Glossary

B:

BID/ASK SPREAD The difference between the bid and the ask (offer) price.

Bid Price The price at which the market is prepared to buy a product. Prices are quoted two-way as Bid/Ask. In trading, the Bid represents the price at which a trader can sell the base currency, shown to the left in a currency pair. For example, in the quote USD/CHF 1.4527/32, the base currency is USD, and the Bid price is 1.4527, meaning you can sell one US Dollar for 1.4527 Swiss francs. In CFD trading, the Bid also represents the price at which a trader can sell the product. For example, in the quote for UK OIL 111.13/111.16, the Bid price is £111.13 for one unit of the underlying market. *

Bollinger bands– A tool used by technical analysts. A band plotted two standard deviations on either side of a simple moving average, which often indicates support and resistance levels.

BROKER – An individual or firm that acts as an intermediary, bringing buyers and sellers together 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

BULLISH/BEARISH MARKET– Favouring a strengthening market and rising prices. For example, “We are bullish EUR/USD” means that we think the euro will strengthen against the dollar.

BUYTaking a long position on a product.

BUY DIPS Looking to buy 20-30-pip pullbacks over an intra-day trend.

C:

CANDLESTICK CHART 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.

CALL OPTION A currency trade which exploits the interest rate difference between two countries. By selling a currency with a low rate of interest and buying a currency with a high rate of interest, the trader will receive the interest difference between the two countries while this trade is open.

CFDSA Contract for Difference (or CFD) is a type of derivative that gives exposure to the change in value of an underlying asset (such as an index or equity). It allows traders to leverage their capital (by trading notional amounts far higher than the money in their account) and provides all the benefits of trading securities, without owning the product. In practical terms, if you buy a CFD at $10 then sell it at $11, you will receive the $1 difference. Conversely, if you went short on the trade and sold at $10 before buying back at $11, you would pay the $1 difference

CLOSINGThe process of stopping (closing) a live trade by executing a trade that is the exact opposite of the open trade.

CLOSING PRICE The price at which a product was traded to close a position. It can also refer to the price of the last transaction in a day trading session.

CONSOLIDATIONA period of range-bound activity after an extended price move.

D:

DAY TRADER Speculators who take positions in commodities and then liquidate those positions prior to the close of the same trading day.

DAY TRADING Making an open and close trade in the same product in one day.

DEPRECIATIONThe decrease in value of an asset over time.

DIVERGENCEIn technical analysis, a situation where price and momentum move in opposite directions, such as prices rising while momentum is falling. Divergence is considered either positive (bullish) or negative (bearish), both kinds of divergence signal major shifts in price direction. Positive/bullish divergence occurs when the price of a security makes a new low while the momentum indicator starts to climb upward. Negative/bearish divergence happens when the price of the security makes a new high, but the indicator fails to do the same and instead moves lower. Divergences frequently occur in extended price moves and frequently resolve with the price reversing direction to follow the momentum indicator.

DIVERGENCE OF MAS A technical observation that describes moving averages of different periods moving away from each other, which generally forecasts a price trend.

DOWNTRENDPrice action consisting of lower lows and lower highs.

G:

GAP/GAPPING A quick market moves in which prices skip several levels without any trades occurring. Gaps usually follow economic data or news announcements.

GOING SHORT The selling of a currency or product not owned by the seller – with the expectation of the price decreasing.

GOING LONG The purchase of a stock, commodity or currency for investment or speculation – with the expectation of the price increasing.

I:

INFLATION – An economic condition whereby prices for consumer goods rise, eroding purchasing power.

INITIAL MARGIN REQUIREMENT The initial deposit of collateral required to enter a position.

INTERVENTIONAction by a central bank to affect the value of its currency by entering the market. Concerted intervention refers to action by several central banks to control exchange rates.

L:

LEVERAGE – Also known as margin, this is the percentage or fractional increase you can trade from the amount of capital you have available. It allows traders to trade notional values far higher than the capital they have. For example, leverage of 100:1 means you can trade a notional value 100 times greater than the capital in your trading account.

LIABILITY – Potential loss, debt, or financial obligation.

LIQUID MARKET – A market which has enough buyers and sellers for the price to move in a smooth manner.

LIQUIDATION – The closing of an existing position through the execution of an offsetting transaction.

LONG POSITION – A position that appreciates in value if market price increases. When the base currency in the pair is bought, the position is said to be long. This position is taken with the expectation that the market will rise.

LOT – A unit to measure the amount of the deal. The value of the deal always corresponds to an integer number of lots.

M:

MARGIN CALL – A request from a broker or dealer for additional funds or other collateral on a position that has moved against the customer.

MARKET ORDER – An order to buy or sell at the current price.

MOMENTUM – A series of technical studies (e.g. RSI, MACD, Stochastics, Momentum) that assesses the rate of change in prices.

O:

 OPEN ORDER – An order that will be executed when a market moves to its designated price. Normally associated with good ’til cancelled orders.

OPEN POSITION – An active trade with corresponding unrealized P&L, which has not been offset by an equal and opposite deal.

OPTION – A derivative which gives the right, but not the obligation, to buy or sell a product at a specific price before a specified date.

ORDER – An instruction to execute a trade.

P:

PARABOLIC – A market that moves a great distance in a very short period, frequently moving in an accelerating fashion that resembles one half of a parabola. Parabolic moves can be either up or down.

PIPS – The smallest unit of price for any foreign currency, pips refer to digits added to or subtracted from the fourth decimal place, i.e. 0.0001.

POSITION – The net total holdings of a given product.

PULLBACK – The tendency of a trending market to retrace a portion of the gains before continuing in the same direction.

R:

RALLY – A recovery in price after a period of decline.

RESISTENCE LEVEL – A price that may act as a ceiling. The opposite of support

RISK – Exposure to uncertain change, most often used with a negative connotation of adverse change.

RISK MANAGEMENT – The employment of financial analysis and trading techniques to reduce and/or control exposure to various types of risk.

S:

SELL – Taking a short position in expectation that the market is going to go down

SHORT POSITION – An investment position that benefits from a decline in market price. When the base currency in the pair is sold, the position is said to be short.

SIMPLE MOVING AVERAGE SMA – A simple average of a pre-defined number of price bars. For example, a 50-period daily chart SMA is the average closing price of the previous 50 daily closing bars. Any time interval can be applied.

SPREAD – The difference between the bid and offer prices.

SUPPORT – A price that acts as a floor for past or future price movements.

T:

TRAILING STOP – A trailing stop allows a trade to continue to gain in value when the market price moves in a favourable direction, but automatically closes the trade if the market price suddenly moves in an un-favourable direction by a specified distance. Placing contingent orders may not necessarily limit your losses.

TREND – Price movement that produces a net change in value. An uptrend is identified by higher highs and higher lows. A downtrend is identified by lower highs and lower lows.

V:

VOLATILITY – Referring to active markets that often present trade opportunities.

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