Trading TerminologyOpen Demo Account
An acquisition refers to the process of one company acquiring another by purchasing either the entire company or a majority share in the company.
Appreciation refers to the rise in market value of an asset. Appreciating assets increase the overall value of an investor’s portfolio.
Arbitrage is when a trader purchases and then immediately sells an asset to profit from a price imbalance. It exploits the price difference of a financial instrument across different markets or platforms.
This is the price a dealer will accept for a financial instrument, also sometimes referred to as an offer.
On the financial markets, an asset is any tradable financial instrument, including individual commodities, currencies and stocks.
An asset class refers to a specific category of investment such as stocks, bonds, currencies or options.
AT THE MONEY
The term “at the money” is used to describe an asset that has a price equal or nearly equal to the current price of the underlying asset.
An automated trading system uses software or a computer program to automatically execute buying and selling orders.
This is a method of reducing the cost of purchase of an asset by buying additional shares in a long position as the price moves down, therefore reducing the average price per share.
BANK OF ENGLAND
Also known as the BoE, the Bank of England is the Central Bank of the United Kingdom. Its role is to maintain monetary stability of the UK financial system, and it makes decisions about important financial issues such as interest rates and currency adjustments.
This is a forex term used to describe the currency against which exchange rates are quoted in any given country. It is shown on the left side of a currency pair, so in the currency pair USD/EUR, the base currency is the USD.
This is the interest rate set by the central bank of a country. It is the rate that bank will charge for lending to another bank and is a benchmark for interest rates throughout the country.
This is a method of price representation often used in financial charting tools. It features a vertical line and two short horizontal lines, one at each side of the vertical line, indicating the opening and closing prices of an asset over a set period of time.
A basis point is one-hundredth of one percent (0.01%) and is used chiefly for expressing differences in interest rates. Basis points are sometimes referred to as “bps” or “bips.”
A bear market is one where prices are falling, resulting in a decrease in the market value of an asset or market.
This is the price that a dealer is willing to pay to purchase an asset from a trader. It is shown on the left of a price quote.
Blue-chip companies are large, stable, prosperous corporations. Shares in these companies are known as blue-chip stocks and are generally the most expensive stocks on the market.
Bonds are long-term lending agreements where individuals or corporate entities lend to governments and companies for a fixed period of time. Bond holders receive interest payments during the bond's term or until they sell the bond.
This is a trading classification that serves as a benchmark price for trading heavy crude oil contracts, derivatives and futures worldwide.
This is the agreement made between major world powers in 1944 in the US town of Bretton Woods. It established a new international monetary system and led to the emergence of the US dollar as the global currency of trade.
A word that amalgamates “Britain” and “exit”, it refers to the impending withdrawal of the UK from the European Union as a result of a referendum to that effect in June 2016.
A broker is an individual or firm that acts as an agent or intermediary in trades between buyers and sellers. They make money by charging fees or commissions on those trades.
A bull market is one where prices are rising, resulting in an increase in the market value of an asset or market.
This is market slang used to refer to the exchange rate between the British pound and the US dollar (GBP/USD), one of the most commonly traded currency pairs.
This is a contract in the options market that gives the buyer the right to buy a certain asset at a certain price before a set expiry date.
The candlestick is a way of representing price action on some financial charting tools. The display uses shapes that resemble a candle to indicate price action within a given market.
A central bank is an agency of a government that determines and manages the monetary policy of that country or region and controls the money supply. Examples of central banks include the US Federal Reserve, Bank of England (BoE), the European Central Bank (ECB) and the Swiss National Bank (SNB).
A chartist is a trader who uses charting tools to monitor price information and determine the future price action of an asset. Chartists are also known as technical analysts.
This is the last price that an asset traded at before a market closes at the end of a trading day.
This is a tradable asset that is also a tangible product, generally a raw material or agricultural product. Examples include gold, silver, crude oil and coffee.
CONTRACTS FOR DIFFERENCE
Also known as CFDs, this term refers to a form of financial trading where the physical assets do not change hands between the seller and the buyer. The contract is based on the difference in the value of the underlying asset when the position is entered and exited.
A term used in forex trading to describe the currency that the base currency is paired with. It is listed on the right-hand side of a currency pair. For example, the counter currency in the AUD/USD is the US dollar.
Cross currencies refer to forex pairs or transactions that do not include the US dollar. Examples include the EUR/GBP, GBP/JPY and EUR/CAD.
Day trading is a trading style where trades are opened and closed within the market hours of a single trading day.
A dealer is an individual or firm that buys and sells securities for their own account, either through a broker or directly. Some brokers also act as dealers; as a dealer, they act as a principal in trading for their own account, and as a broker, they act as an agent executing orders on behalf of clients.
The department in a retail brokerage office that fulfils trade orders off-exchange instead of sending them to an exchange or the interbank market, dealing desks are a common feature in the spot retail forex market.
The delta is a term commonly used in the options market to refer to the price movement of a derivative in relation to the price change of its underlying asset. It is also known as the hedge ratio.
Depreciation is a decrease in the market value of an asset. Depreciating assets are ones that are falling in price.
A derivative is a financial product that allows traders to speculate on the change in the value of an asset without owning the asset themselves. Derivatives are tied to an underlying asset and are known as derivatives, as they always derive their value from that underlying asset.
Devaluation happens when a government manufactures a deliberate downward adjustment in the value of their currency. It is used as a monetary policy tool, so market forces do not play a part in devaluation.
DMA (direct market access) is a form of order dealing that provides traders with electronic trading facilities to enable them to interact directly with the order book of an exchange. In forex trading, DMA provides access to the interbank market and bypasses the dealing desks.
This is the interest rate at which a country’s commercial banks and other financial institutions are able to borrow from the central bank.
EARNINGS PER SHARE
Earnings per share (EPS) is a term commonly used in the stock market to refer to the net income of a company divided by the number of shares it has issued.
This refers to key statistics that indicate the health and direction of a given economy. Data used to generate economic indicators includes statistics related to employment, manufacturing, inflation and gross domestic product (GDP).
This is the central currency used by most European Union member states.
EUROPEAN CENTRAL BANK (ECB)
This is the central bank for the European Union. It is responsible for monetary policy in the Eurozone (which includes all countries that use the Euro as their national currency). It is also a lender to the central banks of individual Eurozone countries.
EUROPEAN MONETARY UNION
This is the agency that aims to integrate EU economies across the Eurozone. It is involved in coordinating economic and fiscal policies and managing a common monetary policy and a common currency.
This is a term for a marketplace where financial assets are traded. An exchange can be a physical exchange (such as the London Stock Exchange), or it can be virtual exchange that operates online.
This is the price at which one currency can be exchanged for another currency.
This is the completion of a buy or sell order made in a financial market or exchange. Execution happens when the order is filled, not when the investor places it.
This is a term commonly used in the options and futures markets to define the last day that a derivative is valid. By this date, all open positions for a futures or options contract must be exercised or they are automatically closed.
Exposure refers to the percentage of a trader’s total equity that is committed to open trades at any one time. It can also be defined as the total possible risk at any given time.
The FCA (Financial Conduct Authority) is the agency responsible for the regulation of the financial markets in the United Kingdom. Reputable UK brokers will be regulated by the FCA.
The Federal Reserve, also known as the Fed, is the central banking system of the United States. It regulates US financial institutions, manages the country’s money and regulates money supply and interest rates.
This term refers to the fulfilment or completion of a trade order. An order in which the total number of units ordered has been exchanged between the buyer and seller is a “filled” order.
FIXED EXCHANGE RATE
This is a system in which the exchange rate of a currency is controlled by a national government through its central bank rather than by market forces. It is also known as a pegged exchange rate.
FLOATING EXCHANGE RATE
Under this system, the value of a national currency relative to other currencies is determined by market forces and changes regularly based on supply and demand.
Forex is the common term for foreign currency exchange trading. It is also known as foreign exchange, currency trading or FX.
This is a method of asset valuation that aims to predict the future price movements of an asset. It looks at trends and events that impact economies, markets and companies, including political elections, government policy and other current events.
This refers to a contract between two parties for assets exchanged at an agreed price but delivered and paid for on a specified future date.
GOOD FOR DAY (GFD) ORDER
This is a limit order that remains open until the end of the trading day, at which point it is cancelled automatically.
GROSS DOMESTIC PRODUCT (GDP)
GDP refers to the total value of the goods and services produced by a country in a given year. It is considered an important indicator of the overall health of a country’s economy.
GTC (GOOD TILL CANCELLED) ORDER
This is a limit order that remains open until it is either triggered or cancelled by the trader.
GUARANTEED STOP LOSS
A form of stop loss order that guarantees that the trade will close out at the set price, irrespective of market conditions or volatility.
HAWKS AND DOVES
This is a term used to categorize policy makers and advisors on a central bank’s voting committee. Hawks are those who support tightening of monetary policy and higher interest rates, and doves are those who support loosening of monetary policy and reducing interest rates.
Hedging is a trading practice in which an order is placed specifically to reduce the risk of another open position in the market. Typically, it involves investing in two assets with negative correlations, so if one falls in value, the other is likely to rise.
HIGH FREQUENCY TRADING
This is simply the practice of placing and fulfilling many orders in fast succession, generally using advanced algorithmic computer software. Also known as HFT, this style of trading is used to get the best price for very large orders or to profit from quick entries and exits.
This is an economic condition where the cost of goods and services in a country increases, eroding the purchasing power of the national currency. Negative inflation, or deflation, is also possible and happens when prices fall, generally because supply is higher than demand.
This is the global market where foreign currencies are priced and traded.
This is when a central bank intervenes to purposely adjust the value of its national currency. Intervention is used as a tool in a country’s monetary policy to control exchange rates.
This is the effect that devaluation of a national currency is expected to have on the country's trade balance. It is indicated by a dip followed by a rise, which looks a little like a J when plotted on a chart.
Used as slang among forex traders for the New Zealand dollar (NZD).
Leverage enables a trader to increase his or her investment by borrowing money, usually from a broker, without committing any more capital. It is risky but allows traders to make significantly bigger trades in the hope that they will make bigger profits.
A limit order is an instruction a trader gives to a broker to buy or sell an asset when it is at a specific rate (or better). A buy limit order will only be executed at the limit price or lower, and a sell limit order will only be executed at the limit price or higher.
The London Interbank Offered Rate (LIBOR) is the rate at which a bank can borrow money from another bank within the UK.
Liquidity refers to how easily an asset can be quickly bought and sold at a price that reflects its intrinsic value. Assets with high liquidity can be easily converted to cash.
A long trade is when an order is placed to buy an asset with the expectation that it will rise in price and can be sold in the future.
Margin is borrowed money that a trader can use to invest in financial instruments. A margin account allows a trader to borrow money from a broker at a fixed interest rate to invest in assets with the hope of a positive return on that investment.
A margin call is triggered when a trader needs to provide additional funds to cover an over-exposed position. It is usually issued by a broker when a position has moved against the trader and is likely to erode the entire equity invested in the trade.
A market maker is an individual or firm that buys and sells assets via its own account at prices it displays on its exchange’s trading system, with the primary goal of profiting on the bid-ask spread. Market makers continuously quote prices at which they are willing to buy and sell at. They commonly charge a fee on the spread of each asset they buy and sell in order to make a profit. A common type of market maker is a financial brokerage that provides buying and selling options for investors, keeping financial markets liquid.
This is the data released by the US Department of Labor that measures the employment change in manufacturing, construction and other sectors of the US economy. It does not include the agricultural sector, employees in private households or non-profit employees.
The offer price, also known as the ask price, is the price at which a dealer is willing to offer an asset for sale.
On the financial markets, an option is a financial instrument that offers a trader the right – but not the obligation – to purchase or sell an asset at a specific price on or before a specific date. Options are derivatives, as they always derive their value from an underlying asset.
An order is simply an instruction issued by a trader to a broker to either open or close a position. There are different types of orders, and they may involve immediate execution or may come into effect when a specific set of criteria (usually a set price) is met in the future.
OTC means over-the-counter trading, also known as off-exchange trading, which is a form of trading carried out directly between two parties without the involvement of a formal exchange.
A pip is a Percentage Interest Point, a small unit that measures change in a currency pair when trading forex. It is the smallest amount by which a currency quote can change and is usually one hundredth of 1% ($0.0001) for USD-related currency pairs.
Traders open a position when they enter a trade, and the position stays open until they exit that trade, when they are said to close that position. Position investors tend to invest long-term and typically have more than one open position at any given time. Some traders may open and close positions within minutes or even seconds. A trader is said to take a long position when buying an asset with the expectation that value will rise, and a short position when selling it with the expectation that value will fall, enabling the repurchasing of the asset later on at a lower price.
Producer Price Index
The Producer Price Index, also sometimes known as PPI, measures the average change in the prices of goods bought and sold by producers over time in any given country or region. As such, it is an indicator of inflation in that country or region.
Profit taking occurs when traders close open positions after a rise in the value of an asset in order to realise potential profits.
Quantitative easing is an unconventional economic policy deployed by central banks, often following a financial crisis. It involves introducing new money into the money supply in order to stimulate economic recovery, reducing interest rates, encouraging lending and attracting investment. Quantitative easing tends to temporarily devalue a currency but then stimulates the economy so that value increases over time.
This is a term to describe an indicative market price at which assets can be bought or sold. The bid quote is the price at which a current buyer is willing to purchase an asset, while the ask quote is what a current seller is willing to sell for. The term quote may also refer to the last price at which an asset traded, so the last price that was agreed and acted on by an active buyer and seller.
This is the currency listed on the right side of a currency pair in forex trading. In a direct quote, the quote currency is the foreign currency. It is sometimes referred to as the counter currency or the secondary currency.
A currency or other financial asset is said to rally when it sees a period of sustained recovery and increase in price following a period of price decline.
This is the difference between the highest and lowest prices of any given asset over a set period of time. A market is said to be ranging when prices are fluctuating and not consistently trending upwards or downwards.
A ratio spread is an options trading strategy in which the trader holds an unequal number of long and short positions on the same asset with the same expiry date. The trader can use the short positions to further finance the long position, which can in theory reduce the overall cost of the strategy and make a net profit more likely.
In technical analysis, many indicators use a support and resistance model. Resistance, also known as the resistance level, is the price point at which the price of an asset stops rising and goes into reversal as sellers exit their positions and the price declines.
Revaluation is the opposite of devaluation and occurs when a national government takes steps to induce an increase in the value of a national currency. This may be achieved by selling a foreign currency in large numbers in exchange for the national currency that is to be increased.
This term can have different meanings depending on context, but in trading, and particularly in forex, a rollover is the process of keeping a position open and extending the settlement date in order to allow forex traders to profit from changes in exchange rates.
Scalping is the practice of quickly opening and closing positions, often within minutes or even seconds of each other. This strategy allows traders to make small but quick and frequent profits from very small price movements.
SEC stands for the Securities and Exchange Commission. In the US, this agency is responsible for the regulation of the stock markets, oversight of mergers and acquisitions, listing of companies or assets on exchanges and protection of investors.
Shares are units of ownership in a company or financial asset, allowing traders to buy and sell small portions of any publicly traded company or asset. Some shareholders invest long-term, holding ownership of a part of the asset and receiving dividends if the company makes a profit. Many traders buy and sell shares quickly and frequently in an attempt to make regular profits. Shares are usually traded on a stock exchange, where ownership can be transferred at a price determined on the secondary market.
A trader takes a short position when he or she sells an asset with the intention to re-purchase that asset at a lower price and realise a profit.
Short selling is the opposite of the accepted wisdom to ‘buy low and sell high’ in trading. Short selling is when a trader sells an asset at a high price and buys it back at a low price, which also results in an overall profit, as the trader now owns the same stock and also has the surplus of money which is the difference between the selling price and the buy-back price.
Slippage is the term for what happens when the price at which an order is filled is different from the price quoted when the trader placed the order. This can mean the trader pays more or incurs a bigger cost than was anticipated.
This is the abbreviation for the Swiss National Bank, which is the central bank of Switzerland.
A spot trade refers to the buying and selling of an asset at a given price for immediate settlement and delivery. Spot trades usually involve delivery of the asset within one or two business days, as opposed to futures contracts, where settlement and delivery completes by a specified future date.
This is the difference between the bid and ask prices in a price quotation. The broker’s commission for bringing buyer and seller together usually comes from the spread.
A stockbroker brings buyers and sellers together and executes the buy and sell orders they place. Stockbrokers charge either a flat fee or a commission and also trade on behalf of some of their clients.
A stock exchange is a real or virtual venue where brokers and traders can buy and sell financial assets.
A stock index is used to measure the performance of the stock market, or a specific part of it, and to compare returns on investments across the markets. Examples include the NASDAQ, S&P 500 and Dow Jones Industrial Average.
A stop loss is an instruction to a broker to close an open trade if the trade goes against a trader to a specified price level. As the name suggests, it is intended to limit the trader’s losses.
This is an options strategy in which a trader simultaneously buys and sells two or more contracts on opposite sides of the price action (both below and above market price) for the same underlying asset with the same strike price and the same expiry date. It can be used to try and profit from price movements when the direction of the price move is uncertain.
As already mentioned, many technical analysis indicators use a support and resistance model. Support is the price point at which the price of an asset stops falling and goes into reversal as buyers enter positions and the price increases.
This is the slang term for the Swiss Franc, a commonly traded currency generally considered by forex traders to be a very stable currency that is desirable to invest in during uncertain times, global recessions and financial crises.
This is the practice of using patterns in market data, such as price action and volume, to identify trends and make predictions regarding the future price movements of an asset. This is done using charting tools and other technical indicators and is now associated with computer software and apps, but technical analysis pre-dates the computer age and was originally done using analogue charts.
This is the part of a physical stock exchange where buyers and sellers trade financial assets. It is also sometimes known as the trading pit.
Also known as Treasury Bills or T-Bills, these are the bond instruments issued by the US government as debt securities whey they borrow money from investors. Treasuries also exist in other countries by various other names.
A trend is a sustained movement in the value of an asset or market in an upwards or downwards direction. Trend traders are those who identify and monitor these sustained movements and use them to make buying and selling decisions.
The VIX is the Volatility Index, a tool created by the Chicago Board of Options Exchange (CBOE) to calculate and track the volatility of the S&P 500 Index. It is a real-time market index that aims to predict market volatility over the next 30 days.
Volatility is the degree of unforeseen, rapid price movement of an asset over a given time period. Generally, high volatility means high risk, but many experienced traders aim to profit from volatility, often using scalping techniques to make lots of small profits.
Volume refers to the amount of an asset that has been traded over a certain period of time. It is recognized as an important indicator in trading and is closely linked to demand, price action and liquidity.
This refers to the practice of placing trades during the weekend hours when most markets are closed, or trading on markets that are open on weekends, such as the cryptocurrency market. Changing global trends and virtual markets are allowing for more possibilities to trade over the weekend, although major stock exchanges still remain closed.
Stock weighting is a process in which each stock influences an index in proportion to its price per share. Stocks with higher prices have more weight than those with lower prices and will have more impact on the overall performance of the index.
WTI stands for West Texas Intermediate, which is a benchmark for trading of light sweet crude oil contracts in the commodity market.
This is the national currency of Japan. It has the symbol of JPY and is commonly traded on forex markets worldwide.
This is the interest or dividend income that is earned from an investment, usually in the bond markets. The yield is generally expressed as an annual percentage rate based on an investment’s cost, current market value or face value.
This is the national currency of China and has the symbol CNY. It is pegged to the US dollar, keeping the value of the yuan stable and therefore keeping Chinese imports cheap and the Chinese economy prosperous.
In order to understand the financial markets, it’s vital to get familiar with the terminology and understand the words, phrases and terms commonly used by traders, brokers and the financial press. Check out our glossary where we break down commonly used terms to allow even beginner traders to understand the basic language, slang and abbreviations used when talking about the international finance markets. The glossary is arranged alphabetically, allowing you to quickly check the meanings of anything you are unsure about.