When one company decides to take over another one, it is referred to as an acquisition. The acquiring company will do this by purchasing either the majority or entirety of the ownership stake of the company being taken over.
Aggregate demand definition
Aggregate demand is the total demand for final goods and services in a market, sector or economy. Aggregate demand shows how current price levels relate to a nation’s real gross domestic product (GDP).
Aggregate supply definition
Aggregate supply is the total value of goods or services in a market, sector or economy. Aggregate supply is used to show the amount of goods that can be produced at different price levels in a given time period – usually one year.
IG alerts – also known as trading alerts – allow you to set specific criteria and be notified immediately once that criteria has been met. There are three main types: economic announcements, price alerts and indicator alerts.
Alpha is the measurement of an investment portfolio’s performance against a certain benchmark –usually a stock market index. In other words, it’s the degree to which a trader has managed to ‘beat’ the market over a period of time. The alpha can be positive or negative, depending on its proximity to the market.
Amortisation is the process of spreading the repayment of a loan, or the cost of an intangible asset, over a specific timeframe. This is usually a set number of months or years, depending on the conditions set by banks or copyright agencies. Amortisation will often incur interest payments, set at the discretion of the lender.
Annual general meeting (AGM) definition
An annual general meeting (AGM) is a yearly gathering between the shareholders of a company and its board of directors. Generally, this is the only time that the directors and shareholders will meet throughout the year, so it is a chance for the directors to present the company’s annual report.
Arbitrage in trading is the practice of simultaneously buying and selling an asset to take advantage of a difference in price. The asset will usually be sold in a different market, different form or with a different financial product, depending on how the discrepancy in the price occurs.
Asset classes definition
An asset class is a category of financial instrument - these can be physical assets or financial assets. The instruments are grouped into asset classes based on whether they show similar characteristics, behave in the same way on the market, or are governed by the same laws and regulations.
An asset is an economic resource which can be owned or controlled to return a profit, or a future benefit. In financial trading, the term asset relates to what is being exchanged on markets, such as stocks, bonds, currencies or commodities.
At the money definition
At the money (ATM) is a term used to describe an options contract with a strike price that is identical to the underlying market price. At the money options see a lot of trading activity, because they are so close to becoming profitable.
Auction market definition
An auction market is an environment that facilitates competition between buyers and sellers. In an auction market, buyers indicate the maximum price that they are willing to pay for an asset, while sellers express the lowest price that they would be comfortable accepting.
Automated trading definition
Automated trading – also known as algorithmic trading – is the use of algorithms for making trade orders.
Averaging down definition
Averaging down is when a market participant buys more of a stock they already own after the price has declined. In doing so, they will reduce the average price at which they purchased the stock and could stand to realise a greater profit if the market value recovers above the new average price.
Bank of England definition
The Bank of England (BoE) is the central bank for the United Kingdom. Sometimes known as the ‘Old Lady of Threadneedle Street,’ the bank says its mission is to ‘promote the good of the people of the United Kingdom by maintaining monetary and financial stability.’
Base currency definition
In trading the term base currency has two main definitions: the first currency quoted in a forex pair, or the accounting currency used by banks and other businesses.
Base rate definition
A base rate is the interest rate that a central bank – such as the Bank of England or Federal Reserve – will charge commercial banks for loans. The base rate is also known as the bank rate or the base interest rate.
Basis point definition
A basis point is a unit of measurement used to quantify the change between two percentages – it can also be referred to as ‘bp’, which is pronounced ‘bip’ or ‘beep’. A basis point is equal to one hundredth of one percent, or 0.01%.
Bear market definition
When the market is on a sustained downward trajectory, with little optimism from traders to bring about a rally, it is referred to as a bear market.
Being bearish in trading means you believe that a market, asset or financial instrument is going to experience a downward trajectory. Being bearish is the opposite of being bullish, which means that you think the market is heading upwards.
In trading and investing, the bid is the amount a party is willing to pay in order to buy a financial instrument.
Blue-chip stocks definition
Blue-chip stocks are the shares of companies that are reputable, financially stable and long-established within their sector. Over time, the companies that are considered blue chip tend to change, so the exact definition of what is required for blue-chip status can be vague. However, a company that is considered blue chip will tend to be at or near the very top of its sector, feature on a recognised index, and have a well-known brand.
The BoE is a popular shortening of the Bank of England, the central bank of the United Kingdom.
Bollinger bands definition
Bollinger bands are a popular form of technical price indicator. They are made up of an upper and lower band, set either side of a simple moving average (SMA). Each band is plotted two standard deviations away from the SMA of the market, and they are capable of highlighting areas of support and resistance.
Bond trading definition
Bond trading is one way of making profit from fluctuations in the value of corporate or government bonds. Many view it as an essential part of a diversified trading portfolio, alongside stocks and cash.
Bonds are a form of financial investment that involve lending money to an institution for a fixed period of time. They usually come in two varieties: corporate bonds and government bonds, depending on the type of institution you are lending to.
Book value definition
While book value reflects what a business is worth according to its financials (its books), market value is the worth of a company according to financial markets – also known as its market capitalisation. The calculation for market value is the current market price per share multiplied by the total number of outstanding shares.
Book-to-market ratio definition
The book-to-market ratio assesses a company’s value by comparing its book value to its market value. The book value is the value of a company on paper according to its common shareholder equity, while the market value of a company is determined by its market capitalisation.
Bottom line definition
The bottom line is a term used to describe a company’s net income or earnings per share (EPS). If it’s referring to net income, it is the total profit made, minus any outgoings. And if it’s referring to EPS, it is the bottom line figure divided by the number of outstanding shares in the company.
Brent crude definition
Brent crude – also referred to as Brent blend – is one of three major oil benchmarks used by those trading oil contracts, futures and derivatives. The other two major benchmarks are West Texas Intermediate (WTI) and Dubai/Oman, though there are many smaller oil varieties traded as well..
‘Brexit’ is a contraction of ‘British exit’, and it is the word used to define the UK’s departure from the EU. The initial referendum took place in June 2016, with 51.9% voting to leave, and 48.1% voting to remain.
A broker is an independent person or a company that organises and executes financial transactions on behalf of another party. They can do this across a number of different asset classes, including stocks, forex, real estate and insurance. A broker will normally charge a commission for the order to be executed.
Bulls are speculators who believe that a market, instrument, or sector is going on an upward trajectory. This belief puts them at odds with bears, who take a pessimistic view on a market’s direction.
Bull market definition
When a market, instrument or sector is on an upward trend, it is generally referred to as a bull market.
Bullish traders believe, based on their analysis, that a market will experience an upward price movement. Being bullish involves buying an underlying market in order to profit by selling the market in the future, once the price has risen.
Buying a financial instrument means taking ownership of it from someone else, whether it is a commodity, stock or another asset.
Cable in forex is the nickname of the GBP/USD currency pair. It represents the British pound against the US dollar, and it is one of the most popular pairs on the currency market.
Call option definition
A call option is a contract that gives the buyer the right but not the obligation to buy a specific asset at a specific price, on a specific date of expiry. The value of a call option appreciates if the asset's market price increases.
Cash flow definition
Cash flow is the amount of money coming into and going out of a company’s accounts, as reported in earnings announcements. It can refer to a single project or the entire business.
Chargeable gain definition
Chargeable gain refers to a profitable change in the price of an asset – measured between the time when the assets were purchased, and the time when they are sold. When applied to the financial markets, most profits – whether they are a result of going long or going short – are subject to capital gains tax (CGT).
A chartist is a trader who relies predominantly on charts to help them understand a financial instrument’s historical price movements, in order to better predict and to speculate on its future performance. They are also commonly known as technical analysts, or technical traders.
Closing price definition
A closing price is the last level at which an asset was traded before the market closed on any given day. Closing prices are often used as a marker when looking at movements over a longer term. They can be compared to previous closing prices, or the opening price to measure an asset’s movement over a single day.
Commission is the charge levied by an investment broker for making trades on a trader’s behalf.
A commodity is a basic physical asset, often used as a raw material in the production of goods or services.
Contango and backwardation definition
Contango and backwardation are two terms used to describe different conditions in the futures commodity market. They refer to whether the price of a commodity futures contract – known as the futures price – is trading above or below the price quoted for the physical commodity – known as the spot price.
Contracts for difference definition
Contracts for difference, or CFDs, are a type of financial derivative used in CFD trading. They can be used to trade a variety of financial markets like shares, forex, commodities, indices or bonds.
Bond convexity is a measure of the relationship between a bond’s price and interest rates. It is used to assess the impact that a rise or fall in interest rates can have on a bond’s price – which highlights a bond holder’s exposure to risk.
Cost of carry definition
Cost of carry is the amount of additional money you might have to spend in order to maintain a position. This can come in the form of overnight funding charges, interest payments on margin accounts and forex transactions, or the costs of storing any commodities on the delivery of a futures contract.
Covered call definition
A covered call is a call option trading strategy. It involves holding an existing long position on a tradeable asset, and writing (selling) a call option against the same asset, with the aim of increasing the overall profit that a trader will receive.
CPI stands for consumer price index, an average of several consumer goods and services that are used to give an indication of inflation.
Credit default swap definition
A credit default swap (CDS) is a financial agreement that enables a lender to ‘swap’ their exposure to risk to another party. For a premium, the CDS seller takes on the credit risk of the lender, and they will compensate the lender if a borrower defaults on their loan.
Credit spread definition
Crystallisation means selling an asset in order to realise capital gains or losses. When an investor buys an asset, any increase or decrease in the market price will not automatically translate to profit or loss – this is only realised after the position has been closed.
Currency appreciation definition
Currency appreciation is when one currency in a forex pair increases in value relative to the other currency in the pair. Forex traders often talk about one currency ‘strengthening’ in relation to another, meaning that it would cost more to buy, or that it can buy more of another currency when sold.
Currency depreciation definition
Currency depreciation is the decline of a currency’s value relative to another currency. It specifically refers to currencies in a floating exchange rate – a system in which a currency’s value is set by the forex market, based on supply and demand.
Currency futures definition
A currency future is a contract that details the price at which a currency could be bought or sold, and sets a specific date for the exchange.
Currency options definition
A currency option is a type of options contract that gives the holder the right, but not the obligation, to buy or sell a currency pair at a given price before a set time of expiry. To get this right, the holder of the option pays a premium to the seller (known as the option’s writer).
Currency peg definition
Current ratio definition
The current ratio is a measure used to establish a company’s ability to sell its tangible assets to pay off its short-term debt. Companies normally have a limited time to settle short-term debt, so the current ratio is useful in establishing the liquidity position of a business.
Day order definition
A day order is a type of order, or instruction from a trader to their broker, to buy or sell a certain asset.
Day trading definition
Day trading is a strategy of short-term investment that involves closing out all trades before the market closes.
In the UK, a debenture is an instrument used by a lender, such as a bank, when providing capital to companies and individuals. It enables the lender to secure loan repayments against the borrower’s assets – even if they default on the payment.
Delta is a measure used in options trading to assess how the price of an options contract changes as the price of the underlying asset moves. It can also sometimes be referred to as a hedge ratio.
Derivatives are financial products that derive their value from the price of an underlying asset. Derivatives are often used by traders as a device to speculate on the future price movements of an asset, whether that be up or down, without having to buy the asset itself.
DFB is the abbreviation of daily funded bet, a term used in spread betting to describe a position that remains open until you decide to close it. For each day that your bet remains open, an interest adjustment is made to your account to reflect the cost of funding your position – hence the term daily funded bet.
Digital options definition
A digital option – also known as a digital 100 – enables a trader to make a prediction about whether a statement about a given market is true or false. If a trader is correct in their prediction, they will make a profit. If they are wrong, they will incur a loss.
A dividend is the portion of profit that a company chooses to return to its shareholders, usually expressed as a percentage.
Earnings per share definition
Earnings per share (EPS) is an important metric in a company’s earnings figures. It is calculated by dividing the total amount of profit generated in a period, by the number of shares that the company has listed on the stock market.
EBITDA is a way of evaluating a company’s performance without factoring in financial decisions or the tax environment. The literal meaning of EBITDA is ‘earnings before interest, taxes, depreciation and amortisation’.
EBITDAR is the abbreviation of ‘earnings before interest, taxes, depreciation, amortisation and restructuring or rent costs’. It is used to analyse a company’s financial performance and profit potential where the company is undergoing a restructure or if its rent expenses are higher than average.
ECB stands for the European Central Bank, which is the organisation responsible for the monetary policy in the eurozone.
Euro Short-Term Rate (ESTR) definition
The Euro Short-Term Rate (ESTR) is an interest rate benchmark that reflects the overnight borrowing costs of banks within the eurozone. The rate is calculated and published by the European Central Bank (ECB).
An exchange is an open, organised marketplace for commodities, stocks, securities, derivatives and other financial instruments. The terms exchange and market are often used interchangeably, as they both describe an environment in which listed products can be traded.
Exchange delivery settlement price (EDSP) definition
EDSP stands for exchange delivery settlement price, and refers to the price at which exchange-traded derivative contracts are settled. Stock exchanges use EDSP to calculate the amount that each party to an options or futures contract owes at the time of that contract’s expiry.
In trading, execution is the completion of a buy or sell order from a trader. It is carried out by a broker.
Expiry date definition
Exposure in finance definition
In trading, exposure is a general term that can mean three things: the total market value of your trades at open, the total amount of possible risk at any given point, or the portion of a fund invested in a particular market or asset
Fair value definition
Fair value has two meanings to investors. Generally, it is used to mean the value attributed to a stock by an individual investor or broker but in futures trading, it can refer to the predicted price of a market which is reflected in the cost to open a position.
The Financial Conduct Authority (FCA) is the organisation responsible for the regulation and oversight of the financial markets and financial service firms in the UK.
Federal Reserve definition
The Federal Reserve bank, or the ‘Fed’ for short, is the central bank in charge of monetary and financial stability in the United States. It is part of a wider system – known as the Federal Reserve system – with 12 regional central banks located in major cities across the US.
Fiat currency definition
A fiat currency is a national currency that is not pegged to the price of a commodity such as gold or silver. The value of fiat money is largely based on the public’s faith in the currency’s issuer, which is normally that country’s government or central bank.
Fibonacci retracement definition
A Fibonacci retracement is a key technical analysis tool that uses percentages and horizontal lines, drawn onto price charts, to identify possible areas of support and resistance. Identifying these areas is useful to traders since it can help them decide when to open and close a position, or when to apply stops and limits to their trades.
Fill is the term used to refer to the satisfying of an order to trade a financial asset. It is the basic act of any market transaction – when an order has been completed, it is often referred to as ‘filled’ or as the order having been executed. However, it is worth noting that there is no guarantee that every trade will become filled.
Financial instrument definition
A financial instrument is a monetary contract between two parties, which can be traded and settled. The contract represents an asset to one party (the buyer) and a financial liability to the other party (the seller).
Financial market definition
Market can have several meanings within investments. Generally it is defined as a medium through which assets are traded, with their value determined by supply and demand.
Fixed costs definition
A fixed cost is a business expense which does not vary with production volumes. Fixed costs often include rent, contractual agreements or licences that are needed for the business to operate, which do not change in price if production increases or decreases. Instead, they are bound for the length of the contract or payment schedule.
Floating exchange rate definition
A floating exchange rate refers to a currency where the price is determined by supply and demand factors relative to other currencies. A floating exchange rate is different to a fixed – or pegged – exchange rate, which is entirely determined by the government of the currency in question.
FOMC stands for the Federal Open Market Committee, which is the branch of the Federal Reserve responsible for reviewing and overseeing open market operations in the US. Through intervening in open market operations – buying or selling government securities – the FOMC can indirectly change the federal funds rate.
Force open definition
The 'force open' function on the trading platform allows you to enter a new bet in the opposite direction to an existing bet on the same market.
Forex is how market participants convert one currency to another. It can variously be referred to as foreign exchange, FX, or currencies.
Forward contract definition
A forward contract is a contract that has a defined date of expiry. The contract can vary between different instances, making it a non-standardised entity that can be customised according to the asset being traded, expiry date and amount being traded.
French PEA definition
A French PEA refers to a Plan d’Epargne en Actions, which is a tax-efficient investment wrapper for residents of France. It allows French investors to buy and sell European securities with preferential conditions. In English, a PEA would be defined as a stock savings plan, similar to a stocks and shares ISA.
Fundamental analysis definition
Fundamental analysis is a method of evaluating the intrinsic value of an asset and analysing the factors that could influence its price in the future. This form of analysis is based on external events and influences, as well as financial statements and industry trends.
Funding charges definition
Funding charges, or interest charges, are the fees levied on leveraged positions that are held open overnight.
Futures contract definition
Futures contracts represent an agreement between two parties to trade an asset at a defined price on a specified date in the future. They are also often referred to simply as ‘futures’.
Gamma in trading definition
Gamma is a term used in options trading to represent the rate of change in the option’s delta.
GDP stands for gross domestic product, or the total value of the goods and services produced in a country over a specified period. It is used as an indicator of the size and health of a country’s economy.
Gearing ratio definition
A gearing ratio is a measure used by investors to establish a company’s financial leverage. In this context, leverage is the amount of funds acquired through creditor loans – or debt – compared to the funds acquired through equity capital.
Grey market definition
By taking a position on a grey market, you’re taking a position on a company’s potential market cap ahead of its initial public offering (IPO). The price of a grey market is a prediction of what the company’s total market capitalisation will be at the end of its first trading day.
Gross margin definition
Gross margin, or gross profit margin, is a way of measuring the amount of profit a company has left after subtracting the direct costs associated with selling its goods and services. It can illustrate if a company is generating revenue despite its outgoings.
Guaranteed stop definition
A guaranteed stop is a form of stop loss that offers an absolute guarantee of executing your trade at the level you specify.
In trading, the term ‘handle’ has two meanings, depending on which market you are referring to. In most markets, it means the whole numbers involved in a quote price, without the decimals included. In forex, it refers to the part of the quote that you see in both the buy and sell price.
Hawks and doves definition
Hawks and doves are terms used by analysts and traders to categorise members of Central Bank committee ahead of their votes on monetary policy.
A hedge is an investment or trade designed to reduce your existing exposure to risk. The process of reducing risk via investments is called 'hedging'.
Heikin Ashi definition
Heikin Ashi is a type of chart pattern used in technical analysis. Heikin Ashi charts are similar to a candlestick charts, but the main difference is that a Heikin Ashi chart uses the daily price averages to show the median price movement of an asset.
Helicopter money definition
Helicopter money is the term used for a large sum of new money that is printed and distributed among the public, to stimulate the economy during a recession or when interest rates fall to zero. It is also referred to as a helicopter drop, in reference to a helicopter scattering supplies from the sky.
High frequency trading definition
High frequency trading (or HFT) is a form of advanced trading platform that processes a high numbers of trades very quickly using powerful computing technology. It can be used to either find the best price for a single large order, or to find opportunities for profit in the market in real time.
Ichimoku Cloud definition
The Ichimoku Cloud is a technical analysis indicator that defines support and resistance levels, gauges momentum and provides trading signals. In Japanese, it is called the ‘Ichimoku Kinko Hyo’ which roughly means ‘one look equilibrium chart’ – because with just one look, traders can receive a range of information.
In the money definition
In the money (ITM) is defined by an option’s state of ‘moneyness’ – the underlying asset’s status when compared to the price at which it can be bought or sold (its strike price). Specifically, in the money means that an option* on an underlying asset has gone beyond its strike price, giving it an intrinsic value of more than £0.
In trading, an index is a grouping of financial assets that are used to give a performance indicator of a particular sector. The plural term is indices.
Indices trading definition
Indices trading is the means by which traders attempt to make a profit from the price movements of indices.
Inflation is the increase in the cost of goods and services in an economy. As that in turn means that each unit of the currency’s economy is worth less of any good or service, inflation can also be viewed as a devaluing of currency.
In finance, interest can have more than one definition. Firstly it refers to the charge levied against a party for borrowing money, which can be either a cost or a means of making profit for a trader. Secondly, it can mean the portion of a company’s stocks held by a particular shareholder.
Interest rates definition
The amount that a lender charges to a borrower for the loan of an asset, usually expressed as a percentage of the amount borrowed. That percentage usually refers to the amount being paid each year (known as annual percentage rate, or APR) but can be used to express payments on a more or less regular basis.
Internal rate of return definition
Internal rate of return (IRR) is a capital budgeting measurement used by companies to determine the profitability of a potential investment or project based on predicted cashflows. The IRR formula is complex and relies on a certain amount of trial and error to get correct.
Intrinsic value definition
Intrinsic value is a way of describing the perceived or true value of an asset. This is not always identical to the current market price because assets can be over- or undervalued. Intrinsic value is a common part of fundamental analysis, which investors use to assess stocks, as well being used in options pricing.
Investment appraisal definition
When a company embarks on an IPO (which stands for initial public offering) it goes public on a stock exchange. This can also be known as floating, flotation, or just ‘going public’.
Leverage is a concept that can enable you to multiply your exposure to a financial market without committing extra investment capital.
Leveraged products definition
Leveraged products are financial instruments that enable traders to gain greater exposure to the market without increasing their capital investment. They do so by using leverage.
Liabilities are the debts and obligations that detract from a company’s total value, which have to be paid over a certain period of time. The form of the debt can vary – common examples include business expenses, loans, unearned revenues or legal obligations.
Limit order definition
A limit order is an instruction to your broker to execute a trade at a particular level that is more favourable than the current market price.
Limit up / limit down definition
A limit up is the maximum amount that the price of a stock index future or commodity future will be allowed to increase in a single trading session. A limit up is different to a limit down, but both are used to prevent certain assets reaching excessively high volatility levels.
Liquidity is used in finance to describe how easily an asset can be bought or sold in the market without affecting its price – it can also be known as market liquidity. When there is a high demand for an asset, there is high liquidity, as it will be easier to find a buyer (or seller) for that asset.
London Interbank Offered Rate (LIBOR) definition
LIBOR, or the London Interbank Offered Rate, is a benchmark that dictates daily interest rates on loans and financial instruments around the world.
Long position definition
When used in trading, long refers to a position that makes profit if an asset’s market price increases. Usually used in context as ‘taking a long position’, or ‘going long’.
A lot is a standardised group of assets that is traded instead of a single asset.
M2 Money supply definition
M2 is a classification of money supply. It includes M1 – which is comprised of cash outside of the private banking system plus current account deposits – while also including capital in savings accounts, money market accounts and retail mutual funds, and time deposits of under $100,000.
Maintenance margin definition
Maintenance margin is the amount that must be available in funds in order to keep a margin trade open. It is also known as the variation margin.
Margin call definition
A margin call is the term for when a broker requests an increase maintenance margin from a trader, in order to keep a leveraged trade open.
In trading, margin is the funds required to open and maintain a leveraged position.
Margin deposit definition
Deposit margin is the amount a trader needs to put up in order to open a leveraged trading position. It can also be known as the initial margin, or just as the deposit.
Market capitalisation definition
Market capitalisation is the total market value of a company’s shares on the market. It is often abbreviated to market cap. Market capitalisation is an easy way for investors to determine a company’s size, which can help to assess the risk of investing in its shares.
Market data definition
Market data refers to the live streaming of trade-related data. It encompasses a range of information such as price, bid/ask quotes and market volume. Trading venues provide reports on various assets and financial instruments, which are then distributed to traders and firms. Market data is available across thousands of global markets, including stocks, indices, forex and commodities.
Market maker definition
A market maker is an individual or institution that buys and sells large amounts of a particular asset in order to facilitate liquidity.
Market order definition
A market order is an instruction from a trader to a broker to execute a trade immediately at the best available price.
Market value definition
While the market value reflects what a business is worth according to market participants, book value reflects what a business is worth according to its financials (its books). The calculation for the book value of a company is its total tangible assets minus its liabilities.
When two or more companies decide to combine and become one entity, it is called a merger.
MetaTrader is an electronic trading platform which is popular among traders around the world.
Modified internal rate of return (MIRR) definition
Modified internal rate of return (MIRR) is used to assess the cost and profitability of a future project for a company. Unlike the standard internal rate of return (IRR), MIRR assumes that positive cashflows are reinvested at the cost of capital, and that cash outlays are funded at the current financing cost.
Moving average convergence/divergence (MACD) definition
The moving average convergence/divergence (MACD) is a technical analysis indicator that aims to identify changes in a share price's momentum. The MACD collects data from different moving averages to help traders identify possible opportunities around support and resistance levels.
Moving average definition
A moving average (often shortened to MA) is a common indicator in technical analysis, used to examine price movements of assets while lessening the impact of random price spikes.
Multilateral trading facilities definition
Multilateral trading facilities (MTFs) offer traders and investment firms an alternative to traditional exchanges. They allow trading of a wider variety of markets than most exchanges, including assets that may not have an official market.
Multiplier effect definition
The multiplier effect is the term used to describe the impact that changes in monetary supply can have on economic activity. When an individual, government or company spends money it has a trickle-down effect to businesses and individuals. The resulting impact can be much wider than the initial action.
Negative balance protection definition
Negative balance protection ensures that traders do not lose more than the balance on their account – even if the market moves quickly or gaps.*
Net change definition
Net change is the difference between the closing price of the current trading session, compared to the closing price of the previous trading session. Net change can be positive or negative, as it represents whether the markets are up or down on the previous day.
Net income definition
Net income is the total amount of profit (often known as earnings) made by a company, listed in its earnings report.
Non-current assets definition
Non-current assets represent a company’s long-term investments, for which the full value won’t be realised during the accounting year. This can also include items that don’t have an inherent value – intangible assets, for example – or assets with no fixed expiry such as property or land.
Non-farm payrolls definition
Non-farm payrolls are a monthly statistic representing how many people are employed in the US, in manufacturing, construction and goods companies. They can also be known as non-farms, or NFP.
Off book definition
An ‘off-book’ trade refers to the process of trading shares away from an exchange or regulated body. They are usually executed via the over-the-counter (OTC) market. Off-book transactions are made directly between two parties, outside or ‘off’ of the order books.
Offer is the term used when one trader expresses an intention to buy an asset or financial instrument from another trader or institution.
On exchange definition
On exchange is a term used to mean that a trade is taking place directly on an order book. It differs from at quote, which is a trade made at the price quoted by a market maker.
On-balance volume definition
On-balance volume (OBV) is a form of technical analysis which enables traders to make predictions about future price movements based on the asset’s previous trading volume. OBV is mostly used in shares trading, because the volume has an especially large influence on the way share prices move.
OPEC is the Organisation of the Petroleum Exporting Countries. It was founded in 1960 by Saudi Arabia, Venezuela, Iraq, Iran and Kuwait. The other countries that have joined OPEC since are Libya, the United Arab Emirates, Algeria, Nigeria, Ecuador, Gabon, Angola, Equatorial Guinea and the Republic of the Congo – bringing OPEC’s membership to 14, as of January 2019.
Open has several definitions within investing. It can refer to the daily opening of an exchange, and an order or position that has not yet been filled or closed.
Open positions definition
An open position is a trade which is still able to generate a profit or incur a loss. When a position is closed, all profits and losses are realised, and the trade is no longer active. Open positions can be either long or short – enabling you to profit from markets rising as well as falling.
An option is a financial instrument that offers you the right – but not the obligation – to buy or sell an asset when its price moves beyond a certain price with a set time period.
Options spread definition
There are three main types of options spread strategy: vertical, horizontal and diagonal.
Order book definition
OTC trading definition
OTC stands for over-the-counter, and refers to a trade that is not made on a formal exchange. It is often also referred to as off-exchange trading.
Out of the money definition
Out of the money (OTM) is one of three terms used to address an option’s ‘moneyness’, with the other two being at the money and in the money. An out of the money options contract has not yet reached the value of its strike price, meaning it has no intrinsic value and will expire worthless.
Overexposure in trading is the term used to describe the mistake of taking on too much risk. Typically, it’s when a trader makes the technical blunder of investing too much capital in a single position or market.
P/E ratio definition
The price-to-earnings ratio, or P/E ratio for short, is a method of measuring a company’s value. The P/E ratio is calculated by dividing the company’s market value per share by the earnings per share (EPS).
Parent company definition
A parent company is one which has a controlling or majority interest in another company, which gives it the right to control the subsidiary’s operations. Parent companies can be directly involved in the management of their subsidiaries, or they can have a more hands-off approach.
The term parity can be used in a few ways when trading, but always as an expression of equality.
A pip is a measurement of movement in forex trading, defined as the smallest move that a currency can make.
A position is the expression of a market commitment, or exposure, held by a trader. It is the financial term for a trade that is either currently able to incur a profit or a loss – known as an open position – or a trade that has recently been cancelled, known as a closed position. Profit or loss on a position can only be realised once it has been closed.
Power of attorney definition
Power of attorney gives another person the ability to act on your behalf. In trading, this means they can take over your trading accounts.
Profit and loss statement definition
A profit and loss (P&L) statement is a financial report that provides a summary of a company’s revenue, expenses and profit. It gives investors and other interested parties an insight into how a company is operating and whether it has the ability to generate a profit.
A pullback is a temporary pause or dip in an asset’s overall trend. The term is sometimes used interchangeably with ‘retracement’ or ‘consolidation’. However, a pullback should not be confused with a reversal, which is a more permanent move against the prevailing trend.
Purchasing managers index definition
A purchasing managers index (PMI) is an economic indicator comprised of monthly reports and surveys from private sector manufacturing firms. The index surveys product managers, who are the individuals that buy the materials needed for a company to manufacture its products.
Put option definition
A put option is a contract that gives the buyer the right but not the obligation to sell an asset at a specific price, at a specific date of expiry. The value of a put option increases if the asset's market price depreciates.
Quantitative easing definition
Quantitative easing (or QE, for short) is an economic monetary policy intended to lower interest rates and increase money supply. It saw an increase in profile and use after the 2008 financial crash and subsequent recession.
Quote currency definition
The quote currency is the second currency listed in a forex pair. It is also known as the counter currency.
Quote price definition
A quote price is the price at which an asset was last traded. It is often defined as the point where supply meets demand, as it’s the price that buyers and sellers agree on.
A rally is a period in which the price of an asset sees sustained upward momentum. Typically, a rally will occur after a period in which prices have been flat, trading in a narrow band, or experiencing a decline.
Random walk theory definition
Random walk theory is a financial model which assumes that the stock market moves in a completely unpredictable way. The hypothesis suggests that the future price of each stock is independent of its own historical movement and the price of other securities.
Range is the difference between a market’s highest and lowest price in a given period. It is mostly used as an indicator of volatility: if a market has a wide range, it's a sign that it was volatile over the period analysed.
Rate of return definition
Rate of return (RoR) is the loss or gain of an investment over a certain period, expressed as a percentage of the initial cost of the investment. A positive RoR means the position has made a profit, while a negative RoR means a loss. You will have a rate of return on any investment you make.
Ratio spread definition
A ratio spread is a strategy used in options* trading, in which a trader will hold an unequal number of buy and sell options positions on a single underlying asset at once.
Reserves are the liquid assets set aside for future use by an individual, central bank or business. Usually they are in the form of currency or a commodity, such as gold. For traders, reserves will usually be kept as cash that can be accessed quickly.
Resistance level definition
A resistance level is the point on a price chart at which an upward price trajectory is impeded by an overwhelming inclination to sell the asset. If a market price is nearing a resistance level, a trader may opt to close their position and take the profit, rather than risk the price falling back.
Return on equity (ROE) definition
Return on equity (ROE) is a measure of a company’s profitability against its equity, expressed as a percentage. In other words, it is how much income the company is generating relative to the amount of capital received from shareholder investments.
A reversal is a turnaround in the price movement of an asset: when an upward trend (or a rally) becomes a downward one (a correction), or vice versa. They can also often be referred to as trend reversals.
Rho is a term used in options trading to refer to how sensitive an option’s price is to any changes in interest rate levels. Rho can be either positive or negative depending on whether the position is long or short, and whether the option is a call or a put.
Rights issue definition
A rights issue is when a company offers its existing shareholders the chance to buy additional shares for a reduced price. Usually the discounted price will stand for a specified time frame, after which it is returned to normal.
Risk management definition
Risk management is the process of identifying potential risks in your investment portfolio, and taking steps to mitigate accordingly.
In trading, risks are the ways in which an investment can end up losing you money.
The Regulatory News Service, or RNS, is responsible for disseminating regulatory and non-regulatory information on behalf of UK businesses and publicly listed companies. Operating as part of the London Stock Exchange (LSE), the RNS provides businesses with information that can help them to comply with their disclosure obligations.
Return on capital employed, or ROCE, is a long-term profitability ratio that measures how effectively a company uses its capital. The metric tells you the profit generated by each dollar (or other unit of currency) employed.
In trading, a rollover is the process of keeping a position open beyond its expiry.
RSI stands for the relative strength index. It is a key tool used in technical analysis, assessing the momentum of assets to gauge whether they are in overbought or oversold territory.
Run on the pound definition
A run on the pound is a situation of increased nervousness towards the value of sterling and sterling-linked assets, including UK government bonds.
A scalp in trading is the act of opening and then closing a position very quickly, in the hope of profiting from small price movements.
The SEC stands for the US Securities and Exchange Commission. It is a government agency set up to regulate markets and protect investors in the United States, as well as overseeing any mergers and acquisitions.
Sectors are divisions within an economy or market, useful for analysing performance or comparing companies with similar outputs and characteristics.
Secured Overnight Financing Rate (SOFR) definition
The Secured Overnight Financing Rate (SOFR) is the overnight interest rate for US dollar-denominated loans and derivatives.
Share buyback definition
Share buyback, or share repurchase, is when a company buys back its own shares from investors. It can be seen as an alternative, tax-efficient way to return money to shareholders. Once shares are repurchased they are considered cancelled, but they can be kept for redistribution in the future.
Share price definition
A share price – or a stock price – is the amount it would cost to buy one share in a company. The price of a share is not fixed, but fluctuates according to market conditions. It will likely increase if the company is perceived to be doing well, or fall if the company isn’t meeting expectations.
Shares are the units of the ownership of a company, usually traded on the stock market. They are also known as stocks, or equities.
Shares trading definition
Shares trading is the buying and selling of company stock – or derivative products based on company stock – in the hope of making a profit.
In trading, short describes a trade that will incur a profit if the asset being traded falls in price. It is also often referred to as going short, shorting or sometimes selling.
Short selling is the act of selling an asset that you do not currently own, in the hope that it will decrease in value and you can close the trade for a profit. It is also known as shorting.
When the price at which an order is executed does not match the price at which it was made, it is referred to as slippage.
Smart order router definition
A smart order router (SOR) is an automated process used in online trading that follows a set of rules when looking for trading liquidity. The goal of an SOR is to find the best way of executing a trade.
SNB stands for Swiss National Bank, the central bank for Switzerland.
Socially responsible investing definition
Socially responsible investing is the process of selecting assets to buy based on their social impact as well as on their potential financial returns. It is also known as sustainable investing, socially conscious investing, green investing and ethical investing. Socially responsible investing is closely linked to impact investing, which seeks to make tangible positive change.
In trading, spot refers to the price of an asset for immediate delivery, or the value of an asset at any exact given time. It differs from an asset’s futures price, which is the price for delivery at some date in the future, or its expected price.
Spot price definition
The spot price or spot rate is the current value of an underlying asset, for which it can be bought or sold with the expectation of immediate delivery. The term ‘spot price’ is often used in commodities and forex markets.
Spread betting definition
Spread betting is a leveraged financial derivative. When spread betting, you are making a bet on the direction in which a market will move. The accuracy of your bet determines the profit or loss when the position is closed.
In finance, the spread is the difference in price between the buy (bid) and sell (offer) prices quoted for an asset.
Sterling Overnight Interbank Average rate (SONIA) definition
The Sterling Overnight Interbank Average rate (SONIA) is the effective overnight interest rate paid by banks for unsecured transactions in British sterling – these are loans that are not backed by collateral. It is the overnight funding charge for trades that occur in off-market hours and represents the amount of overnight business in the marketplace.
STIBOR has a particular significance in relation to IG's platform. Here, we define STIBOR in general investing and explain what it means to you when trading with IG.
Stock analysis definition
Stock analysis is the method used by a trader or investor to examine and evaluate the stock market. It is then used to make informed decisions about buying and selling shares. Stock analysis can also be referred to as market analysis, or equity analysis.
Stock exchange definition
A stock exchange is a centralised location where the shares of publicly traded companies are bought and sold. Stock exchanges differ from other exchanges because the tradable assets are limited to stocks, bonds and exchange traded products (ETPs).
Stock index definition
A stock index is a group of shares that are used to give an indication of a sector, exchange or economy. Usually, a stock index is made up of a set number of the top shares from a given exchange.
Stock symbol definition
A stock symbol is an abbreviation used to identify publicly traded companies. When a company decides to go public, it will select the exchange to list on and then choose a unique stock symbol to differentiate itself from other companies on the exchange.
Stockbroking is a service which gives retail and institutional investors the opportunity to trade shares.
Stop order definition
Stop orders are types of order that instruct your broker to execute a trade when it reaches a particular level: one which is less favourable than the current market price. They can also be known as stop-loss orders.
A straddle in trading is a type of options strategy, which enables traders to speculate on whether a market is about to become volatile without having to predict a specific price movement. It involves either buying or selling simultaneous call and put options with matching strike prices and expiration dates.
Strike price definition
A strike price is the price at which an options contract can be exercised. It is a fixed price that the underlying asset can be bought or sold at under the pre-agreed contract.
Super-contango is when the spot price for a commodity is trading dramatically below the futures price. Super-contango usually occurs when the inventory space to store the physical commodity is running out due to excess supply – meaning that the cost of carry (the cost of storing a physical commodity) in a futures contract increases.
Support level definition
Support levels tell traders when the best time might be to enter and exit the market – enabling them to manage their risk by placing stops and limits.
Tangible assets definition
Tangible assets are the assets on a company's balance sheet that have a physical form. This includes machinery, office equipment and property, as well as materials that are used in production.
Technical analysis definition
Technical analysis is a means of examining and predicting price movements in the financial markets, by using historical price charts and market statistics. It is based on the idea that if a trader can identify previous market patterns, they can form a fairly accurate prediction of future price trajectories.
Time decay (theta) definition
Time value definition
Time value is a term used in options trading to refer to the portion of an option’s premium that is attributable to the amount of time left until the option expires. An investor will pay more for an option with a longer time until expiry, because this increases the time available for an option to expire in the money.
Tom-next is short for ‘tomorrow-next day’, which is a short-term forex transaction that enables traders to simultaneously buy and sell a currency over two separate business days: tomorrow, and the next day.
Trading floor definition
A trading floor is where financial instruments such as stocks, bonds and commodities are bought and sold. Trading floors are usually electronic, and they can be found in major exchanges around the world including the ICE Futures Exchange, the New York Stock Exchange (NYSE) and the London Stock Exchange (LSE).
Trading plan definition
A trading plan is a strategy set by the individual trader in order to systemise evaluation of assets, risk management, types of trading, and objective setting. Most trading plans will comprise two parts: long-term trading objectives, and the route to achieving them.
Trailing step definition
Trailing stop orders definition
A trailing stop is a type of stop-loss that automatically follows positive market movements of an asset you are trading. If your position moves favourably but then reverses, a trailing stop can lock in your profits and close the position.
Treasury stock definition
Treasury stock is the portion of a company’s shares that it keeps in reserve. In other words, the shares that are not available to the public and do not count towards the total amount of outstanding shares listed.
When a market is making a clear, sustained move upwards or downwards, it is called a trend. Identifying the beginning and end of trends is a key part of market analysis. Trends can apply to individual assets, sectors, or even interest rates and bond yields.
Trending shares definition
A trending share is the term for when a company’s stock is undergoing a significant move in comparison to its underlying index. The trend can be either upwards or downwards.
Unborrowable stock is the stock that no one is willing to lend out to short sellers. When shares in a company become unborrowable, the traditional means of short selling them is impossible.
Value at risk (VaR) definition
Variable cost definition
Variable cost is a business expense which is subject to change when sales volumes change. This could mean that variable costs either increase or decrease depending on a company’s current output.
Vega in options trading measures how sensitive an option’s price is to changes in the implied volatility of an underlying market. It represents the extent to which an option’s premium will change given a 1% change in an asset’s implied volatility.
VIX is short for the Chicago Board Options Exchange Volatility Index. It is a measure used to track volatility on the S&P 500 index, and is the most well-known volatility index on the markets.
In trading, volume is the amount of a particular asset that is being traded over a certain period of time. It is often presented alongside price information, as it offers an extra dimension when examining an asset’s price history.
VWAP is the abbreviation for volume-weighted average price, which is a technical analysis tool that shows the ratio of an asset's price to its total trade volume. It provides traders and investors with a measure of the average price at which a stock is traded over a given period of time.
Weekend trading with IG definition
Weekend trading is a service that enables you to speculate on several markets over the weekend.
West Texas Intermediate (WTI) definition
WTI stands for West Texas Intermediate (occasionally called Texas Light Sweet), an oil benchmark that is central to commodities trading. It is one of the three major oil benchmarks used in trading, the others being Brent crude and Dubai/Oman.
Working order definition
A working order is a general term for either a stop or limit order to open. It is used to advise your broker to execute a trade when an asset reaches a specific price.
Yield is the income earned from an investment, most often in the form of interest or dividend payments. Yield is one of the ways in which investments can earn a trader money, with the other being the eventual closing of a position for profit.