Forex trading involves risk. Losses can exceed deposits

Glossary of trading terms

Forex trading involves risk. Losses can exceed deposits

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Take a look at our list of the financial terms associated with trading and the markets.

From beginners getting acquainted with the world of investing to experts with decades of experience, all traders need to clearly understand a huge number of terms.

We’ve put our 44-years of experience in trading to good use, defining and explaining a comprehensive list of trading vocabulary.

Acquisition definition

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.

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Arbitrage definition

Arbitrage refers to the practice of buying an asset then selling it immediately to take advantage of a difference in price.

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Ask definition

The ask refers to the price at which you can buy an asset or security from a seller. It can be variously referred to as ask, the ask, or asking price.

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Asset classes definition

The various types of financial instruments are called asset classes, and they come under four broad categories. Asset classes are defined by the similar characteristics of the instruments within them, such as behavior on the market, laws and regulations.

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Assets definition

Assets can be defined in two ways in trading, dependent on whether they are in connection with a company or a financial instrument.

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Authorized participant definition

An authorized participant (AP) is a recognized body that has a relationship with an ETF provider to create or redeem exchange traded funds (ETFs). Most APs are market makers or large investment houses.

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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.’

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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.

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Base rate definition

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.

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Basis point definition

A basis point (also referred to as bp – pronounced bip or beep) is a unit used in trading to describe movements in interest rates or other percentages. It is equal to one hundredth of one percent, or 0.01%.

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Bear definition

Bears are traders who believe that a market, asset or financial instrument is going to head in a downward trajectory. In that regard, they hold an opposite view to bulls, who believe that a market is going to head upwards.

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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.

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Bid definition

In trading and investing, the bid is the amount a party is willing to pay in order to buy a financial instrument.

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Bollinger bands definition

Bollinger bands are a popular form of technical price indicator. They were developed by a pioneering technical trader called John Bollinger in the 1980s.

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Bonds definition

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.

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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..

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Broker definition

A broker is an individual or company that places trades on behalf of a trader. They can do so in a number of different asset classes, with the most well-known being stockbroking.

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Bull definition

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.

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Bull market definition

When a market, instrument or sector is on an upward trend, it is generally referred to as a bull market.

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Buy definition

Buying a financial instrument means taking ownership of it from someone else, whether it is a commodity, stock or another asset.

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Cable definition

Cable is one of a few slang terms for different currency pairs; in this case referring to British pound sterling against the US dollar. This may also be shown as GBP/USD or GBPUSD. Occasionally, people also refer to the price of the British pound as cable.

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Chartist definition

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.

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Closing price definition

An asset’s closing price is the last level at which it was traded on any given day. This price is often determined by an auction.

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Commission definition

Commission is the charge levied by an investment broker for making trades on a trader’s behalf.

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Commodity definition

A commodity is a basic physical asset, often used as a raw material in the production of goods or services.

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Cost of carry definition

The cost of maintaining an investment position is often referred to as the cost of carry or carrying charge. It can come in many forms, including interest on margins or the loans used to make the trade, or the cost of storage and insurance associated with holding a commodity.

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CPI definition

CPI stands for consumer price index, an average of several consumer goods and services that are used to give an indication of inflation.

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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.  

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Currency peg definition

A currency peg is a governmental policy of fixing the exchange rate of its currency to that of another currency, or occasionally to the gold price. It can sometimes also be referred to as a fixed exchange rate, or pegging.

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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.

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Day trading definition

Day trading is a strategy of short-term investment that involves closing out all trades before the market closes.

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Derivative definition

A derivative is a financial product that enables traders to speculate on the price movement of assets without purchasing the assets themselves. Because there is nothing physical being traded when derivative positions are opened, they usually exist as a contract between two parties.

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DMA definition

When trading, DMA stands for direct market access. It’s a way of placing trades that offers more flexibility and transparency than traditional dealing (which is usually referred to as OTC, or over-the-counter). It’s suitable for advanced traders.

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ECB definition

When traders talk about the ECB, they are referring to the European Central Bank, the central bank for the eurozone.

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Exchange definition

An exchange is a marketplace where financial instruments are traded. They can be either physical, like the New York Stock Exchange, or purely digital.

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Expiry date definition

The point when a trading position automatically closes is known as the expiry date (or expiration date).

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Exposure 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

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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.

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Fibonacci retracement definition

A Fibonacci retracement is a key technical analysis tool, used to gain insight into when to place and close trades, or place stop-losses and take-profits.

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FOMC definition

The FOMC, or Federal Open Market Committee, is the branch of the Federal Reserve bank that is in charge of short and long-term monetary policy decisions.

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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.

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Forex definition

Forex is how market participants convert one currency to another. It can variously be referred to as foreign exchange, FX, or currencies.

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Forex trading definition

Forex trading is the act of taking part in the forex market in order to speculate and attempt to make a profit. It can also be known as FX trading, foreign exchange or currencies trading.

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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.

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Fundamental analysis definition

Fundamental analysis is a method of evaluating assets on the basis of external events and influences, as well as financial statements on the asset itself. It is used by traders to make decisions on different assets by measuring the economic, financial and market conditions that can affect its price.

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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’.

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GDP definition

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.

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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.

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Hedge definition

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'.

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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.

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Inflation definition

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.

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Interest definition

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.

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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.

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Leverage definition

Leverage is a concept that can enable you to multiply your exposure to a financial market without committing extra investment capital.

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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.

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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.

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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.

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Liquidity definition

In investment, liquidity is the ease of buying or selling a particular asset in the market without affecting its price. It can also refer to the facility of converting an asset to cash quickly and easily.

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Long 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’.

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M2 definition

M2 is a measure of money supply, referring to a certain portion of the money contained in an economy.

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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.

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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.

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Margin definition

In trading, margin is the funds required to open and maintain a leveraged position.

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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.

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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.

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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.

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MetaTrader definition

MetaTrader is an electronic trading platform which is popular among traders around the world.

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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.

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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.

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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.

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Offer definition

Offer is the term used when one trader expresses an intention to buy an asset or financial instrument from another trader or institution.

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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.

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OPEC definition

OPEC stands for the Organization of Petroleum Exporting Countries. It is a group comprising all of the world’s top oil-producing nations, founded to coordinate oil policy as well as sharing economic and technical aid.

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Open definition

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. 

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Open positions definition

Your open positions are the trades you have made that are still able to incur a profit or a loss. When a position is closed, all profits and losses are realised and the trade is no longer active.

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Option definition

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.

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Order definition

In trading, an order is a request sent to a broker or trading platform to make a trade on a financial instrument.

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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.

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Parity definition

The term parity can be used in a few ways when trading, but always as an expression of equality.

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Pip definition

A pip is a measurement of movement in forex trading, defined as the smallest move that a currency can make.

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Pip value definition

Pip value is the value attributed to a one-pip move in a forex trade.

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PMI definition

PMI is an economic indicator, used to measure the health of a particular sector within an economy. In the UK, for instance, Markit produce a PMI for the manufacturing, services and construction industries.

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Position definition

A position is the financial term for a trade that is either currently able to incur a profit or a loss (an open position) or has recently been cancelled (a closed position). Positions are the way in which a trader will hope to make a profit.

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Profit and loss definition

Profit and loss are two terms that are central to trading: the financial returns (or outgoings without returns) from any business enterprise or trade.

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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.

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Quote currency definition

The quote currency is the second currency listed in a forex pair. It is also known as the counter currency.

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Quote definition

In trading, the quote is the price at which an asset was last traded, or the price at which it can currently be bought or sold.

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Rally definition

A rally is a period in which the price of an asset, market or index sees sustained upward momentum. Typically, a rally will arrive after a period in which prices have been flat or in a decline.

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Range definition

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 analyzed.

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Resistance level definition

A resistance level is a key tool in technical analysis, indicating when an asset has reached a price level that market participants are unwilling to surpass.

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Reversal definition

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.

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Risk management definition

Risk management is the process of identifying potential risks in your investment portfolio, and taking steps to mitigate accordingly.

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Risks definition

In trading, risks are the ways in which an investment can end up losing you money.

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Rollover definition

In trading, a rollover is the process of keeping a position open beyond its expiry.

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RSI definition

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.

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Scalp definition

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.

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SEC definition

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.

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Short definition

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.

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Short-selling definition

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.

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Slippage definition

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.

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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.

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SNB definition

SNB stands for Swiss National Bank, the central bank for Switzerland.

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Spot definition

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.

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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.

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Support level definition

A support level is the price at which an asset may find difficulty falling below as traders look to buy around that level.

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Technical analysis definition

Technical analysis is a means of examining and predicting price movements in the financial markets, based on an asset’s chart history. It is one of the two major schools of market analysis, with the other being fundamental analysis.

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Tom-next definition

Tom-next (short for tomorrow-next day) is how forex speculators avoid taking physical delivery of currency while still keeping forex positions open overnight.

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Trading plan definition

A trading plan is a strategy set by the individual trader in order to systemize 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.

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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.

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Trend definition

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. 

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VIX definition

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.

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Volatility definition

A market’s volatility is its likelihood of making major, unforeseen short-term price movements at any given time.

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Volume definition

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.

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VWAP definition

VWAP stands for volume-weighted average price, a trading benchmark that is often used by passive investors. It reflects the ratio of an asset's price to its total trade volume.

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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.

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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.

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Yield definition

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.

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