“When you are young, work to learn, not to earn”
The sum of government spending, personal consumption expenditures, and business expenditures.
A currency is said to ‘appreciate ‘when it strengthens in price in response to market demand.
The purchase or sale of an instrument and simultaneous taking of an equal and opposite position in a related market, in order to take advantage of small price differentials between markets.
Dealer jargon used in quoting when the forward premium/discount is near parity. For example, “two-two around” would translate into 2 points to either side of the present spot.
This is the current market price of an asset at which the market will sell. Prices are quoted two-way as Bid/Ask. The Ask price is also known as the Offer. In CFD trading, the Ask price represents the price at which a trader can buy the contract. For example, in the quote for GOLD is 1250/1252 the product quoted is GOLD and the Ask price is 1252 for one unit of the underlying asset in this case it is gold.
The rate at which a financial instrument if offered for sale (as in bid/ask spread).
An asset is an economic value of a corporation or a country. It is also the type of financial instrument available in the financial market. The primary assets categories in CFD trading are forex, commodities, indices and shares. The euro or a share of Apple are considered assets you can trade.
Asset AllocationInvestment practice that divides funds among different markets to achieve diversification for risk management purposes and/or expected returns consistent with an investor’s objectives.
The departments and processes related to the settlement of financial transactions.
Balance of Trade
The value of a country’s exports minus its imports.
This is one of the most popular types of financial charts. Each bar on a chart represents the open, high, low and close for that time period displayed as a bar. This type of chart is sometimes referred to an OHLC.
Standard bar charts are commonly used to convey price activity into an easily readable chart. Usually four elements make up a bar chart, the Open, High, Low, and Close for the trading session/time period. A price bar can represent any time frame the user wishes, from 1 minute to 1 month. The total vertical length/height of the bar represents the entire trading range for the period. The top of the bar represents the highest price of the period, and the bottom of the bar represents the lowest price of the period. The Open is represented by a small dash to the left of the bar, and the Close for the session is a small dash to the right of the bar.
In general terms, the base currency is the currency in which an investor or issuer maintains its book of accounts. In the FX markets, the US Dollar is normally considered the ‘base’ currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The primary exceptions to this rule are the British Pound, the Euro and the Australian Dollar.
A market distinguished by declining prices. Bid Rate – The rate at which a trader is willing to buy a currency.
Bears are the negative guys, those who expect the market or an asset to decline. In the battle of the bulls and the bears, it is the bears who weigh down the market. Bears are denoted in red and a bearish market is declining.
The bid price is associated with the Ask price. Every asset traded is quoted in a bid/ask context. The bid price is the price you can sell a product for. The Bid also represents the price at which a trader can sell the product. Refer to spreads for more information.
The difference between the bid and offer price, and the most widely used measure of market liquidity.
Dealer expression referring to the first few digits of an exchange rate. These digits rarely change in normal market fluctuations, and therefore are omitted in dealer quotes, especially in times of high market activity. For example, a USD/Yen rate might be 107.30/107.35, but would be quoted verbally without the first three digits i.e. “30/35”.
In a professional trading environment, a ‘book’ is the summary of a trader’s or desk’s total positions.
Bretton Woods Agreement of 1944
An agreement that established fixed foreign exchange rates for major currencies, provided for central bank intervention in the currency markets, and pegged the price of gold at US $35 per ounce. The agreement lasted until 1971, when President Nixon overturned the Bretton Woods agreement and established a floating exchange rate for the major currencies.
An individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission. In contrast, a ‘dealer’ commits capital and takes one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party.
A market distinguished by rising prices.
Bullish or bull market is the positive side of the market or an asset, when things are expected to climb and remain positive.
Germany’s Central Bank.
Buying/SellingIn the Forex market currencies are always priced in pairs; therefore all trades result in the simultaneous buying of one currency and the selling of another. The objective of currency trading is to buy the currency that increases in value relative to the one you sold. If you have bought a currency and the price appreciates in value, then you must sell the currency back in order to lock in the profit.
Trader jargon referring to the Sterling/US Dollar exchange rate. So called because the rate was originally transmitted via a transatlantic cable beginning in the mid 1800’s.
A chart that indicates the trading range for the day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded.
This is one of the oldest charting methods as well as a trading system. Japanese candlesticks were developed by rice traders in the 1700’s. A candlestick is drawn on a financial chart to represent the movement of an asset in a specific time period. The wicks denote the highs and the lows and the body of the candle shows the move between the open and the close. Candlesticks are colored in bullish and bearish color codes depend if the price moved up from the open to the close (bullish) or declined from the open to the close (bearish). There are over 32 distinct candlestick patterns that offer great trading insights.
A government or quasi-governmental organization that manages a country’s monetary policy. For example, the US central bank is the Federal Reserve, and the German central bank is the Bundesbank. others include the ECB, BOE, BOJ.
CFD / Contract for Difference
A CFD is an investment style that defines a type of derivative that gives exposure to the change in value of an underlying asset. CFDs allows traders to leverage their capital and provide all the benefits of trading securities, without actually owning the product. Refer to gearing or leverage for more information. CFDs or contract for difference is one of the fastest growing investment vehicles in the world and are regulated by the financial conduct authorities (ASIC).
An individual who uses charts and graphs and interprets historical data to find trends andpredict future movements. Also referred to as Technical Trader.
Charts/Financial charts/forex charts
For each asset, you can plot a chart of price movements over a specific time period. This is an important tool, allowing traders to analyze historical prices and forecast future activity. A chart is a picture or image of price movements. Patterns develop on charts which help traders understand market movement and trader psychology.
A market with no spread. All trades buys and sells occur at that one price.
The process of settling a trade.
Close means the end of a trading period. In the share market, it is the end of the trading day, but in forex, which trades 24 hours a day, it can be the end of a time period or the end of day in a specific timezone at midnight. Close is also what you do when you want to end your position. It can also refer to the process of stopping (closing) a real trade by executing a trade that is the exact opposite of the open trade.
Something given to secure a loan or as a guarantee of performance.
A transaction fee charged by a broker.
Commodities are marketable goods or services that are produced to meet a demand, whether that be a want or a need. Commodities are also interchangeable with others of the same type. In the financial markets commodities refer to energy, metals, agricultural, and more. Speculators buy and sell commodities but usually do not ever take delivery.
A document exchanged by counterparts to a transaction that states the terms of said transaction.
The tendency of an economic crisis to spread from one market to another. In 1997, political instability in Indonesia caused high volatility in their domestic currency, the Rupiah. From there, the contagion spread to other Asian emerging currencies, and then to Latin America, and is now referred to as the ‘Asian Contagion’.
In the commodities market traders invest in contracts for assets. This keeps the assets standardized and makes speculating easier. In the context of CFD, the contract is the definition of the asset being traded and the rules and specifications for that asset trade.
The standard unit of trading.
Contract (Unit or Lot)
The standard unit of trading on certain exchanges.
One of the participants in a financial transaction.
Risk associated with a cross-border transaction, including but not limited to legal and political conditions such as war etc.
The exchange rate between two currencies expressed as the ratio of two foreign exchange rates that are both expressed in terms of a third currency. Foreign exchange rate between two currencies other than the U.S. dollar, the currency in which most exchanges are usually quoted.
Any form of money issued by a government or central bank and used as legal tender and a basis for trade.
Currency Riskthe probability of an adverse change in exchange rates.
Refers to positions which are opened and closed on the same trading day.
An individual who acts as a principal or counterpart to a transaction. Principals take one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.
A negative balance of trade or payments.
An FX trade where both sides make and take actual delivery of the currencies traded.
In most cases a demo account is a risk free trading account that uses demo money, not real money, and allows a trader to test the platform and learn how to execute a trade. Demo accounts are also used by experienced traders to test strategies and to develop new approaches in a risk free environment.
A fall in the value of a currency due to market forces.
A contract that changes in value in relation to the price movements of a related or underlying security, future or other physical instrument.
DevaluationThe deliberate downward adjustment of a currency’s price, normally by official announcement.
Economic indicators such as GDP, foreign investment, and the trade balance reflect the general health of an economy, and are therefore responsible for the underlying shifts in supply and demand for that currency.
End Of Day Order (EOD)
An order to buy or sell at a specified price. This order remains open until the end of the trading day which is typically 5PM ET.
since 2002 the Euro has been the currency of the European Monetary Union (EMU). A replacement for the European Currency Unit (ECU). Members of the EMU are Germany, France, Belgium, Luxembourg, Austria, Finland, Ireland, the Netherlands, Italy, Spain and Portugal.
European Central Bank (ECB)the Central Bank for the new European Monetary Union.
The time and day at which your CFD will be closed and settled automatically, i.e. the end of the contract period. If you want to extend your position you can specify that you want it to rollover. There is no expiry date/time if your position is a Rolling Contract. Most CFD contracts do not have an expiry unless designed or requested.
Federal Deposit Insurance Corporation (FDIC)
The regulatory agency responsible for administering bank depository insurance in the US.
Federal Reserve System
The central bank of the United States, with responsibility for implementing the country’s monetary policy and regulating member banks of the System. The Fed was created in 1913 and is composed of 12 regional Federal Reserve Banks and a national Board of Governors
Fixed Exchange Rate
Official rate set by monetary authorities for one or more currencies
Dealer jargon used to describe a position that has been completely reversed, e.g. you bought $500,000 then sold $500,000, thereby creating a neutral (flat) position.
Floating Exchange Rates
Floating exchange rates refer to the value of a currency as decided by supply and demand
(Forex, FX) is the simultaneous buying of one currency while selling for another. This market of exchange has more buyers and sellers and daily volume than any other in the world. Taking place in the major financial institutions across the globe, the Forex market is open 24-hours a day.
Forex, Fx or the foreign exchange market is the buying and selling of currencies issued by governments around the globe and processed via central banks. The forex market is an over the counter market, consisting of computers around the globe that facilitate transactions. An estimated $7 billion per day is traded through this marketplace.
The pre-specified exchange rate for a foreign exchange contract settling at some agreed future date, based upon the interest rate differential between the two currencies involved.
A forward contract fixes the exchange rate for future delivery at a date to be agreed by both participants. A deposit (or a minimum margin) is usually required in forward transactions. For example, if I want to lock in today’s rate to buy $10,000 USD at 1.5820 Canadian for the next 4 months, I will have the ability to purchase up to $10,000 USD at this rate.
The pips added to or subtracted from the current exchange rate to calculate a forward price.
Forward Rates (Swaps)
A Forward Rate refers to a cash price of 2 currencies interest difference for a fixed term. Forward rates can be calculated easily given the fixed term interest rates of each currency and the current spot rate
Forward trading is making the opposite trade of a spot trade in a given period of time. Often investors will swap their trades forward for anywhere from a week or two up to several months depending on the time frame of the investment. Even though a forward trade is on a future date, the position can be closed out at any time. The closing part of the position is then swapped forward to the same future value date
focuses on the economic forces of supply and demand that causes price movement. The Fundamentalist studies the causes of market movement, whereas the Technician studies the effects.
Futures ContractAn obligation to exchange a good or instrument at a set price on a future date. The primary difference between a Future and a Forward is that Futures are typically traded over an exchange (Exchange- Traded Contacts – ETC), versus forwards, which are considered Over The Counter (OTC) contracts. An OTC is any contract NOT traded on an exchange.
Gap or gapping refers to a market that moves to a new price without moving through the in-between prices. Usually this jump up or down is in response to surprising economic events or new headlines.
Also known as margin trading. A term used to in the relationship of actual equity versus controlling equity.
a term coined back in the mid-1902 to describe an economy that was not too hot and not too cold. This typically describes an economy that enjoyed steady growth with nominal rate of inflation.
Good ‘til Cancelled (GTC)An order to buy or sell at a specified price. This order remains open until filled or until the client cancels.
Group of Five (G5)
five leading industrial nations (France, Japan, Germany, the UK and US), which meet from time-to-time to discuss common economic problems.
Group of Seven (G7)
seven leading non-communist industrial nations composed of G5 plus Canada and Italy.
Group of Ten (G10)
also known as The Paris Club which includes Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, UK and US. These nations signed an accord in 1962 to increase the fund available to the IMF and aid member countries with balance-of-payments difficulties.
A hedge is a position that reduces the risk of your primary position. Hence the phrase “hedging your bets.” There are many hedging strategies that can be learned and mastered to reduce risk and lock in profits.
HedgingA hedging transaction is a purchase or sale of a financial product, having as its purpose the elimination of loss arising from price fluctuations. With regards to currency transactions it would protect one against fluctuations in the foreign exchange rate. (see Forward Contract)
An index is a statistical measure that shows the changes in a portfolio of stocks, which represent a portion of the overall market. The DAX, the ASX200 and the Dow Jones are examples of indices. It’s important to note that an index is not an official grouping of stocks, but simply a list of sticks, which anyone can create.
An economic condition whereby prices for consumer goods rise, eroding purchasing power.
The initial deposit of collateral required to enter into a position as a guarantee on future performance.
Interbank RatesThe Foreign Exchange rates at which large international banks quote other large international banks.
Statistics that are considered to predict future economic activity.
This is one of the most important concepts a trader needs to understand and is the backbone of CFD and forex trading. Leverage allows a trader to amplify their investment by only putting up a small percentage of the value of the trade. The money needed to secure a trade is referred to as margin. For example, when you open a position with a value of £10,000 by putting down a margin deposit of £1000 you have a gearing ratio of 10:1. Also known as leverage.
The London Inter-Bank Offered Rate. Banks use LIBOR when borrowing from another bank.
Understanding the types of market orders is crucial when trading. A Limit order is an order to close your position should the market rise to a specified price. It can be also called a take profit. You can use a limit order to take your profit on a position automatically when the price reaches your specified target. This is the other side of a stop loss which protects you from losing your shirt.
An order with restrictions on the maximum price to be paid or the minimum price to be received. As an example, if the current price of USD/YEN is 102.00/05, then a limit order to buy USD would be at a price below 102. (ie 101.50)
The Line Chart connects single prices for a selected time period.
The closing of an existing position through the execution of an offsetting transaction.
The ability of a market to accept large transaction with minimal to no impact on price stability.
Means you are buying or expecting the market to rise. The opposite side is a short or to short the market.
Long positionA position that appreciates in value if market prices increase. When one buys a currency, their position is long.
Margin and leverage are linked hand and hand together. Margin is a deposit, it is not a cost for you to pay to open your CFD position. This represents the most you might expect to lose on your position, although it is important to note that you may lose more than your initial deposit.
The required equity that an investor must deposit to collateralize a position.
A request from a broker or dealer for additional funds or other collateral to guarantee performance on a position that has moved against the client. If the equity balance in your account falls below the margin requirement, a margin call will be generated. In the event that an account exceeds its maximum allowable leverage, ALL open positions are liquidated immediately, regardless of the size or the nature of positions held within the account.
The margin deposit is not a down payment on a purchase of equity, as many perceive margins to be in the stock markets. Rather, the margin is a performance bond, or good faith deposit, to ensure against trading losses. The margin requirement allows traders to hold a position much larger than the account value, which allow for this high leverage. In the event that funds in the account fall below margin requirements, brokerage firms will automatically close all open positions.
Process of re-evaluating all open positions with the current market prices. These new values then determine margin requirements.
A dealer who regularly quotes both bid and ask prices and is ready to make a two-sided market for any financial instrument. – the trader’s lost is the market maker’s prоfit
Exposure to changes in market prices.
MaturityThe date for settlement or expiry of a financial instrument.
A moving average smooths out the market or takes the noise out of price by adding together a specified amount of closed or opens and dividing the total by the number of the data set. If you plotted a 10 period simple moving average on a 1-hour chart, you would add up the closing prices for the last 10 hours, and then divide that number by 10. There are several variations of a moving average, like a weighed moving average or an exponential moving average.
Narrow Marketoccurs when there is light trading and greater fluctuations in prices relative to volume. This is often interchanged for THIN MARKET.
The rate at which a dealer is willing to sell a currency.
A trade with which serves to cancel or offset some or all of the market risk of an open position.
One Cancels the Other Order (OCO)
A designation for two orders whereby one part of the two orders is executed the other is automatically canceled.
In finance, there are two definitions of open, it is when a market opens each day or time segment but it is also when you buy or sell an asset or open your CFD position.
An order that will be executed when a market moves to its designated price. Normally associated with Good ‘til Cancelled Orders.
A deal not yet reversed or settled with a physical payment.
Oscillators are a technical analysis tool which denotes overbought and oversold conditions in the market. Some of the most well-known oscillators are RSI, Stochastics and MACD.
Over the Counter (OTC)
Used to describe any transaction that is not conducted over an exchange.
OvernightA trade that remains open until the next business day.
Pips are the smallest unit of movement of an asset. A pip originated in the forex market and is also used in the price of a CFD. Pips refer to digits added to or subtracted from the fourth decimal place. One unit of the price is known as a point. Your profit/loss is determined by the change in points times your unit you have traded.
Digits added to or subtracted from the fourth decimal place, i.e. 0.0001. Also called Points.
Point & Figure charts
The Point & Figure Chart disregards Time and focuses entirely on price activity.
Exposure to changes in governmental policy which will have an adverse effect on an investor’s position.
The netted total holdings of a given currency.
In the currency markets, describes the amount by which the forward or futures price exceed the spot price.
Price TransparencyDescribes quotes to which every market participant has equal access.
Keep in mind when trading forex and cfds you are using a Bid/Ask system. A quote is the price offered for any market on the TradeFinancial platform, but quotes change continuously as the markets never sit still.
QuoteAn indicative market price, normally used for information purposes only.
The price of one currency in terms of another, typically used for dealing purposes.
A term used in technical analysis indicating a specific price level at which analysis concludes people will sell.
An increase in the exchange rate for a currency as a result of central bank intervention. Opposite of Devaluation.
The revaluation rates are the market rates used when a trader runs an end-of-day to establish profit and loss for the day.
Exposure to uncertain change, the variability of returns significantly the likelihood of less-than-expected returns.
The amount of money that an individual can afford to invest, which, if lost would not affect their lifestyle.
The most important concept and skill in finance is risk management. If one manages their risk they will negative heavy losses This concept must be employed for all trades and each trader needs to set their risk levels and understand their risks. When you control your exposure, you will survive to trade another day.
To hedge one’s risk they will employ financial analysis and trading techniques
Process whereby the settlement of a deal is rolled forward to another value date. The cost of this process is based on the interest rate differential of the two currencies.
Rollover RateThe daily rollover interest rate is the amount a trader either pays or earns, depending on the established margin and position in the market. To avoid rollovers simply make sure positions are closed at the established end of the market day.
The process by which a trade is entered into the books and records of the counterparts to a transaction. The settlement of currency trades may or may not involve the Actual physical exchange of one currency for another.
Is the opposite of long, it means selling an asset or a falling market. An investment position that benefits from a fall in market price. When the base currency in the pair is sold, the position is said to be short. You are hoping that the market falls.
An investment position that benefits from a decline in market price. When one sells a currency their position is short.
This is the difference between the price that was requested and the price obtained typically due to changing market conditions. Assets move continuously and the price shown on the platform is up to the moment but the price when you book a trade could have changed slightly as it takes just a few seconds for you to enter and complete a trade while the market never sits still.
In FX Markets, Spot refers to the cash price without interest factored in.
The current market price. Settlement of spot transactions usually occurs within two business days.
When you trade foreign exchange you are always quoted a spot price 2 business days in advance. This is under normal conditions where there are no bank holidays in the traded currencies countries or is not over a weekend.
A currency deposit transaction or the simultaneous purchase and sale of currency, or vice versa by means of swap for spot value day against the next working day.
The spread is the difference between the ASK and the BID price of an asset. All assets are quoted in a BID/ASK scenario. To better understand look up bid and ask in the glossary. The spread is small but can eat into your profits or magnify your losses as you must execute two sides of a trade to open and then close a position. Spreads for the most commonly traded assets are relatively small.
The difference between the bid (buy) and offer (ask, sell) prices; in other words the spread is the commission that the brokerage house makes on each trade. This can vary widely between currencies and between brokerage firms. For example, USD/JPY may bid at 131.40 and ask at 131.45, this five-pip spread defines the trader’s cost, which can be recovered with a favorable currency move in the market.
slang for British Pound.
This technical analysis indicator is based on the premise that during an upward trading market, prices tend to close near their high, and during a downward trading market, prices tend to close near their low.
Stop Loss Order
Order type whereby an open position is automatically liquidated at a specific price. Often used to minimize exposure to losses if the market moves against an investor’s position. As an example, if an investor is long USD at 156.27, they might wish to put in a stop loss order for 155.49, which would limit losses should the dollar depreciate, possibly below 155.49.
This is a crucial step in executing a trade to protect from unexpected negative market moves and is part of your risk managed strategy. A stop-loss is a computer command entered when you are executing your trade that instructs the platform to close your position is the market moves against you. You set the level and you can change this setting when you wish. It will protect you from unexpected headlines and panic in the marketplace.
A term used in technical analysis indicating a specific price level at which a currency will have the inability to cross below. Recurring failure for the price to move below that point produces a pattern that can usually be shaped by a straight line. It is the opposite of Resistance levels.
A currency swap is the simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate.
SwiftSociety of Worldwide Interbank Financial Telecommunications. It is a dedicated computer network that is set up to support fund transfer messages between member banks worldwide.
An effort to forecast prices by analyzing market action through chart study, volume, trends, moving averages, patterns, formations and many other technical indicators.
Minimum price move.
Shows current and/or recent history of a currency either in the format of a graph or table.
Tomorrow Next (Tom/Next)
Simultaneous buying and selling of a currency for delivery the following day.
Buying or selling of goods and services among countries called commerce. Forex Trading is the trading of Foreign Currencies.
the cost of buying or selling a financial instrument.
The date on which a trade occurs.
simply the direction of the market, usually broken down to three categories….major, intermediate and short-term trends. Three directions are also associated
This is a Technical Analysis indicator also called or linear regression, which is a statistical tool used to uncover trends. It is calculated by using the Least Squares method. There are two ways to use the linear regression line: a. Trade in the direction of the Trend line. b. Construct a parallel trend channel above and below the Trend line to be used as support and resistance levels.
The total money value of all executed transactions in a given time period; volume.
Two-Way PriceWhen both a bid and offer rate is quoted for a FX transaction.
When you are trading in CFDs, you never own an asset, you simply are trading on the price difference between the time you open the trade and close the trade. The price value that you are trading on is based on the asset you are opening the contract in, which is referred to the underlying asset. The price or value of a CFD offered is derived from the real world market price.
a new price quote at a price higher than the preceding quote.
In the U.S., a regulation whereby a security may not be sold short unless the last trade prior to the short sale was at a price lower than the price at which the short sale is executed.
US Prime RateThe interest rate at which US banks will lend to their prime corporate customers
The date on which counterparts to a financial transaction agree to settle their respective obligations, i.e., exchanging payments. For spot currency transactions, the value date is normally two business days forward. Also known as maturity date.
Funds a broker must request from the client to have the required margin deposited. The term usually refers to additional funds that must be deposited as a result of unfavorable price movements.
A measure of price fluctuations. The standard deviation of a price series is commonly used to measure price volatility.
Volumerepresents the total amount of trading activity in a particular stock, commodity or index for that day. It is the total number of contracts traded during the day.
Weak Dollar/ Strong Dollar
dollar is said to be weak (relative to a previous time period) against another currency when more dollars are required to buy one unit of another currency. The dollar is strong or has gained in strength when fewer dollars are required to buy one unit of another currency. For example, if $1 buys 10 FF in 1989 but today $1 buys only 6 FF then the dollar has weakened against the franc.
Whipsawslang for a condition of a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.
Slang for a billion.
YIELDReturn on capital investment.