Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. You could sustain a loss of some or all of your initial investment and should not invest money that you cannot afford to lose. Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. You could sustain a loss of some or all of your initial investment and should not invest money that you cannot afford to lose.
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 45-years of experience in trading to good use, defining and explaining a comprehensive list of trading vocabulary.
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.
Arbitrage refers to the practice of buying an asset then selling it immediately to take advantage of a difference in price.
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.
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.
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.
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.’
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.
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.
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%.
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.
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.
In trading and investing, the bid is the amount a party is willing to pay in order to buy a financial instrument.
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.
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.
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..
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.
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.
When a market, instrument or sector is on an upward trend, it is generally referred to as a bull market.
Buying a financial instrument means taking ownership of it from someone else, whether it is a commodity, stock or another asset.
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.
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.
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.
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.
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.
CPI stands for consumer price index, an average of several consumer goods and services that are used to give an indication of inflation.
Crystallisation means selling an asset in order to realize 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 realized after the position has been closed.
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.
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.
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 is a strategy of short-term investment that involves closing out all trades before the market closes.
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.
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.
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 amortization’.
When traders talk about the ECB, they are referring to the European Central Bank, the central bank for the eurozone.
An exchange is a marketplace where financial instruments are traded. They can be either physical, like the New York Stock Exchange, or purely digital.
The point when a trading position automatically closes is known as the expiry date (or expiration date).
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
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.
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.
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.
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.
Fundamental analysis is a method of evaluating the intrinsic value of an asset and analyzing 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.
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’.
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.
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'.
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.
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.
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.
Leverage is a concept that can enable you to multiply your exposure to a financial market without committing extra investment capital.
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.
LIBOR, or the London Interbank Offered Rate, is a benchmark that dictates daily interest rates on loans and financial instruments around the world.
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.
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.
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 is a measure of money supply, referring to a certain portion of the money contained in an economy.
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.
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.
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.
A market maker is an individual or institution that buys and sells large amounts of a particular asset in order to facilitate liquidity.
A market order is an instruction from a trader to a broker to execute a trade immediately at the best available price.
MetaTrader is an electronic trading platform which is popular among traders around the world.
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.
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.
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 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.
OPEC is the Organization 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.
An open position is a trade that is still able to generate a profit or incur a loss. When a position is closed, all profits and losses are realized, 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.
In trading, an order is a request sent to a broker or trading platform to make a trade on a financial instrument.
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.
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.
Pip value is the value attributed to a one-pip move in a forex trade.
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.
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 realized once it has been closed.
Profit and loss are two terms that are central to trading: the financial returns (or outgoings without returns) from any business enterprise or trade.
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.
The quote currency is the second currency listed in a forex pair. It is also known as the counter currency.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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 support level is the price at which an asset may find difficulty falling below as traders look to buy around that level.
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.
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.
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.
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.
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.
A market’s volatility is its likelihood of making major, unforeseen short-term price movements at any given time.
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.
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.
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.
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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