of FX trades each day means that it is highly likely that you'll be able to find a buyer or seller to take the other side of a deal.
Unknown penny stocks, on the other hand, might be illiquid if few traders are interested in buying or selling them.
The London session—also known as the European session—is one of three trading sessions responsible for keeping the forex market open 24 hours a day. The session opens as the Tokyo (Asian) session winds down and close several hours after the New York (North American) session begins. The London session runs during the city’s official business hours: from 7:30 a.m. to 3:30 p.m. GMT.
The London session experiences the majority of forex trading of the three main periods and is known for increased volatility and higher liquidity following a typically drowsy Tokyo session. London has long been the hub of forex, with 43% of all transactions happening in London. The final four hours of the London session experience the highest volume of trades due to its overlap with the New York session.
A long position is a trade that earns a profit if the underlying market moves up in price. You open a long position by buying a financial asset. If the asset then increases in value, you can sell it for a profit. If it falls in value, you may have to sell it for a loss.
Going short is the opposite of opening a long position. Here, you sell an asset to open your trade – then make a return if it falls in price.
Most investments are long positions. Traders who use derivatives, though, may go short just as often as they go long.
Traders who have bought a product.
‘Loonie’ is the nickname for the Canadian Dollar (CAD) that first originated among forex traders before becoming common in the public at large. The Loonie is the seventh most traded currency in the world and the sixth most held currency in foreign exchange reserves. The Loonie is a dollar-based currency, but it is sometimes denoted with ‘C$’ to differentiate it from others like the United States Dollar. The Canadian currency has had a free-floating rate since 1970 but holds a relatively lower value than the U.S. Dollar.
A unit to measure the amount of the deal. The value of the deal always corresponds to an integer number of lots.
A lot is the typical unit amount of currency traded in forex and equals 100,000 units of whichever specific currency is quoted. Lot sizes are so large in order to magnify the changes in currency values, which usually occur in a matter of only a few pips.
For example, if the USD/JPY is trading at 119.80, a single pip change would amount in $8.34 difference when multiplied against a single lot. The math is: (.01/119.80) x 100,000 = $8.34
A macro trader is an individual who tries to profit by analyzing economic data such as GDP growth, inflation, and unemployment. They base their decisions on the overall economic and political views of various countries and the macroeconomic principles.
Forex trading is an example of macro trading, where traders try to capitalize by finding a relationship between currency price and the data.
Margin call is the term for when you no longer have sufficient funds in your account to keep a leveraged position open. If you are placed on margin call then your positions are at risk of being closed automatically.
When you trade using leverage, you need to maintain a certain balance in your account as margin. If your losses from a trade mean that you no longer have the required margin in your account, you'll be placed on margin call.
Mark to market
Mark to market (MTM) is an accounting method that values an asset, portfolio, or account at its current market price instead of an assumed book value. An asset’s mark to market value reveals how much a company recieves if it sells the asset at that point in time.
Mark to market is sometimes called fair value accounting or market value accounting. The alternative to mark to market is historical cost accounting, which keeps an asset’s value on the books at its original level.
Investors need to be aware if a company’s assets have declined in value. If not, the company might overvalue its net worth. Mark to market should deliver an accurate, current value of an asset.
Market contagion is the spread of economic disturbances from one market to another, causing both to fall in value.
It can occur for many different reasons, but from a macro viewpoint contagion happens because almost every market is connected through financial systems. One forex pair can easily link to another, but there are also less obvious correlations between markets – for example, AUD/USD and Silver.
Many markets also use the same goods and services, meaning if one market crashes, it’s likely another will too. When a crash does occur, this interconnectivity between markets causes the initial shock to be magnified.
Contagion is a similar concept to market correlation. However, market correlation doesn’t always negatively impact a market – one market can also benefit from another‘s price movement.
Market intervention is any action taken by a government or other political-action group to modify or adjust the market. Market intervention through monetary policy is a common tool used by governments to regulate markets. Governments mainly intervene in markets by setting interest rates, subsidies and tariffs, and industry regulations.
A market maker is a trader or trading firm that quotes their own bid and ask prices on one or more assets. They'll own a set amount of the assets that they buy and sell, so they can quickly facilitate deals and ensure liquidity remains high.
You may, for example, see a market maker that quotes $2.00 per share to buy 100 shares of a particular company and $2.05 per share to sell them. The maker earns their profit from the difference between the two (the spread).
Market makers are most typically seen on the equities markets. However, they can be found in other asset classes too.
A market order is an instruction by a trader or investor (usually to a broker) to immediately buy or sell an asset or security at the current price.
A market order is the most common type of transaction in financial markets. It is the default choice for most online broker transactions.
Process of re-evaluating all open positions in light of current market prices. These new values then determine margin requirements.
The maturity date is the date that a debt instrument—such as a note, draft, or acceptance bond—becomes due. The maturity date can be found quoted on the certificate received with the debt instrument. These dates can vary depending on the instrument and contract received.
Maturity date may also refer to the expiration date for futures and options contracts or the date an instalment loan must be fully paid back.
The Medley Report refers to the Medley Global Advisors, a market consultancy based in New York that’s focused on macro policy. It serves some of the world’s largest hedge funds, asset managers, banks, and institutional investors.
The Medley Reports contain coverage of global economies, commodities, indices, and various markets. The advisory maintains close contact with central banks and government officials around the world, allowing them to claim they have insider information which informs their reports.
Synonymous with black box. Systems that automatically buy and sell based on technical analysis or other quantitative algorithms.
Abbreviation for month-over-month, which is the change in a data series relative to the prior month's level.
Momentum trading is a strategy that seeks to capitalize on momentum, or the rate at which a security’s price accelerates, whether up or down. The idea is to enter a position as price begins to surge, often with the help of technical indicators and recognized chart patterns.
Traders who align themselves with an intra-day trend that attempts to grab 50-100 pips.
Net position can either refer to the total value of all open positions, or the balance of long positions and short positions. In trading, this can mean the difference in value of all open trades in profit and all open trades running a loss, resulting in a net positive or net negative position. However, it can also refer to if a trader is net long or net short.
New York session
The New York session is a trading session that opens at 8:00 AM ET and closes at 5:00 PM ET. Typically, the first 45 minutes of the session are characterized by high volatility.
A no-touch option is a type of binary option where a trader would choose a strike price above or below the current market price and an expiration date. In order that you make a profit, the price of the underlying asset must not touch or exceed the strike price before the option expires.
Symbol for NYSE Composite index.
The offer price is the price at which you as a trader can buy an underlying asset trading in the market. The offer price is also referred to as the ‘ask’ or the ‘asking’ price.
If a market is said to be trading offered, it means a pair is attracting heavy selling interest, or offers.
An offsetting transaction is a trade that cancels or offsets some or all of the market risk of an open position.
Attempting to sell at the current market order price.
One cancels the other order (OCO)
A one-cancels-the-other order (OCO) is an order whereby, if one order is executed, then the other order is automatically cancelled. It is used when you want to place two orders at the same time: usually with one going long and the other going short. When market movements cause either order to be filled, the unfilled order is automatically cancelled.
You might place this kind of order when you expect a big move in the market but can’t decide whether it will go up or down. The OCO ensures at least one of your trades will open and move in the direction of the next move.
A one-touch option is a is a type of binary option with a strike price above or below the current market price and an expiration date, where the price of the underlying asset only needs to hit the strike price once before the option expires.
An open order is an unfilled working order that will get executed when the specific requirements have been met unless it’s cancelled by the customer or it expires.
Open orders can be subject to delayed executions because they’re not market orders. A lack of market liquidity could cause an order to remain open.
An open position is a live trade that can generate a profit or incur a loss. It can be long or short. When the profit or loss becomes realized the trade becomes a closed position.
Option expiry date/price
The precise date and time when an option will expire. The two most common option expiries are 10:00am ET (also referred to as 10:00 NY time or NY cut) and 3:00pm Tokyo time (also referred to as 15:00 Tokyo time or Tokyo cut). These time periods frequently see an increase in activity as option hedges unwind in the spot market.
Options contracts give you the right but not the obligation to buy or sell an asset on a fixed expiry date at set price, known as the strike price.
Options contracts are used to trade forex, stocks, commodities, and real estate agreements.
The two types of options contracts are:
- Call options: an agreement to buy an asset
- Put options: an agreement to sell an asset
Both can be purchased to speculate on the market direction or generate income.
An instruction to execute a trade.
An order book is a list of orders for a specific market, recorded by an exchange to measure market depth and interest from buyers and sellers.
Order books are often used by traders to identify market sentiment. For short-term traders in particular, order books are valuable as they show whether bulls or bears are dominant in the market.
Typically, order books are made up of three main components:
- Buy orders – shows buyer information including volume and price
- Sell orders – shows seller information including volume and price
- Order history – shows the orders that have been made in the past
Order books don’t cover every order in the market, as ‘dark pools’ also anonymously take orders. Dark pools are private exchanges that don’t show the identity, nor the intent (e.g. buy or sell) of an order. These are orders from whales – large traders in the market such as banks or corporations – who don’t want their trading activity to be publicly available.
Given the large volume of whales’ trades, if this information was widely available it would give traders a clear indication of how a market’s price might move.
Refers to the offer side of the market dealing.
A very heavy round of selling.
A partial fill happens when only a portion of a limit order is executed, the share price surpasses the specified limit order target during the trade. In this instance shares will only be exchanged up to the price on the limit order, and the rest remain unfilled.
For example, an order for 500 shares at $50 may limit the fill to 20 shares as the share price tips up to $50.01 mid-trade, leaving the order short of 480 shares. Partial fills are common when using limit orders.
Waiting for certain levels or news events to hit the market before entering a position.
A physical settlement requires the option seller to deliver the underlying asset if it’s a call. For puts, the option seller must buy the underlying asset from the buyer at the strike price. Physical settlement is more common for stocks and commodities than other financial securities.
Most derivative transactions do not get exercised as they’re traded before the delivery dates. However, physical delivery of the underlying asset can occur with some trades, mostly with commodities.
Clearing brokers and agents organise settlements by physical delivery. After the last day of trading, regulated exchanges’ clearing departments report the transactions of underlying assets at the previous day’s settlement (closing) prices.
Traders with short positions in the physical settlement of futures contract to expiration must deliver the underlying asset.
Traders who don’t own them are obliged to buy them at the current price. Whoever owns the assets are compelled to hand them over to the clearing organisation.
Cash vs physical settlement
The most prominent advantage of cash settlement is that it eases trading futures and options, which would present practical difficulties using the physical settlement method.
Cash settlements enable traders to buy and sell contracts on specific commodities or indices impractical to transfer physically.
The main benefit of physical settlement is potential manipulation by either party is removed because the transaction gets checked by the broker and the clearing exchange.
The cash settlement method is where parties choose to settle the gains or losses of transactions through payment in cash once the contracts expire.
In contrast, physical settlement is a mechanism where parties settle the payment by either paying in cash to secure their long position or deliver the security to own the position.
Cash settlement carries minimal risk, and the physical settlement method has a higher amount of risk.
Cash settlement offers more liquidity in derivatives markets, and physical settlement offers negligible liquidity in the derivatives market.
Cash settlement is rapid because transactions happen in cash, while physical settlement takes longer.
Contract sellers find cash settlement convenient and straightforward, making the method popular. Sellers of a contract will not need to pay extra costs for engaging in cash settlement transactions.
In comparison, the physical settlement method is not that straightforward and can be time-consuming. Parties to the transactions pay extra costs for physical delivery and the physical settlement method, such as delivery, transportation, brokerage fees, etc.
A price level is the cost of goods or services that a consumer or other party has to pay to purchase a service or product. Price levels rise as demand increases and drop when demand decreases.
Price transparency is the extent to which all relevant information is available around trading quantities, bid prices, and ask prices of a security so all agents are operating with the same information. Higher transparency allows traders to make better decisions about what securities to invest in and limits barriers to entry.
Price transparency varies between different exchanges. Some, like the NYSE, offer limited price information, such as the highest and lowest bid. Others, like Nasdaq, provide a full suite of information against each stock including trading quantities, bid prices, and ask prices.
Profit is the revenue earned for a business activity or transaction after subtracting any related expenses. When analysts look for potential investments, profitability will be a crucial indicator of business health. The most common types of profit are gross profit, operating profit, and net profit.
Gross profit considers only sales and the cost of goods sold (COGS.) Operating profit takes gross profit and subtracts the operational costs. Finally, net profit will deduct the taxes and interest from the operating profit to give a complete picture of a company’s overall profit.
A pullback is a moderate drop or a slowdown in an asset or commodity's price after a continuous upward trend. Because pullbacks are considered a temporary pause before resuming its upward journey, it can offer a great opportunity to invest, especially for traders looking to make an entry into an aggressive market.
Pullbacks don't represent a change in the price direction of an asset or commodity but a profit-making opportunity following a strong run. Retracements and consolidations are similar events and can sometimes be used interchangeably with pullbacks, although they typically refer to longer-termed drops in price.
Purchasing Managers Index (PMI)
The purchasing managers' index (PMI) measures the economic wellbeing and direction of the manufacturing and services sectors. It looks at key indicators that show signs of retraction or growth in the economy such as inventory levels, production, and employment. As a result, the PMI provides insight and guidance to company decision-makers and investors.
The PMI is calculated monthly by the Institute for Supply Management (ISM), which gives the industry a number between 1-100. An index score above 50 indicates an expansion in the sector, and a score below 50 represents a contraction. A score of 50 indicates no change.
Purchasing Managers Index services (France, Germany, Eurozone, UK)
Measures the outlook of purchasing managers in the service sector. Such managers are surveyed on a number of subjects including employment, production, new orders, supplier deliveries and inventories. Readings above 50 generally indicate expansion, while readings below 50 suggest economic contraction.
Put options are financial contracts that give the owner the right, but not the obligation, to sell an underlying asset at a specified price within a specific time. A buyer of a put can profit when the underlying asset falls in price.
Quantitative easing (QE) is a dovish monetary strategy imposed by a central bank to increase the money supply in an economy by purchasing long-term securities on the open market. The central bank's objective is to stoke growth and investment when the interest rate is at or near zero.
QE is an alternative monetary policy used when the usual open market operations are not functioning as they should be. There is sometimes a danger that it will cause inflation and fall short of its impact on growth.
A type of future with expiry dates every three months (once per quarter).
A quote is the final price an asset is traded for when a transaction is completed. Before a transaction is processed, the asset’s price is listed as a bid quote, which means the current price of the asset is subject to change before the transaction is finalized.
In forex, the quote refers to the second currency in a bid/ask pair. It represents the cost of purchasing one unit of the base currency in the currency pair.
A rally is a series of price increases in shares, indices, or bonds over a short period on the stock market. A considerable boost in demand from a rise in investment generally stokes a rally, and they often follow a period of flat or downward growth.
A rally that occurs during a prolonged period of price declines is called a bear market rally, and this can sometimes be mistaken for an end to the bear market period. However, it is considered a bear market rally only when prices stay underneath the level of the bearish decline.
A rally that occurs in a period of rising prices is called a bull market rally, which is less common than a bear market rally.
A range occurs when a security trades in a consistently high and low-price range for a given period. In this situation, a bounded range is identified by charting the high and low-price points across horizontal trendlines.
Security prices that are in the top area of a bounded range are called resistance levels, at this level, with a growing number of sellers in the market the asset will have resistance to trading.
Conversely, at the lower end of the price range a security is expected to experience price support as more buyers will be willing to trade at that price.
In Foreign Exchange (Forex), the rate is the value of one currency against another, representing how much of one it would take to buy the other. So, for example, if the exchange rate between the euro and the British pound is 0.85, it would cost €0.85 to buy £1.
Exchange rates are expressed in currency pairs, which use an acronym for each currency, followed by the exchange rate. So, in the example given above, the rate would read EUR/GDP 0.85.
The Royal Bank of New Zealand (RBNZ) is the country's central bank, responsible for driving the monetary policy to manage economic conditions. The core purpose of the RBNZ is to ensure that the economy has a stable financial system under which it can achieve growth.
The RBNZ makes decisions about the monetary policy and issues the local currency, the NZD.
Traders of significant size including pension funds, asset managers, insurance companies, etc. They are viewed as indicators of major long-term market interest, as opposed to shorter-term, intra-day speculators.
A realized profit or loss occurs when an investment is sold for a higher or lower price than purchased for, and it is only recognized once the transaction has been made. A realized profit is also known as a realized gain and only becomes liable for capital gains tax at this point.
For example, if an investor buys 1000 shares at $5 each and sells when the shares reach a market value of $8, they will have a realized profit of $3,000 ($8,000 -$5,000). Conversely, if the shares dropped to $2 each and sold, they would have a realized loss of $3,000 ($2,000 - $5,000).
Rectangle Chart Pattern
A rectangle pattern occurs when the price of a security stays within a bounded range, creating horizontal trend lines that show well-defined support and resistance levels. Rectangle patterns show market indecision and indicate that the supply and demand of a security is in a stalemate.
Traders often watch for a breakout to occur either upwards or downwards. When price consolidates to a rectangle pattern during a downtrend, it is considered a bearish rectangle. A bullish rectangle is when the price consolidates during an upward trend.
A resistance level, or resistance, is the price point at which more traders sell an asset than buy, causing the value to reverse and a peak to form on a price chart. For a resistance level to form, the phenomenon must occur more than once, allowing a line to be charted showing a clear price point at which the market reverses.
Traders and technical analysts use resistance levels to understand trends in the marketplace from previous data and forecast what may be to come.
A retail investor is an individual and non-professional investor who buys and sells securities or funds through brokers or other investment accounts. Retail investors purchase securities for their personal accounts and invest smaller amounts than institutional investors.
Retail investment has been growing significantly because of access to financial information and trading tools, and in 2021 the retail investment market in the US made up 32% of total equity volume.
Retail sales measure consumer demand by calculating the total goods sold over a given period. Consumer demand is considered an indicator of an economy's financial well-being and whether it is heading towards contraction or expansion.
In the US consumer spending, or retail sales, account for 70% of GDP.
A revaluation is an upward adjustment on a country's currency relative to a baseline such as gold, wages, or a different currency. In a fixed exchange rate economy, a decision to reevaluate a currency can only be made by the central bank. In a free-floating exchange rate, a revaluation is spurred by market forces.
Revaluation is the opposite of devaluation, in which a country's currency experiences a downward value adjustment.
A rights issue is a way for a company to raise cash by inviting its shareholders to buy new shares at a discounted price for a defined period. Invited shareholders are not obliged to purchase the shares but have the right to do so. Rights issues are often issued by a company to pay down debt or quickly raise capital for increased investment.
Risk is the exposure to potential losses you take on when trading a security. Different assets have different levels of risk, which means you can tailor your strategy based on your experience and the level of risk you want to take on.
Typically, your exposure to risk increases in line with your exposure to potential profits. For example, using leverage, a common borrowing tactic in trading magnifies your potential gains, but it also magnifies your risk of losses.
The employment of financial analysis and trading techniques – such as attaching stops and limits – to reduce and/or control exposure to various types of risk.
A rollover in forex is the action of keeping your position open from one trading day to the next, hence the name “rolling over.”. In a rollover, you technically close your position at the end of the trading day and re-enter the trade at the new open rate. This usually happens automatically.
In the forex market, which is open 24 hours 5 days a week, rollover occurs at the close of the New York trading session—5 pm ET. Rollover rates are multiplied by three on Wednesdays to make up for the two days the market is closed.
A round trip in trading refers to the dubious buying and selling of the same amount of a security to inflate the perceived trading volume and liquidity of that security. In forex, round trips involve opening and closing a position within a single day, often multiple times, and can interfere with technical analysis.
Round trip trading in other markets such as stocks or on business balance sheets has been the root of many financial scandals. This behavior is considered unethical and can be illegal when used to manipulate a market into appearing more in-demand than it actually is.
Your running profit or loss refers to the money you currently stand to gain or lose should you close your open trades. On most trading platforms a running profit will show as green and a running loss as red. If the sum of your positions is green, you have a running profit, and if the sum of your positions is in the red, you have a running loss.
Displaying your trades as running profits or losses helps to visualize where you stand hypothetically without actually closing any trades.
RUT is the acronym for the Russell 2000, an index comprised of the smallest 2000 stocks in the Russell 3000. Investors typically watch this small-cap index to measure the performance of smaller, domestically focused businesses in the United States.
Significantly, the RUT is the most prominent index to track small-cap stocks, and the index is weighted by shares outstanding. This means the index is influenced by a member stock’s last sale price and the number of shares available to be traded rather than the company’s entire market cap. It is a free-floating index maintained by FTSE Russell, a subsidiary of the London Stock Exchange Group.
SEC stands for the Security and Exchange Commission, a US government oversight agency that regulates markets and protect investors.
Established in 1934, the SEC consist of a five-person commission with each member serving a five-year term. Together the commission ensures public companies publish regular earnings reports, investors declare when purchasing over 5% of a company, and those who break securities laws are prosecuted.
A sector is a division within a market or economy used to group companies with similar outputs and analyze their performance. Sectors can be used to categorize small economies like that of a single city or larger, nationwide economies.
Examples of various sectors include agriculture, transportation, education, retail, and financial services. It is considered best practice for traders and investors to split their portfolios among multiple sectors in a process called diversification. This protects their portfolio if one sector underperforms.
Sell is one of two options traders have when opening a trade. When you open a trade by selling, you are speculating that the price of the security will drop. You close a sell trade by selling back the asset for the lower price, securing a profit.
Opting to open a position by a sell is also known as taking a short position or shorting. Conversely, when you take a long position you are ‘buying the market’.
Settlement of securities, commodities, or currencies is the process during which the asset of a specific trade is delivered or sold, and the trade is marked as closed. During the settlement, the seller gets paid and ownership of the asset is transferred to the buyer. The settlement must be marked as finished for the buyer to use the newly acquired asset or currency in another trade.
Symbol for the Shanghai A index.
Short covering is simply closing out a short position by buying back the security sold when going short. For a short covering to be successful, the security must decline in price, allowing the trader to profit from the trade.
For example, a trader shorts a stock, selling 100 shares of XYZ at $50. When XYZ drops to $35, the trader buys back those 100 shares to cover the position and close the trade, making a $1500 profit.
A short position describes when an investor sells a security with the promise to buy the security back to close the position. Short positions give traders more flexibility to speculate on a security’s price, allowing you to profit in declining markets.
A short squeeze occurs when an event or condition causes the price of an asset that has been heavily shorted to rise rapidly. Traders with short positions are then forced to increase the equity in their account to maintain the rising margin of the trade, otherwise, they are forced to close the trade and buy back the asset at a loss.
Both the combination of new traders entering long positions and short sellers attempting to buy back the security to close their position contributes to the skyrocketing price effect characteristic of a short squeeze.
Traders who have sold, or shorted, a product, or those who are bearish on the market.
Sidelines, sit on hands
To sit on hands, or sit on the sidelines, refers to traders staying out of the markets due to directionless, choppy, or unclear conditions. This allows traders time to analyze the market and use technical principles to enter at optimal moments rather than just entering a position at will and holding it in hopes its price rises.
Simple moving average SMA
Simple moving averages (SMAs) allow you to identify if a market is trending up, down or ranging sideways and are utilized in many technical indicators. SMAs calculate a market’s average price over a given time by adding the closing prices for all periods in the timeframe and dividing the total by the number of periods tallied.
For example, the five-hour SMA taken from an hourly chart would include the closing price of the last five hours divided by five. Typically, the longer the SMA period used, the more it will lag behind current price action. A 30-period SMA will see less movement than a 5 period SMA. Many indicators use multiple moving averages of different lengths to identify trends.
Slippage is the difference between the price requested in an order and the price the order is executed at, typically caused by changing market conditions. Slippage often occurs during periods of high volatility or when the bid/ask spread changes during the execution of large order quantities.
For example, say EUR/USD’s bid/ask spread is listed as 1.09949/1.09961 on your trading platform. A market order to buy euros is submitted, with the expectation that you will be paying 1.09961 US dollars for every euro. However, if the EUR/USD is experiencing high volatility, the bid/ask price may change while executing your order. In this case, the price rises to 1.09978/1.10002. Now some or all of your market order executes at a higher price, pulling more US dollars from your account than you might have expected. These small movements in the bid/ask spread can become big headaches when trading large volumes of a security, as is typical in forex and other markets.
A term used when the market feels like it is ready for a quick move in any direction.
A sloppy market describes a market with seemingly random trading patterns that lack meaningful trends or behaviors. Often sloppy markets are neither bear nor bull but oscillate between the two. During sloppy markets, traders typically wait for a breakout or a consolidation into a range before entering any trades.
SNB stands for the Swiss National Bank, Switzerland’s central bank, and the sole issuer of Swiss francs. The SNB’s monetary policy focuses on price stability while keeping in mind economic developments. Its chairman is Swiss economist Thomas Jordan.
The Swiss National Bank has a reputation of neutrality due to Switzerland not participating in either World War and the country’s exclusion from the European Union; it has long been a stable banking environment for overseas investors because of the low financial risks and high privacy protected by Swiss law.
The bank also manages Switzerland’s gold reserves, one of the largest of any nation, stored mainly in vaults underneath the Federal Square in the capital city of Bern.
The Secured Overnight Financing Rate (SOFR) is the overnight interest rate used for US dollar-denominated loans and derivatives in the overnight market. It indicates how much a bank will have to pay to borrow cash from another institution.
The rate is underpinned by US treasury securities, which a bank will offer as collateral to secure their overnight cash loans. These loans are a vital part of trading derivatives, as they allow parties to speculate on interest rates and borrowing costs.
The Sterling Overnight Index Average (SONIA) is the effective overnight interest rate that banks pay to borrow sterling overnight from other financial institutions. It’s used for overnight funding of trades that occur in off-hours and indicates the depth of business in the marketplace in these hours.
SONIA is calculated using data from banks across the UK on any transactions completed in the previous trading day. The BoE filters out unusual patterns and calculates a weighted average of all transactions over £25 million. The top and bottom 25% are removed, and a mean is taken from the middle 50%. This is rounded to the nearest four decimal places, which is the SONIA rate.
Sovereign names refer to central banks active in the spot market. Sovereign can also be used to label financial instruments like bonds, debt, credit default swaps and more that involve a country’s central bank. Sovereign names may also be referred to as government, public and national and should not be confused for a separate type of security.
A market whereby products are traded at their market price for immediate exchange.
The current market price. Settlement of spot transactions usually occurs within two business days.
A spot trade is the immediate purchase or sale of a financial instrument such as forex, commodities, and securities. Spot trades are enacted as market orders as default, but they can also be specialized orders like stop-loss or limit orders which wait until a trigger is activated to transact an immediate trade at the spot price.
The spread in forex is the difference between the prices at which a broker allows you to sell and buy a currency. The price at which you buy the base currency is known as the “bid,” and the price at which you sell the base currency is the “ask.” Together the prices are referred to as the bid-ask spread.
Brokers may widen the spread to make a profit from facilitating the trade, meaning the trader would pay more when buying or receive less when selling. The spread price may widen or narrow depending on the market liquidity. Fewer traders placing buy and sell orders mean the spread will typically be larger, as those sellers can ask for higher prices due to low demand.
The ever-changing spread seen in forex markets is called a variable spread. Spread in other markets can be fixed, but forex will always exhibit variable spreads. Spread with FOREX.com can also vary depending on the account you have. Standard accounts will have larger spreads compared with more professional accounts. You can view .
A name for the S&P index which tracks 500 of the largest companies on the NYSE and Nasdaq stock exchanges.
A square position refers to when a trader’s long and short positions offset one another, such that they effectively have no open position. Square positions most often occur in forex trading when a trader has both buy and sell orders for a single currency pair, but the term applies to any market where long and short positions can be held simultaneously.
Square positions may also be called ‘flat positions’ because the two counteracting positions leave your potential gains and losses flat, regardless of what direction the market moves in.
A trader may take up a square position when they are unsure of which direction the market will move, then close one position when they become confident in the market direction. However, there are more efficient ways to hedge traders with the use of stop-loss and buy limit orders.
Sterling is slang for the British pound sterling (GBP), the official currency of the United Kingdom. It is the fourth most traded currency and the third most popular currency to hold in foreign reserves. The pound sterling is the oldest currency to be in continuous use is represented by the symbol £.
The United Kingdom includes England, Scotland, Northern Ireland, and Wales which together make up the sixth-largest economy in the world. Main industries in the UK economy include construction, manufacturing, financial and business services, and tourism. Monetary policy regarding the pound sterling is overseen by the Bank of England.
A market on which securities are traded.
The combined price of a group of stocks - expressed against a base number - to allow assessment of how the group of companies is performing relative to the past.
Stop entry order
Stop-entry orders are used to enter a trade at a specific price. To buy, a stop-entry order is set above the current market price, and to sell, the stop-entry order is set below the current market price. Stop-entry orders are primarily used to enter at the beginning of a trend since they are triggered by the price moving in the direction of your desired trade.
Stop-loss hunting refers to when a market seems to be reaching for a certain level that is believed to be heavy with stops. If stops are triggered, then the price will often jump through the level as a flood of stop-loss orders are triggered.
The extreme volatility experienced when so many stop orders are triggered can prevent useful trading opportunities for many traders including the opportunity to make a quick profit by the large price move or open a discounted position in the expectation that the price will soon rebound to the previous levels.
Stop loss order
A stop-loss order is an order type that triggers a buy or sell trade when the asset hits a specific price. Stop-loss orders are commonly set by traders to protect positions, by setting a stop-loss below their current trader, you can protect against outsized losses.
However, stop-losses do come with danger. If the price of an asset jumps over the price specified in the stop-loss order, the order will instead be triggered at a price below your stop-loss order, putting you at risk of even greater loss. For a premium fee many brokerages, including FOREX.com, offer guaranteed stop-loss orders, which guarantee your stop-loss is triggered at the specified price, even if the price action jumps over it.
A stop order is an order to buy or sell once a pre-defined price is reached. When the price is reached, the stop order becomes a market order and is executed at the best available price.
It is important to remember that stop orders can be affected by market gaps and slippage and will not necessarily be executed at the stop level if the market does not trade at this price. A stop order will be filled at the next available price once the stop level has been reached.
Refers to stop-loss orders building up; the accumulation of stop-loss orders to buy above the market in an up move, or to sell below the market in a down move.
The strike price is the price an options contract or other derivative must reach in order to be exercised. Holders of the options or derivatives contract may exercise the strike price until the expiration date. Both the strike price and expiration date are set at the time the options or derivative contract is purchased. For call options the strike price is the price the underlying security may be bought at, and for put options, the strike price represents at what price the asset may be sold.
A price that acts as a floor for past or future price movements.
A support or support level on an asset is the price point at which it does not fall below for some time. Technical analysts use support levels along with resistance levels to chart price points and predict the performance of a stock over time.
The support level represents the price point at which buyers tend to purchase stock. When the price point holds, it is considered a support level, but if it continues to fall, the support level is not set, and a new point will emerge.
Suspended trading occurs when a central regulatory body initiates a temporary halt in the trading of a product. At that time investors and traders are unable to execute or place trades for the product.
Suspended trading may occur for several reasons including a lack of accurate or adequate information regarding a company or asset, questions about the accuracy of public information regarding a company or asset, or concerns about insider trading or market manipulation regarding the stock or other asset.
A currency swap, or swap, is a foreign exchange transaction in which two parties agree to exchange one currency for another at a future date. The currencies are then exchanged immediately at an exchange rate adjusted to reflect the expected rate of the future date, known as a forward exchange rate.
Swaps are commonly used to hedge long-term investments involving a foreign currency. They’re often initiated between companies doing business abroad when one company is paid significantly later than when the service or product is delivered.
Swissie, or swissy, is the nickname for the Swiss franc, the official currency of Switzerland. It is also used in foreign exchange trading in reference to the USD/CHF (US dollar/Swiss franc) currency pair.
The Swiss franc has considerable strength from Switzerland’s position as a key banking figure in Europe known for its neutrality in global conflicts. The nation upholds strict and discreet banking practices that make it popular among foreign investors, lending value to the swissie as a currency.
Take profit (T/P)
A take profit is an order type that automatically closes the trade when the price reaches a prespecified point. By closing the trade when the price has risen to a specific point, take profits prevent your trade from losing the gains it’s made if the market turns.
A takeover refers to a company or individual assuming control of a company by buying a majority share of its stock. They typically occur when a larger company wants to assume control over a smaller one in the form of a merger or acquisition.
Takeovers can be voluntary decisions by both companies, or the larger company may commit the takeover without the knowledge or agreement of the smaller company.
Technical analysis is a process of studying past price action to identify patterns that can help forecast future price movements. Technical analysis uses indicators that track price activity automatically to produce signals at which traders can open or close trades.
Technical analysis indicators focus on specific metrics like price averages, support and resistance levels, and trading volume.
Technicians / techs
Technicians or techs are traders who base their trading strategy on technical analysis. While many traders use fundamental analysis too, technicians choose to exclusively trade with indicators and trading signals found by examining previous price performance.
Ten (10) YR
US government-issued debt which is repayable in ten years. For example, a US 10-year note.
Thin is used to describe an illiquid, slippery, or choppy market environment. It may also be called a lean or narrow market. A thin market is characterized by light trading volume and erratic trading conditions. A thin market can apply to a single asset, a sector, or the entire market.
Thirty (30) YR
UK government-issued debt which is repayable in 30 years. For example, a UK 30-year gilt.
Time to maturity
The time remaining until a contract expires.
09:00 – 18:00 (JST).
Tomorrow next (tom/next)
Simultaneous buying and selling of a currency for delivery the following day.
The Tokyo Overnight Average Rate (TONAR) is the risk-free unsecured interbank overnight interest rate for the Japanese Yen – it’s also known as TONA.
It was created in 2016 in the move to risk-free reference rates. TONAR is the replacement for LIBOR, which is expected to be completely phased out by June 2023.
Measures the difference in value between imported and exported goods and services. Nations with trade surpluses (exports greater than imports), such as Japan, tend to see their currencies appreciate, while countries with trade deficits (imports greater than exports), such as the US, tend to see their currencies weaken.
A trade confirmation is a receipt of an executed order sent to you by your broker. Trade confirmations are sent to verify that the transaction has taken place and you will receive one after every trade you make.
These can be used to assist with tax filings or settle any discrepancies. Confirmations can also be used to check against monthly statements to ensure they correctly reflect the trades made on an account.
Trade confirmations also verify the exact price that the trade has been placed at.
The number of units of product in a contract or lot.
A pair is acting strong and/or moving higher; bids keep entering the market and pushing prices up.
A postponement to trading that is not a suspension from trading.
A market that feels like it wants to move lower, usually associated with an offered market that will not rally despite buying attempts.
Trading levels are determined by a broker to ensure traders only enter specific markets and employ strategies that are on a par with their experience level. When you create a brokerage account, a broker will perform a risk assessment and determine your trading level. The broker will consider factors such as your available capital, occupation, age, and trading experience.
Trading levels can also refer to support and resistance levels, which are key price points in technical analysis.
A trading model is a rule-based structure created to govern trading activities. Trading models help take some guesswork out of the markets while encouraging investors and traders to set risk parameters.
A pair is acting weak and/or moving lower and offers to sell keep coming into the market.
The range between the highest and lowest price of a stock usually expressed with reference to a period of time. For example: 52-week trading range.
A trailing stop is a type of stop order set at a number of pips from the current market price. They automatically follow your position as the market moves in your favor, but close out if the market moves against you.
Trailing stops allow you to increase your locked-in profit as the market moves favorably, without the need to constantly adjust your stop.
Transaction costs are fees required of traders when executing or holding their orders. These costs are generally the bid/ask spread, broker fees, commissions, rollover fees or other charges associated with trading.
The type and amount of these costs vary between asset classes. But it’s always important to calculate transaction costs when determining your net returns.
The date on which a trade occurs.
A trend in forex refers to when the market moves higher or lower within a specific period of time. A trend is usually classed as either an uptrend or a downtrend. Uptrends indicate buyers have more influence over the market, and downtrends indicate sellers hold more influence over the market.
Turnover is the total monetary value of all executed transactions in a given time period, otherwise known as trading volume. Turnover represents how much money is being traded in a market. For example, forex turnover is calculated monthly with the use of volume histograms.
A two-way price is a quote for a currency pair that includes both the bid and ask price. The bid price is listed first and is the best price at which you can buy the specific currency; the ask price is listed second and is the best price at which you can sell the currency.
Since forex currency pairs are listed as the base and quote currency, the two-way price reflects how much of the quote, or second listed currency, it takes to buy one unit of the base currency, listed first.
Symbol for CBOE 10-Year Treasury Yield Index.
Describing unforgiving market conditions that can be violent and quick.
UK average earnings including bonus/excluding bonus
Measures the average wage including/excluding bonuses paid to employees. This is measured quarter-on-quarter (QoQ) from the previous year.
UK claimant count rate
The UK claimant count records the number of citizens aged 19 to 64 claiming unemployment benefits in the UK. The claimant count is seen as an indicator of labor market activity and economic health within the UK.
The claimant count is often lower than total unemployment data as not everyone who is unemployed is receiving benefits.
UK Halifax house price index
The UK Halifax house price index measures UK house prices to give an indication of trends in the UK real estate sector. The index is limited to properties financed by the Halifax Bank of Scotland (HBOS), but it is seen as the leading index in the sector.
UK jobless claims change
Measures the change in the number of people claiming unemployment benefits over the previous month.
UK manual unit wage loss
Measures the change in total labour cost expended in the production of one unit of output.
UK Oil is another name for Brent Crude Oil. Brent Crude is the leading benchmark for global oil prices, akin to two-thirds of all oil pricing. Brent Crude oil is produced near the Baltic Sea and is typically refined in Northern Europe.
OPEC, a group of the 13 most powerful oil-rich countries, use Brent Crude as their pricing benchmark.
UK Producer Price Index
The UK Producer Price Index (PPI) measures the change in the price of goods bought and sold by UK manufacturers. The PPI is also used to measure changes in wholesale inflation experienced by manufacturers, which can be extrapolated to indicate changes in consumer inflation.
A name for the FTSE 100 index.
The actual traded market from where the price of a product is derived.
The unemployment rate is used to measure the number of people in a country or sector who do not have a job but are actively seeking one. The unemployment rate is measured as a percentage of the labor force, which consist of all people both employed and unemployed.
The unemployment rate is often viewed as a measure of the country’s spare labor force and unused resources. It can be affected by seasonal changes in economic activity such as harvesting and tourism or anomalies like a recession.
University of Michigan's consumer sentiment index
Polls 500 US households each month. The report is issued in a preliminary version mid-month and a final version at the end of the month. Questions revolve around individuals’ attitudes about the US economy. Consumer sentiment is viewed as a proxy for the strength of consumer spending.
The theoretical gain or loss on open positions valued at current market rates, as determined by the broker in its sole discretion. Unrealised gains/losses become profits/losses when the position is closed.
An uptick is any new price quote that is higher than the preceding quote. An asset experiences an uptick only when enough buy orders are placed to drive the price of the asset higher. Conversely, a downtick is a lower quote.
Uptick is used to express several different terms in trading.
- Zero upticks – describes when a trade is executed at a price that is the same as the trade immediately preceding it
- Uptick volume – denotes the number of trades enacted when the asset’s price is rising
- Uptick rule – is an act by the US Security and Exchange Commission that required short sells to only be made on an uptick so short sellers would not put too much pressure on the asset by selling it while on a downtick
In the US, a regulation whereby a security may not be sold short unless the last trade prior to the short sale was at a price lower than the price at which the short sale is executed.
US Oil is another name for West Texas Intermediary (WTI) Crude Oil. WTI is the benchmark for Atlantic basin crude oils because of its location in the Gulf coast and central US. The US oil is traded on the New York Mercantile Exchange (NYMEX).
WTI oil is characterized as a light, sweet crude oil with a higher sulfur concentration compared to Brent Crude, the other benchmark oil.
US prime rate
The US prime rate is the short-term interest rate charged by US banks to loan money to their most trusted customers. The US prime rate is published as an average by the Wall Street Journal when 23 of the 30 largest US banks change their prime rates.
These prime rates are a baseline at which individual banks set their consumer interest rates like mortgage and credit card rates.
The value date is the date on which counterparts to a financial transaction agree to settle their respective obligations. At the value date, the value of an account, transaction, or asset goes into effect. The value date is more commonly called the maturity date.
In trading the value date denotes when the transaction is completely settled, i.e. the payment is finalized and the asset’s ownership is transferred. When spot trading forex, the value date is often set two days after the trade is closed and the transaction finalized.
Funds traders must hold in their accounts to have the required margin necessary to cope with market fluctuations.
Vix or volatility index
Shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. The VIX is a widely used measure of market risk and is often referred to as the ‘investor fear gauge.’
An active market that is experiencing rapid price changes, that can present trade opportunities.
Wedge chart pattern
A wedge chart pattern is a chart formation resembling a wedge formed by a narrowing price range over time, either ascending or descending. In a wedge pattern two trend lines are moving in the same direction but narrowing in width. Eventually a breakthrough occurs to end the pattern.
- An ascending wedge features price highs which decrease incrementally while price lows increase incrementally. Ascending wedges typically conclude with a downside breakout, making them a bearish indicator
- A descending wedge features price declines which become incrementally smaller, concluding with an upside breakout, making the descending wedge pattern a bullish indicator
Whipsaw is a slang term used by traders to describe the condition of a highly volatile market in which sharp price movement is quickly followed by a sharp reversal. Often in a whipsaw market, the price jumps up and down with no apparent rhythm.
Wholesale prices measure the change in prices paid by retailers for finished goods, which are then sold at a markup by retailers to consumers. This means wholesale prices will typically rise and signal inflationary pressures occurring before that pressure is seen in rising headline retail costs. A rise in wholesale prices is most often caused by tariffs and international conflict affecting imports.
A working order is a term used for both stop-loss orders and take-profit orders, two order types that remain open on the market until their specified price is hit. The term ‘working’ order is used because unlike market orders which execute immediately, working orders stay open until end-of-day or good-till-canceled.
WSJ is an acronym for the Wall Street Journal, a daily financial newspaper based in New York City. The WSJ is published by Dow Jones & Company and produces the US Prime Rate, a national average based on short-term interest rates set by major banks.
The WSJ is regarded as a record of international financial and market news. The paper is one of the largest in the US by circulation and has won 38 Pulitzer Prizes since its founding in 1889.
XAG/USD is how silver is labeled for spot trading on the foreign exchange market. Silver (XAG) is traded against the US dollar (USD), so its price shows how much one ounce of silver is worth in USD. XAG/USD is traded like any traditional currency pair.
In addition to gold, silver is a precious metal and is used in the creation of jewelry and silverware. It also has significant industrial use in solar panels, batteries, medical and photography equipment, and motor vehicles.
XAU/USD is the label for spot gold traded on the foreign exchange market. Gold (XAU) is traded against the US dollar (USD), and its price represents the cost of one ounce of gold in USD. XAU/USD is traded on the forex marketplace like any traditional currency pair.
While gold is primarily traded against the US dollar, FOREX.com offers gold trading as XAU/EUR, XAU/GBP, XAU/CHF and XAU/AUD as well.
XAX.X is the symbol for the AMEX composite index. The AMEX Composite Index is a capitalization-weighted index of primarily small-cap stocks and American depository receipts that trade on the New York Stock Exchange (NYSE). The index is used as a tool to monitor how small company stock prices are performing overall.