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TRADING TERMINOLOGY

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Offer (also known as the Ask price)

The price at which the market is prepared to sell a product. Prices are quoted two-way as Bid/Offer. The Offer price is also known as the Ask. The Ask represents the price at which a trader can buy the base currency, which is shown to the right in a currency pair. For example, in the quote USD/CHF 1.4527/32, the base currency is USD, and the ask price is 1.4532, meaning you can buy one US dollar for 1.4532 Swiss francs.

In CFD trading, the Ask represents the price a trader can buy the product. For example, in the quote for UK OIL 111.13/111.16, the product quoted is UK OIL and the ask price is £111.16 for one unit of the underlying market.*

Offered

If a market is said to be trading ‘offered’, it means a pair is attracting heavy selling interest, or offers.

Offsetting transaction

A trade that cancels or offsets some or all of the market risk of an open position.

On top

Attempting to sell at the current market order price.

One cancels the other order (OCO)

A designation for two orders whereby if one part of the two orders is executed, then the other is automatically cancelled.

One touch

An option that pays a fixed amount to the holder if the market touches the predetermined Barrier Level.

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.

Order book

A system used to show market depth of traders willing to buy and sell at prices beyond the best available.

Over the counter (OTC)

Used to describe any transaction that is not conducted via an exchange.

Overnight position

A trade that remains open until the next business day.

p

Paid

Refers to the offer side of the market dealing.

Pair

The forex quoting convention of matching one currency against the other.

Paneled

A very heavy round of selling.

Parabolic

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

Partial fill

Where only part of an order has been executed.

Patient

Waiting for certain levels, or news events to hit the market before entering a position.

Personal income

Measures an individual’s total annual gross earnings from wages, business enterprises and various investments. Personal income is the key to personal spending, which accounts for 2/3 of GDP in the major economies.

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.

Political risk

Exposure to changes in governmental policy which will have an adverse effect on an investor’s position.

Portfolio

A collection of investments owned by an entity.

Position

The net total holdings of a given product.

Premium

The amount by which the forward price exceeds the spot price.

Price transparency

Describes quotes to which every market participant has equal access.

Profit

The difference between the cost price and the sale price, when the sale price is higher than the cost price.

Pullback

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

Purchasing managers index (PMI)

An economic indicator which indicates the performance of manufacturing companies within a country.

Purchasing managers index services (France, Germany, Eurozone, UK)

Measures an outlook of purchasing managers in the service sector. Such managers are surveyed on a number of subjects including employment, production, new orders, supplier deliveries, and inventories. Readings above 50 generally indicate expansion, while readings below 50 suggest economic contraction.

Put option

A product which gives the owner the right, but not the obligation, to sell it at a specified price.

q

Quote

An indicative market price, normally used for information purposes only.

Quantitative easing

When a central bank injects money into an economy with the aim of stimulating growth.

Quarterly CFDs

A type of future with expiry dates every three months (once per quarter).*

r

Rally

A recovery in price after a period of decline.

Range

When a price is trading between a defined high and low, moving within these two boundaries without breaking out from them.

Rate

The price of one currency in terms of another, typically used for dealing purposes.

RBA

Reserve Bank of Australia, the central bank of Australia.

RBNZ

Reserve Bank of New Zealand, the central bank of New Zealand.

Real money

Traders of significant size including pension funds, asset managers, insurance companies, etc. They are viewed as indicators of major long-term market interest, as opposed to shorter-term, intraday speculators.

Realized profit / loss

The amount of money you have made or lost when a position has been closed.

Resistance level

A price that might act as a ceiling. The opposite of support.

Retail investor

An individual investor who trades with money from personal wealth, rather than on behalf of an institution.

Retail sales

Measures the monthly retail sales of all goods and services sold by retailers based on a sampling of different types and sizes. This data provides a look into consumer spending behavior, which is a key determinant of growth in all major economies.

Revaluation

When a pegged currency is allowed to strengthen or rise as a result of official actions; the opposite of a devaluation.

Rights issue

A form of corporate action where shareholders are given rights to purchase more stock. Normally issued by companies in an attempt to raise capital.

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.

Rollover

A rollover is the simultaneous closing of an open position for today’s value date and the opening of the same position for the next day’s value date at a price reflecting the interest rate differential between the two currencies.

In the spot forex market, trades must be settled in two business days. For example, if a trader sells 100,000 Euros on Tuesday, then the trader must deliver 100,000 Euros on Thursday, unless the position is rolled over. As a service to customers, all open forex positions at the end of the day (5:00 PM New York time) are automatically rolled over to the next settlement date. The rollover (or swap) adjustment is simply the accounting of the cost-of-carry on a day-to-day basis.

Round trip

A trade that has been opened and subsequently closed by an equal and opposite deal.

Running profit / loss

An indicator of the status of your open positions; that is, unrealized money that you would gain or lose should you close all your open positions at that point in time.

RUT

Symbol for Russell 2000 Index.

s

SEC

Securities and Exchange Commission.

Sector

A group of securities that operate in a similar industry.

Sell

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

Settlement

The process by which a trade is entered into the books, recording the counterparts to a transaction. The settlement of currency trades may or may not involve the actual physical exchange of one currency for another.

SHGA.X

Symbol for Shanghai A Index.

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.

Short squeeze

A situation in which traders are heavily positioned on the short side and a market catalyst causes them to cover (buy) in a hurry, causing a sharp price increase.

Short-covering

After a decline, traders who earlier went short begin buying back.

Shorts

Traders who have sold, or shorted, a product, or those who are bearish on the market.

Sidelines, sit on hands

Traders staying out of the markets due to directionless, choppy, unclear market conditions are said to be ‘on the sidelines’ or ‘sitting on their hands’.

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.

Slippage

The difference between the price that was requested and the price obtained typically due to changing market conditions.

Slippery

A term used when the market feels like it is ready for a quick move in any direction.

Sloppy

Choppy trading conditions that lack any meaningful trend and/or follow-through.

SNB

Swiss National Bank, the central bank of Switzerland.

Sovereign names

Refers to central banks active in the spot market.

Spot market

A market whereby products are traded at their market price for immediate exchange.

Spot price

The current market price. Settlement of spot transactions usually occurs within two business days.

Spot trade

The purchase or sale of a product for immediate delivery (as opposed to a date in the future). Spot contracts are typically settled electronically.

Spread

The difference between the bid and offer prices.

Square

Purchase and sales are in balance and thus the dealer has no open position.

SPX500

A name for the S&P index.

Sterling

Nickname for GBP/USD. Also known as Pound or British Pound.

Stock exchange

A market on which securities are traded.

Stock index

The combined price of a group of stocks – expressed against a base number – to allow assessment of how the group of companies is performing relative to the past.

Stop loss hunting

When a market seems to be reaching for a certain level that is believed to be heavy with stops. If stops are triggered, then the price will often jump through the level as a flood of stop-loss orders are triggered.

Stop order

A stop order is an order to buy or sell once a pre-defined price is reached. When the price is reached, the stop order becomes a market order and is executed at the best available price. It is important to remember that stop orders can be affected by market gaps and slippage, and will not necessarily be executed at the stop level if the market does not trade at this price. A stop order will be filled at the next available price once the stop level has been reached. Placing contingent orders may not necessarily limit your losses.

Stop entry order

This is an order placed to buy above the current price, or to sell below the current price. These orders are useful if you believe the market is heading in one direction and you have a target entry price.

Stop loss order

This is an order placed to sell below the current price (to close a long position), or to buy above the current price (to close a short position). Stop loss orders are an important risk management tool. By setting stop loss orders against open positions you can limit your potential downside should the market move against you. Remember that stop orders do not guarantee your execution price – a stop order is triggered once the stop level is reached, and will be executed at the next available price.

Stops building

Refers to stop-loss orders building up; the accumulation of stop-loss orders to buy above the market in an upmove, or to sell below the market in a downmove.

Strike price

The defined price at which the holder of an option can buy or sell the product.

Support

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

Support levels

A technique used in technical analysis that indicates a specific price ceiling and floor at which a given exchange rate will automatically correct itself. Opposite of resistance.

Suspended trading

A temporary halt in the trading of a product.

Swap

A currency swap is the simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate.

SWISSIE

The nickname for USD/CHF.