Glossary

A negative balance of trade or payments.

The apportionment of premiums and discounts on forward exchange transactions that relate directly to deposit swap (interest arbitrage) deals, over the period of each deal.

An adjustment can be defined as the impact of a company paying out dividends on the ex-date. The share price takes a slight dip, because money flows out of the company and to the shareholders. The dividend adjustment occurs at the close of business before the ex-dividend date.

Appreciation is defined as the increase in an asset’s price over time. Capital appreciation refers to the price increase of financial assets such as property, pensions, commodities, etc.

The stock price and perceived value of a quoted company might appreciate due to the company’s improved financial performance, investor confidence, and speculation. Alternatively, the stock price could depreciate if performance worsens affecting investor sentiment.

Arbitrage describes the practice of buying and selling an asset in order to profit from a difference in the asset's price between markets. It is a trade that profits by exploiting the price differences of identical or similar financial instruments in different markets.

Asian Central Banks are the monetary authorities of Asian countries. These institutions have been increasingly active in major currencies as they manage growing pools of foreign currency reserves arising from trade surpluses. Their market interest can be substantial and influence currency direction in the short-term.

23:00 – 08:00 GMT.

The ask price, ask, or offer price is the price a seller will accept for a security.. An ask quote often stipulates the amount of the asset available at the stated price. The ask price is the opposite of the bid price, which is what a buyer will pay for a security – the ask is always higher than the bid.

An instruction given to a dealer to buy or sell at the best rate that can be obtained at a specific time.

An instruction given to a dealer to buy or sell at a specific price or better.

A term for the Australian Securities Exchange (ASX 200), which is an index of the top 200 companies by market capitalization listed on the Australian stock exchange.

Refers to the AUD/USD (Australian Dollar/U.S. Dollar) pair. Also known as ‘Oz’ or ‘Ozzie’.

The Bank for International Settlements (BIS) is a global financial institution owned by central banks. Based in Basel, Switzerland, there are representative offices in Hong Kong and Mexico City.

The BIS's original members were Switzerland, Germany, Belgium, France, Britain, Italy, the United States and Japan.

The Bank of China is one of China's four largest state-owned commercial banks. It is a subsidiary of the People’s Bank of China. However, it maintains close relations in management, administration, and cooperation in several areas with the subsidiary.

The Bank of England (BoE) is the central bank for the United Kingdom, acting as the government's bank and lender of last resort. With headquarters in the City of London, it issues currency and oversees monetary policy. It is the UK equivalent of the Federal Reserve in the United States.

A type of chart which consists of four significant points: the high and the low prices, which form the vertical bar; the opening price, which is marked with a horizontal line to the left of the bar; and the closing price, which is marked with a horizontal line to the right of the bar.

A certain price of great importance included in the structure of a barrier option. If a barrier level price is reached, the terms of a specific barrier option call for a series of events to occur.

A barrier option is a type of options contract which has a payoff dependent on whether or not the market reaches – or exceeds – a predetermined price, known as a barrier level.

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. Adjusting the base rate helps a central bank regulate the economy by encouraging or discouraging spending as required.

A chart pattern used in technical analysis that shows when demand and supply of a product are almost equal. It results in a narrow trading range and the merging of support and resistance levels.

A bear market is any market that experiences a fall of around 20% or more from its recent high. Most commonly applied to stock markets, the term can also be used for anything that is traded, including currencies and commodities. A bear market is the opposite of a bull market.

The difference between the bid and the ask (offer) price.

Bid price, or simply bid, describes what a buyer is willing to pay for a security. It is contrasted with the ask price, the amount a seller is willing to sell a security for. The difference between the two is known as the ‘spread’, which is the cost traders pay to open and close positions.

The term used for systematic, model-based or technical traders.

A tool used by technical analysts that consists of a band plotted two standard deviations on either side of a simple moving average. It is used to find support and resistance levels.

A bond is a fixed-income investment that represents a loan made by an investor to a borrower (who is typically corporate or governmental). It can be illustrated as an I.O.U. between the lender and borrower that includes the details of the loan and its payments.

A financial broker is a third-party coordinating the sale of financial securities between parties selling securities and those purchasing them. Brokers are individuals or firms acting as intermediaries between investors and trading exchanges.

Exchanges only accept orders from their members, either individuals or firms. Therefore, traders and investors require exchange members' services to make financial transactions. Brokers get compensated for their services in several ways; commissions, fees or paid directly by the exchange.

The word buck is a slang term for one US dollar. The word’s use traces back to 1748, forty-four years before the first US dollar became minted.

A bull market describes any market in which prices are rising or are expected to rise imminently. Typically applied to stock markets, the term can also be used for anything that is traded, including currencies and commodities. A bull market is the opposite of a bear market.

Taking a long position on a product.

‘Buy the dips’ is a phrase used in trading, referring to opening a trade on a market as soon as it experiences a short-term price fall. ‘The dip’ is quite literally a dip shown on a market’s chart when its price falls after a bullish period.

The GBP/USD (Great British Pound/U.S. Dollar) pair. Cable earned its nickname because the rate was originally transmitted to the US via a transatlantic cable beginning in the mid 1800s when the GBP was the currency of international trade.

The Canadian dollar, also known as Loonie or Funds.

Call options are financial contracts that give you the right, but not the obligation, to buy a market at a specified price within a specific time. The buyer of a call option can profit when the underlying market rises in price.

The Canadian dollar is the currency of Canada. Managed and overseen by the Bank of Canada, it is frequently traded as part of pairs such as USD/CAD, GBP/CAD and EUR/CAD.

Although not as popular as its US counterpart, the Canadian dollar is still one of the most commonly traded currencies in forex and is often known as a ‘commodity currency’ due to the correlation between its value and commodity prices.

It was first used in 1858 as a replacement for the Canadian pound, and the Canadian dollar has since become a benchmark currency that is kept in reserve by countries across the world. The nickname ‘Loonie’ is used in trading to refer to the currency, with the deriving from the aquatic bird ‘the loon’ that is featured on the nation’s $1 coins.

What is the symbol for the Canadian dollar?

The symbol for the Canadian dollar is $. However, C$ or CAN$ can also be used to distinguish between the US dollar and other dollar currencies that use the $ symbol. One Canadian dollar is made up of 100 cents, and the abbreviation ‘CAD’ is used to denote the Canadian Dollar when shown in forex currency pairs.

Candlestick chart definition

A candlestick chart is a type of chart used to analyse a market’s price in trading. Unlike bar charts, candlestick charts show the market’s high, low, open and closing price within each period.

Its name comes from its candlestick-like appearance, with the body resembling the candle and the lines above and below resembling the wick. Although its origin can be traced back to 18^th century Japan, the candlestick chart was adopted and popularised in the US much later.

Candlesticks have now become a staple of trading and are one of the most popular ways to view and track a market’s price. This is due to the extensive amount of information shown and the relative ease with which this can be interpreted. For day traders, candlestick charts are especially useful because of this abundance of information.

as it shows the same information. There are some subtle differences, however, one being the bodies in bar charts are thinner than in candlestick charts.

What do candlesticks mean?

A candlestick is a simple bar that shows the open and close price, as well as the high and low over the period selected. 

The candlestick shows the following information:

• Open price
• Close price
• High price for the period
• Low price for the period

Another significant aspect of candlesticks is the colour of the bar. White or green symbolises the price has closed higher, black or red shows the price has closed lower. If the price of the market has closed lower, the close price will be the bottom of the bar and the open price the top.

This helps traders to quickly and easily identify price trends. If a chart shows 20 consecutive red candlesticks, it’s clear that the market is experiencing a heavy downward trend.

The shadow part of the candlestick is a good indicator of volatilityin the period. If the upper shadow is significantly higher than the market open and the lower wick is significantly lower, the market has experienced a wide price range for the period shown.

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Capitulation is the act of surrendering or giving up. In financial market trading, the term indicates when investors and traders have decided to stop trying to recapture lost gains or maintain their positions, due to falling or rising prices.

A cash market is a marketplace where securities are immediately paid for and delivered at the point of sale. For example, a stock exchange is classed as a cash market – because investors receive their shares as soon as they have paid for them.

Cash markets are also called spot markets, because the transactions get settled on the spot. They differ from futures markets, where buyers pay for the right to receive goods at a specific future date.

Cash market transactions may take place on exchanges like stock markets or via over-the-counter (OTC) methods.

Regulated exchanges offer institutional and structured protection against counterparty risks. OTC markets, on the other hand, allow the parties involved to customise their contracts.

What is the difference between cash and futures markets?

A cash market is where financial instruments get traded and where, for example, the delivery of stock/shares occurs. The total amount of the transaction value must be paid in cash when buying the shares.

In contrast, a futures market is where only futures contracts are bought and sold on agreed dates in the future and at predefined prices.

Trading in futures doesn’t involve owning shares, and no delivery occurs as the contract expires on the expiration date.

Traders can trade on margin with futures, and they don’t have to pay cash at the point of sale. With futures contracts, settlement takes place on a contract’s expiration date.

Futures contracts don’t have dividend pay-outs, and they’re used more for hedging, speculation or arbitrage purposes, unlike buying shares for investment reasons

A central bank is a financial institution with special authority to issue government-backed currency. It is often responsible for formulating monetary policy and regulating member banks. Examples of central banks include the Bank of England in the UK and the Federal Reserve in the US.

A chartist is a trader that analyses a market’s price history to determine future price trends. A chartist will use a range of analytical tools, as well as indicators, to conduct technical analysis on a market’s price chart.

Chartists look for patterns in a market’s price behaviour. By identifying these patterns, chartists can then try to predict future price movement and make trades to capitalise on them. For example, they might try to identify a trend as it forms, then profit from the resulting move.

A chartist’s trading strategy relies heavily, but not always exclusively, on technical analysis. Sometimes, a chartist can incorporate fundamental analysis along with technical analysis into their trading strategy.

Chartists vs fundamental analysts

The difference between a chartist and a fundamental analyst is that a chartist will look at the history of a market’s price to influence their trading decisions. Fundamental analysts, on the other hand, will attempt to by evaluating a number of factors, including overall economic strength and specific industry conditions.

Let’s say you’re trading Amazon. As a chartist, you might use tools and indicators to try to work out how Amazon’s price will move. As a fundamental analyst, you would look at several factors, such as company management, earnings, future projections, industry performance and company assets to try to determine whether Amazon’s current market price is a true representation of its value.

If you see a discrepancy between Amazon’s stock price and its intrinsic value, you will exploit this imbalance and trade to take advantage of its current stock price.

A choppy market is when an asset’s price shows no clear trend but instead experiences many smaller fluctuations. 

A choppy market can occur when buyers and sellers of a market are at an equilibrium. If there is high liquidity (large trading volumes) in a market and neither bears nor bulls can dominate, the result is often a choppy market.

Choppy markets are associated with rectangular price ranges. A rectangular price range is a pattern that occurs on charts that continuously hits the same support (the lower limit) and resistance (the upper limit) levels. This prevents the market from breaking out into a trend, as its price is instead confined between these two levels – creating a rectangle.

Traders often look to profit from price trends, so can find it difficult to successfully trade a choppy market. Those who do trade choppy markets to try take advantage of small price movements over a short-term period, but more volatile markets are likely to present greater opportunities for most traders.

What are good technical indicators for choppy markets?

A good technical indicator to use to identify choppy markets is the Average Directional Index (ADX). The ADX indicator will not only help to identify whether a market is experiencing a price trend, but it will also show the strength of the trend.

The main characteristic of a choppy market is that there is little or no trend, so in this case we can use the ADX indicator to identify the strength of a trend in a market. If it indicates there’s no trend, we know a market is choppy and can trade accordingly.

The ADX works by using the positive (+DI) and negative (-DI) direction indicator to help traders determine whether they should go long or short on a market based on the direction and strength of the trend. When the ADX is above 25, this shows that the trend is strong. If the ADX is below 20, this implies a non-existent trend – at which point a choppy market has been identified.

Cleared funds refers to the balance in a trading account and means that these funds are ready to be traded with. Once funds have cleared, they are free from any obligation and can be used to either make a trade or be withdrawn. If funds aren’t cleared, they might be pending, which will limit what a trader can do with them.

On occasion, a deposit of funds can take some time to arrive in a trading account. As a result, a £100 deposit could show up in the account but just not be cleared. At that point, restrictions on how the funds can be used are also likely to apply until the funds are fully cleared.

What is the difference between cleared funds and available funds?

The difference between cleared funds and available funds is that cleared funds carry no further obligations and can be traded or withdrawn freely, whereas available funds often come with certain restrictions.

Let’s say a deposit might be pending. Funds from that deposit might be available to be used to place a trade, but until it has been finalised and the funds have been cleared there might be withdrawal restrictions.

In the context of banking, banks are legally obligated to make a certain amount of a deposit available to be used as regular funds.

The process of settling a trade.

A clearing house is an organisation, institution or third party that settles a financial obligation between a buyer and seller. It’s the job of a clearing house to ensure that all parties in a financial transaction honour the agreements that they’ve committed to and settle them as such.

Clearing houses ensure that transactions run efficiently. The buyer receives what they paid for, and the seller receives the amount of money agreed on for the sale.

The idea of a clearing house has been around for centuries. Various forms existed in Japan, Italy and France before the first modern-day clearing house as we know them was established in London in 1773.

They make up an integral part of financial ecosystems and play a vital role in instilling financial stability.

What is the role of a clearing house?

The role of the clearing house is to act as the independent third party, or middleman, between a buyer and a seller in a financial transaction. It’s the job of the clearing house to ensure all the necessary steps are undertaken by both buyer and seller for the transaction to be settled.

Clearing houses are particularly important on futures markets because these take time to be filled. The clearing house must ensure that the contract is settled at the time originally agreed by both parties, at the price agreed.

Although clearing houses act for their own financial gain, profiting from clearing and transaction fees, they’re a pivotal part of the financial ecosystem. They maintain fairness by upholding any contract or agreement of sale between a buyer and a seller. More significantly they maintain the industry’s integrity and instil confidence for those who may be worried about the opposing party upholding their part of the financial obligation.

A closed position is a trade that is no longer active and has been closed by a trader. To close a position, you need to trade in the opposite direction to when you opened it.

 

For instance, if you take a long position on a stock, you would have to sell an equal amount of stock to close your position. Once a position is closed, it cannot be reopened. At the point of closure, any profit or loss is realised, and your account balance will be updated accordingly.

 

Closing a position is not always a manual task. Stop-loss and take-profit orders, for example, automatically close your position if a market’s price falls or rises to a certain level

 

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When should you close a position? 

 

There’s no definitive answer to when you should close a position as it depends on several different factors. Your trading strategy, for instance, could be key in making that decision.

  

Timing when to close out a trade is a critical aspect of becoming a profitable trader. A common mistake made by inexperienced traders is closing out trades too soon if they start incurring a loss. Fluctuation and, depending on the market traded, volatility are frequent in the markets, so it’s not uncommon for a trade to enter the red. However, closing out too early and taking the loss can be a mistake as there’s no chance for the market to recover.

 

Equally, it can be difficult to close out a position when it’s up significantly. The mentality shifts and there’s that expectation that if it’s currently in profit, it will continue to rise further. Again, this is not always the case, so closing out positions and securing that profit is crucial to being successful.

 

The best way to close positions at the correct level is to . Before opening a trade, decide when you’ll close it at a profit and at a loss – then try to stick to your decision.

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

A closing price is a market’s final price level before it closes for the day. A market’s closing price is used as the price level shown on a typical line chart.

Closing prices are the benchmark used to measure a market’s daily performance. A market’s price can fluctuate during the day, but a close price is a fixed number that can not only be compared with previous close prices, but also compared with close prices of other markets.

Close prices will very occasionally be adjusted retrospectively after events like stock splits. Stock splits involve the issuing of extra shares and can be a way to make a company’s share price more affordable. For instance, in August 2020 . Its price fell to a quarter of what it was pre-split, but anyone holding Apple at the time had the number of their shares quadrupled. As a result, the close prices of Apple before the split have been adjusted to now show the relative price to make it easier to compare to its current price.

Why is closing price important?

Closing prices are important as they used as the benchmark to identify price trends and evaluate a market’s performance over a set period.

By taking away the open price from the close price, you can calculate exactly how much a market has risen or fallen in a day. This can be valuable in identifying market sentiment and predicting price trends.

For line charts, the close price is the only information shown – in contrast to candlestick and bar charts that also show open, high and low prices for the day. Therefore, closing prices are the only information used to show trends and highlight whether the market is bearish or bullish.

Collateral is something pledged as security for the repayment of a loan, which can become forfeited in the event of loan default. Examples of collateral include real estate, vehicles, cash, and investments.

A commodity trading advisor (CTA) is a type of financial advisor that only supplies advice on commodities trading: typically the buying and selling of futures contracts, commodity options or swaps.

US commodity trading advisors must be certified. Registration requires CTAs to advise on all forms of commodity investments.

To register as a CTA, the applicant must pass proficiency requirements, such as the Series 3 National Commodity Futures Exam – although alternative tests can also prove proficiency.

CTA finance explained

Investments in commodities can involve significant leverage, requiring a high level of expertise. Regulations came in from the 1970s onwards to help avoid the potential of substantial losses for firms and individuals, including moves to regulate CTAs.

A CTA fund is a hedge fund that uses futures contracts to reach its investment targets. CTA funds typically use various trading strategies to meet their investment goals, such as automated and trend-following systems.

Some fund managers might apply discretionary strategies, such as fundamental analysis, combined with systematic trading methods.

These fund managers run different strategies using futures, options on futures contracts and FX forwards. CTA funds were originally commodity-focused, but they’ve now expanded their expertise to invest in all futures markets: including commodities, equities and currencies.

The dollar pairs that make up the crosses (ie EUR/USD and USD/JPY are the components of EUR/JPY). Selling the cross through the components refers to selling the dollar pairs in alternating fashion to create a cross position.

Symbol for NASDAQ Composite Index.

A document signed by counterparts to a transaction that states the terms of said exchange.

In technical analysis, a consolidating market is a market that is neither continuing nor countering a long-term trend. Instead, its price is only experiencing rangebound price activity.

This is also seen as market indecisiveness. A market’s price during a period of consolidation will still fluctuate, but it won’t break out of a certain price range.As soon as the market breaks out and moves either above or below the stagnant trading pattern, the period of consolidation ends.

Sometimes a market’s trend will reverse after a continuation. This is known as a transition. For example, if EUR/USD consolidates after an uptrend then experiences a selloff, it has transitioned from bullish to bearish.

Many successful trading strategies involve identifying and capitalising on consolidation periods. The aim is not necessarily to trade the consolidation itself, but rather anticipate the market’s next move and benefit from entering the market early before the next move comes. One way to do this is by identifying

How to identify a consolidating market

To identify a consolidating market, look at the longer-term trend of the market and compare that with its short-term price movement. If a market has been consistently rising or falling over a long period (showing an upward or downward trend) but its price is now moving laterally, it’s likely the market will be going through a period of consolidation.

It’s important to allow for fluctuation when identifying a consolidating market. A market can fluctuate while consolidating, but it’s the size of the fluctuations that are significant. While a market is consolidating, it typically only trades between a certain price range and struggles to break away from the bound upper and lower price ranges.

Trading opportunities at this time can be limited. The range-bound price activity means that there are no significant price moves to take advantage of. However, scalpers will often trade consolidation periods despite the lack of strong price movement, as they look to profit in the short-term off smaller fluctuations.

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

Construction spending is the amount of money the government or businesses have spent on construction, labour and materials over a monthly period. This can refer to either residential and non-residential construction and also includes engineering costs. 

Residential construction refers to the construction of housing and other forms of accommodation. This is significant to traders as the housing market can often reflect the economic health of a country.

Non-residential construction refers to businesses and corporations spending money on infrastructure like new factories, offices or branches. Non-residential construction has an even stronger correlation with economic performance as gross domestic product (GDP) is derived from the output of these businesses, which is a direct measure of economic strength.

Although construction spending is not the strongest economic indicator, its relation to GDP makes it significant to traders. If construction spending is high, this implies economic growth as new infrastructure is being built – increasing the capacity of an economy.

How do changes in government spending impact construction?

Changes in government spending should indirectly impact construction in an economy. This is because there’s a relation between spending and economic strength.

The purpose of the government increasing spending is often to stimulate demand in the economy. If done successfully, an economy will grow as consumer spending also increases. This rise in demand can cause the need to raise economic capacity. One way this is facilitated is by increases construction. If government spending leads to an increase in wages, people will have more money and might be more likely to spend rather than save. For example, high consumer confidence off the back of an increase in government spending could subsequently increase the demand for housing[PF4] .

This is because, in theory, consumers are more financially stable and in a better position to purchase a home. If the demand for housing rises, the construction industry will benefit as more houses will need to be built.

Alternatively, a fall in government spending could have an adverse effect on construction, as the fall in demand would take away the need for new infrastructure. In a weaker economic environment, businesses are less likely to invest in new branches or factories, consumers will be more hesitant with making substantial purchases like buying houses and the construction industry could contract.

The tendency of an economic crisis to spread from one market to another.

Contract size is the deliverable amount of a market that makes up a futures or options contract, spot forex or CFDs. These vary between markets and assets.

For instance, in forex the standard size of one contract is typically 100,000 units of the currency. Whereas for stocks, the typical size of a futures contract is 100 shares.

A benefit of having contract sizes is that traders and investors know how much of a market they are trading. The size of the contract is a definitive quantity that is often standardised across the board, meaning regardless of the broker, the size of one contract for a market is usual the same.

It’s crucial to know the size of the contract you are trading as this will help you know exactly how much exposure you have. This is also significant when thinking about risk management, as you’ll need to know how much you might potentially lose based on the amount you are trading.

How do you determine contract size?

To determine the total contract size, all you need to do is simply look at the market information for the market you’re trading. This information will be available directly from your trading platform.

You can then use this to work out the total size of your trade. Let’s use an Apple CFD as an example. One Apple CFD is equivalent to one stock of Apple. If Apple’s price is $120 and you purchase 100 CFDs on Apple shares, the total cost of the trade is $12,000 ($120 x 100 CFDs).

With this long position, if Apple’s stock rises to $130, you would make a profit of $1,000 ($10 x 100) by closing out the position.

Contract sizes are standardised across the industry. For instance, a standard contract size for forex is 100,000 units of the base currency. However, ‘mini’ and ‘micro’ contracts are also available. In forex, a mini contract is 10,000 units and a micro contract is 1,000.

A contract for difference (CFD) is a financial contract in which you agree to exchange the difference in the settlement price between the open and closing trades on a particular asset. CFDs enable traders and investors to speculate on whether a market will go up or down, and profit from the price movement without owning the underlying asset.

Controlled risk is where the amount of risk on a trade is capped at a certain level, typically through a guaranteed stop-loss order. This enables you to set the maximum possible amount you can lose on a trade, giving you full control of your risk.

A technical observation that describes moving averages of different periods moving towards each other, which generally forecasts a price consolidation.

Refers to corporations in the market for hedging or financial management purposes. Corporates are not always as price sensitive as speculative funds and their interest can be very long term in nature, making corporate interest less valuable to short-term trading.

The second listed currency in a currency pair.

One of the participants in a financial transaction.

Risk associated with a cross-border transaction, including but not limited to legal and political conditions.

CPI stands for Consumer Price Index. It is the most popular reference for day-to-day inflation. CPI gets calculated as a measurement of price change using a weighted average basket of consumer goods and services purchased by households.

The market is ready to sell-off hard.

Refers to CAD (Canadian dollar), Aussie (Australian dollar), Sterling (British pound) and Kiwi (New Zealand dollar) – countries off the Commonwealth.

Currency is the money underpinned by the legal tender system unique to a particular country or economic area. Currency gets used as a medium of exchange for goods and services.

Currency in the form of paper or coins gets issued by governments and central banks and is usually accepted at face value as a payment method.

A currency pair is a price quote of the exchange rate for two different currencies traded in FX markets: known as the base currency and the quote currency. The exchange rate of a currency pair indicates how much of the quote currency is needed to purchase one unit of the base currency.

Currency risk is the danger of losing capital due to changes in forex prices. In the context of trading, this is the risk to a trader’s portfolio if currency markets experience strong price changes.

Trading forex itself can be risky, but it’s not just the forex markets that can be directly affected by currency risk.

Due to the interconnectivity of the financial markets, a significant price change in one currency can impact several other currencies, or even other markets such as shares, indices or gold. Imagine you’ve bought gold in USD. If a Federal Reserve interest rate decision causes a depreciation of the dollar, you will lose money on your position as a result of currency risk.

How to hedge against currency risk

To , you need another position that will earn you a profit if currency risk causes an existing trade to lose money.

This could mean opening an opposing position for the same value on the same market. This will cancel out your initial trade and mean any loss suffered will be recouped in profit made from your hedged position.

Alternatively, you could trade a forex pair that will earn you profit if a particular currency moves a certain way. For example, if you’re worried about a rising US dollar hurting your long gold position, you could open a short position on GBP/USD. If USD goes up, any losses in your gold trade may be offset by profits from your GBP/USD trade.

One popular way that traders hedge against market risk is to invest in safe-haven assets. These are markets that don’t typically experience heavy volatility and tend to hold an intrinsic value over a long-term period. Traders will invest in safe-haven assets, such as Gold, during market instability to protect their funds.

Additionally, you can protect against currency risk by applying stop-loss orders to your open positions. These automatically close out your trades if the market price falls below a certain level set by you. You will make a loss on the trade, but it protects you from incurring more substantial losses caused by a sudden or drastic change in currency value.

A three-letter symbol that represents a specific currency. For example, USD (US dollar).

The sum of the balance of trade (exports minus imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as foreign aid). The balance of trade is typically the key component to the current account.

A term that denotes a trade done at the current market price. It is a live trade as opposed to an order.

An individual or firm that 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.

The difference between the buying and selling price of a contract.

Action taken by a trader, or group of traders, to prevent a product from trading at a certain price or price zone, usually because they hold a vested interest in doing so, such as a barrier option.

A monthly survey produced by the DCLG that uses a very large sample of all completed house sales to measure the price trends in the UK real estate market.

A composite of tradable rates for lending and borrowing a currency over a specific time period (tenor), quoted as a yearly rate. The best bid and offer are taken to present a competitive picture of the cost of borrowing. When a deposit rate is used for financing, the 1-month rate will typically be used for consistency.

A financial contract whose value is based on the value of an underlying asset. Some of the most common underlying assets for derivative contracts are indices, equities, commodities and currencies.

Divergence occurs when a financial security’s price displays deviation from the indicator you might see on your chart.

For example, a specific technical indicator might indicate bullish trading conditions, but the price is falling. Alternatively, the indicator might be showing bearish signals, but price is rising. Price is moving in the opposite direction to the trade direction the indicators are suggesting.

A dividend is a share of profits and retained earnings a company usually pays out annually to its shareholders – after it’s used a portion to reinvest in the business.

A dividend is often regarded as a measurement of a company’s health and good management. Mostly profitable or cash rich firms pay out dividends and some investors rely on these annual returns for investment income.

Dovish refers to data or a policy view that suggests easier monetary policy or lower interest rates. The opposite of hawkish.

The Dow Jones Industrial Average is an equity index. It tracks the performance of thirty large publicly firms quoted on the NYSE and NASDAQ in the USA. The index also gets called the DJIA and DJIA 30. Many financial brokers refer to the index as the US30 on trading platforms.

A downtrend is a sustained decrease in price over time, which is created when bearish traders (sellers) take control of a market. The chief characteristic of a downtrend is a step-like descent of candlesticks or bars making lower highs and lower lows.

Symbol for the US Dollar Index.

ECB stands for the European Central Bank, which is the central bank for the euro and Euro Area. The headquarters are in Frankfurt, Germany.

It administers monetary policy within the Eurozone, which comprises 19 member states of the European Union, one of the world’s largest trading blocs.

A government-issued statistic that indicates current economic growth and stability. Common indicators include employment rates, gross domestic product (GDP), inflation, retail sales, etc.

An end of day order (EOD) is an instruction to your broker to keep a buy or sell order open only until the end of a trading day. An EOD, also known as a day order, can be to open a new position or close an existing one, but either way it will close on the same business day it’s placed, usually by way of a stop or limit.

EST stands for Eastern Standard Time. It is five hours behind Coordinated Universal Time (UTC) and Greenwich Mean Time (GMT). The EST time zone gets used during standard time in North America, Central America, and The Caribbean. EST is often called Eastern Time Zone.

The Euro Short-Term Rate (ESTR) is the interest rate benchmark for overnight borrowing costs throughout the euro area. It’s calculated and published by the European Central Bank (ECB) as a replacement for the Euro Overnight Index Average (EONIA) and the Euro Interbank Offered Rate (EURIBOR).

The ESTX50 is a common abbreviation for the Euro Stoxx 50, which lists the top 50 most highly-capitalised stocks on the EURO STOXX – another European index. It’s weighted based on each company’s free float market capitalisation.

EURIBOR is an interest rate benchmark for the eurozone, standing for Euro Interbank Offered Rate. It is calculated using the average rates that eurozone banks offer each other on unsecured short-term loans of various maturities. EURIBOR represents the rate at which banks will lend capital to each other for short periods (short in this instance meaning less than one year). The rates quoted by various different banks are averaged together to make the benchmark, which is quoted daily. Like other IBORs, EURIBOR rates are used in various financial products – including OTC derivatives.

The Euro is the single European currency that replaced national monetary systems for 19 member states of the European Union. In forex markets, the Euro is abbreviated to EUR, and is the second-most traded currency after the US Dollar.

The European Economic and Monetary Union (EMU) was introduced when the founding members of the European Union (EU) set up a centralised economic system for the supranational body.

The European session is the second session of the forex trading day. While the FX market is open 24 hours a day, it’s split into three major sessions – Asian, European and North American, also known as Tokyo, London and New York.

Measures the annualised rate of inflation in the compensation and benefits paid to civilian workers and is seen as a primary driver of overall inflation.

A monthly index produced by the OECD. It measures overall economic health by combining ten leading indicators including average weekly hours, new orders, consumer expectations, housing permits, stock prices and interest rate spreads.

A share bought in which the buyer forgoes the right to receive the next dividend and instead it is given to the seller.

An exporter is a person, company, or country, that sends goods or services to a counterparty in another country. Exporting is a global trade function whereby goods produced in one country get moved to another country to trade or sell.

A market that is thought to have travelled too far, too fast.

Factory orders are a common economic indicator, used to assess the dollar value of goods from factories. The data for factory orders are released in monthly reports by the US Census Bureau, and are split into two major groupings: durable and non-durable goods. Each factory orders report includes new orders, unfilled order, shipments and inventories.

The Federal Reserve System, referred to as the Federal Reserve or the Fed, is the United States of America’s central banking system.

On December 23, 1913, the Federal Reserve Act created the system after a series of financial shocks caused the need for central control of monetary policy to prevent future crises.

Refers to the price quotation of '00' in a price such as 00-03 (1.2600-03) and would be read as 'figure-three.' If someone sells at 1.2600, traders would say 'the figure was given' or 'the figure was hit’.

A filled order, of fill for short, is simply an executed order in the markets. It is an order that has had its parameters filled, whether it was an order to buy or sell an asset, to open or close a position. For example, if you were to create an order to buy a stock at $45, and your order is accepted, it would be said to have been ‘filled’ and $45 would be the ‘fill price’.

A fill or kill (FOK) order is an instruction sent to a broker or directly to a trading venue that must be carried out immediately and in its entirety. If either of those stipulations cannot be met, the order is canceled. No partial or delayed execution of the order is allowed.

A financial analyst conducts financial analysis for external or internal clients. Their primary duty is to examine data to identify opportunities or evaluate outcomes for investment recommendations or business decisions.

In the financial services industry, analysts provide regular reports on forex, equity, commodity, and cryptocurrency markets to assist traders’ decision making.

A financial contract is a legally binding document between at least two parties which defines and governs the parties’ rights and responsibilities under the agreement.

A financial contract is legally enforceable when it meets the law’s requirements and approval. It usually involves exchanging money, goods, services or promises to trade any of these products.

One of approximately five times during the forex trading day when a large amount of currency must be bought or sold to fill a commercial customer’s orders. Typically, these times are associated with market volatility. The regular forex fixes are as follows (all times EST):

5:00am - Frankfurt

6:00am - London

10:00am - WMHCO (World Market House Company)

11:00am - WMHCO (World Market House Company) - more important

8:20am - IMM

8:15am - ECB

A flat market describes when the price for a certain security neither rises or falls for a significant time period. Flat markets can occur when there is low trading volume or when increasing price movements on some securities are offset by declining price movements of other securities in the same index.

Dealer jargon used to describe a position that has been completely reversed, eg you bought $500,000 and then sold $500,000, thereby creating a neutral (flat) position.

Economic data readings matching the previous period's levels that are unchanged.

Fresh buying or selling interest after a directional break of a particular price level. The lack of follow-through usually indicates a directional move will not be sustained and may reverse.

FOMC minutes are a detailed record of the Federal Open Market Committee (FOMC) meetings and are released three weeks after every meeting. The minutes offer more concise insights on the monetary policy stances of all members of the committee and how individual members see the value of the USD and other securities.

Forex, also known as foreign exchange or FX, is the conversion of one country's currency into another. It forms the basis of forex trading, one of the world’s most-traded asset classes.

The FRA40 is a benchmark index containing 40 of the biggest companies on the Euronext Paris exchange. It’s commonly referred to as the French 40. Most of the companies included are international, representing 35 different sectors.

The FTSE 100 is an index of the 100 companies with the highest market capitalisation on the London Stock Exchange. Although, many of the listed companies are international, making it a somewhat weak indicator of the UK economy.

A fund is an investment vehicle that enables people to pool their money together to invest in different securities like stocks, bonds, currencies, property, or commodities.

Funds might have different objectives; either to deliver a regular income or capital growth for the investor.

Fundamental analysis is involves using related economical and financial factors to determine the value of a security. Both macro and microeconomic factors are considered when performing fundamental analysis from the overall economic health of an industry or country to specific details pertaining to one company such as specific Management decisions made by the company to its revenue and profit. Fundamental analysis can be used on a range of securities including indices and individual stocks, forex, and commodities.

The Group of Seven is an international governmental organisation which includes France, Germany, Italy, Japan, the United Kingdom, Canada, and the United States.

During recent decades, the G7 claimed to have ‘strengthened security policy, mainstreamed climate change and supported disarmament programmes’.

The Group of Eight (G8) was an international governmental political forum which existed from 1997 until 2014.

The discussion forum originated in 1975 as the Group of Six (G6) after France held the first summit.

The gearing ratio is a financial ratio comparing a business owner’s equity (or capital) to the company’s overall debt and borrowed funds. It’s a measurement of financial leverage, illustrating how much of a firm’s operations get funded by equity capital instead of debt financing.

Refers to a bid being hit or selling interest.

A technical level succumbs to a hard-fought battle.

GMT stands for Greenwich Mean Time. Due to its maritime connection, back in 1884 the village of Greenwich, London England, was chosen as the reference point for all time on Earth.

The term gold bullion describes a large quantity of physical gold that is at least 99.5% pure metal, it can be cast in bars, ingots, or coins.

Investors often purchase gold bullion as an alternative physical investment to hedge their risk against other financial exposure to markets. Gold bullion is a tangible asset that is regarded as both an alternative and safe-haven asset.

A certificate of ownership that gold investors use to purchase and sell the commodity instead of dealing with transfer and storage of the physical gold itself.

The standard unit of trading gold is one contract which is equal to 10 troy ounces.

An order that will expire at the end of the day if it is not filled.

A good ‘til cancelled (GTC) order is an instruction to execute a trade that will remain active until the order is fulfilled or the trader cancels it. Brokerages typically limit the length a GTC order can remain open to 90 days.

When should you use a good ‘til cancelled order?

There are lots of different uses for GTC orders, but two common examples are stop losses and take profits. Both of these orders are triggered by the security reaching a certain value, so they serve as good long-term orders you should keep active until fulfilled. By using a GTC order in this way, you will not have to reenter the stop loss and take profit targets every day and can instead rest easy  knowing the trade will close itself out when necessary.

A good ‘til date (GTD) order is an instruction to execute a trade that remains open until a future date specified by the trader. Once the date is reached, the order is cancelled if it has not been fulfilled or canceled already.

When should you use a good ‘til date order?

GTD orders are often used by long-term traders for orders containing a large amount of securities. They also prevent a trader from needed to reenter the trade at the start of each new day. You should use a GTD order when you would enter a good ‘til canceled (GTC) order but believe your trading priorities will change after a certain date, at which point you would rather execute other trades.

Gross domestic product (GDP) is a measure of the market value of all the final services and goods produced in a specific period by a country or economic area.

It’s a measurement of an economy’s size and health over a period, usually one quarter or one year. GDP is used to compare different economies’ size at various points in time.

An order type that protects a trader against the market gapping. It guarantees to fill your order at the price asked.

A guaranteed stop-loss order (GSLO) is a type of order that ensures your position is closed out at the price you specify, regardless of market volatility, slippage or gapping. Guaranteed stops are often free to attach, but your brokerage will charge you a premium if the order is triggered. This is due to the risks your broker is taking on for you.

Refers to traders pushing to trigger known stops or technical levels in the market.

Every 100 pips in the FX market starting with 000.

Hawkish is a term used in economics to describe a monetary policy that takes rigorous steps to control inflation, principally by means of raising interest rates. An inflation hawk will be less concerned with economic growth than they with reducing the likelihood of a recession.

Hedging is an investment technique to offset potential investment losses by purchasing correlated investments, expected to move in the opposite market direction.

Hedging techniques are popular methods for investors to protect themselves from risky positions; they hedge their bets. It’s like having investment insurance. If a sudden price reversal occurs, the damage gets limited due to the hedge position.

To sell at the current market bid.

Names for the Hong Kong Hang Seng index.

IBOR stands for Interbank Offered Rate – a type of interest rate benchmark that represents an average of the rates that banks will offer each other for loans of various maturities.

The most well-known and widely used IBOR is LIBOR. However, you might also encounter EURIBOR, TIBOR and other rates.

IBORs have been used in financial markets for a long time and feature in a huge variety of different products and transactions. Over-the-counter (OTC) derivatives in particular have long been associated with IBORs.

Little volume being traded in the market; a lack of liquidity often creates choppy market conditions.

The initial deposit of collateral required to enter into a position.

The foreign exchange rates which large international banks quote to each other.

An interest rate is the percentage of money charged above the lender's principal – the amount of money loaned – for using its capital. Global central banks set base interest rates to manage their domestic economies. Base rates are the benchmark all banks use to decide their borrowing and investment rates.

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

Symbol for S&P 500 index.

The ISM Non-Manufacturing Index (now called the Services PMI) is an index used to assess the performance of services companies in the United States. The reading, published monthly, is based on surveys of more than 400 purchasing and supply managers in non-manufacturing (services) firms.

Monitoring the ISM Services PMI helps traders and investors in US markets get a detailed snapshot and insight into the country’s economic conditions.

The index is compiled and published by the ISM (Institute for Supply Management) as part of the ISM Report On Business.

Understanding the ISM Non-Manufacturing Index

The ISM services report measures the economic activity of more than 15 industries, measuring prices, inventory levels and employment. A reading which comes in above 50 indicates economic growth, while below 50 indicates contraction.

The reading can prove helpful when choosing which sectors to trade. The US dollar may also react to bullish or bearish ISM readings.

The various PMI/ISM readings are considered leading rather than lagging indicators, because purchasing manager activity predicts future business activity and trends.

The ISM Services PMI gets published in the first week of each month. Trends in the ISM can continue for months, which can be valuable for economists and analysts looking to make long-term financial forecasts.

The index has five major components: business activity, new orders, inventories, employment trends and prices.

Measures the mood of businesses that directly service consumers such as waiters, drivers and beauticians. Readings above 50 generally signal improvements in sentiment.

Measures the total value of new orders placed with machine tool manufacturers. Machine tool orders are a measure of the demand for companies that make machines, a leading indicator of future industrial production. Strong data generally signals that manufacturing is improving and that the economy is in an expansion phase.

A name for the NIKKEI index.

To limit your trades due to inclement trading conditions. In either choppy or extremely narrow markets, it may be better to stay on the side lines until a clear opportunity arises.

Nickname for NZD/USD (New Zealand dollar/US dollar).

Option strategy that requires the underlying product to trade at a certain price before a previously bought option becomes active. Knock-ins are used to reduce premium costs of the underlying option and can trigger hedging activities once an option is activated.

Option that nullifies a previously bought option if the underlying product trades a certain level. When a knock-out level is traded, the underlying option ceases to exist, and any hedging may have to be unwound.

A Knockout Option is a barrier option that will become worthless if the market reaches a specific price – known as a barrier level. At this point, the options contract is ‘knocked out’ and there would be no payoff.

The last day you may trade a particular product.

The last time you may trade a particular product.

A price zone or particular price that is significant from a technical standpoint or based on reported orders/option interest.

Short-term traders, referring largely to the hedge fund community.

Potential loss, debt or financial obligation.

LIBOR is a leading interest rate benchmark, set each day according to estimates from up to 18 global banks. It stands for London Interbank Offered Rate. There are LIBOR rates for multiple different currencies: including GBP, USD, EUR and more.

LIBOR is calculated by surveying banks to find out the rates they would charge each other on loans of various maturities, based on the current economic outlook. The LIBOR rate is an average of what the banks will charge each other, and is then used across the global financial system, particularly for pricing derivatives.

Usage of LIBOR (and other IBORs) is being phased out, to be replaced with a near-risk-free rate (RFR).

Traders who have bought a product.

Nickname for the Canadian dollar or the USD/CAD (US dollar/Canadian dollar) currency pair.

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

Mark to market (MTM) is an accounting method that values an asset, portfolio or account at its current market price instead of an assumed book value. An asset’s mark to market value reveals how much a company gets if it sells it at that point in time.

Mark to market is sometimes called fair value accounting or market value accounting. The alternative to mark to market is historical cost accounting, which keeps an asset’s value on the books at its original level.

Investors need to be aware if a company’s assets have declined in value. If not, the company might overvalue its net worth. Mark to market should deliver an accurate, current value of an asset.

How does mark to market accounting work?

Mark to market accounting works by valuing company’s assets at their current price according to prevailing market conditions. These valuations are typically used in financial statements at the end of each fiscal year.

Estimating market value can be easy, especially if the assets are bought and sold often. Shares or bonds, for instance, are regularly traded on the markets. So if an investment firm holds them, an accountant can quickly provide a fair market value for the assets.

Other assets might be trickier to value. Fixed assets such as property investments, for example, aren’t as liquid or easy to dispose of, particularly in falling markets.

In the US, mark to market accounting is overseen by the Financial Accounting Standards Board (FASB), which defines fair value and measures it under generally accepted accounting principles (GAAP). Assets must be valued for accounting purposes at that fair value and updated regularly.

Market contagion refers to the spread of disturbances (usually a sell-off) from one country and one market to another. Foreign exchange rates, stock market prices and sovereign bond prices can all be quickly affected by contagion.

At the same time, capital flows happen from the geographical areas affected by the contagion.

Why does contagion happen?

Financial contagion can happen internationally and domestically. At a domestic level, the failure of a bank or financial intermediary can trigger a domino effect.

For instance, if a bank defaults on its interbank counterparty liabilities and then engages in an asset fire sale, it undermines confidence in similar banks and the banking system.

This domestic contagion can then infect international banks and markets. For example, the subprime mortgage securities crisis caused the temporary collapse of the Western Hemisphere banking system. Banks failed, cash rushed into haven currencies and assets, as many global stock markets crashed.

International financial contagion can occur in advanced and developing economies, and this global financial contagion usually happens simultaneously among domestic institutions such as banks and across countries.

The contagion can last for months and is usually brought under control by a mixture of bilateral intergovernmental fiscal and central bank monetary policy stimuli.

Process of re-evaluating all open positions in light of current market prices. These new values then determine margin requirements.

The date of settlement or expiry of a financial product.

Refers to Medley Global Advisors, a market consultancy that maintains close contacts with central bank and government officials around the world. Their reports can frequently move the currency market as they purport to have inside information from policy makers. The accuracy of the reports has fluctuated over time, but the market still pays attention to them in the short-run.

Synonymous with black box. Systems that automatically buy and sell based on technical analysis or other quantitative algorithms.

Abbreviation for month-over-month, which is the change in a data series relative to the prior month's level.

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

Traders who align themselves with an intra-day trend that attempts to grab 50-100 pips.

The NASDAQ Composite is an equity index which includes most stocks listed on the NASDAQ stock market.

Together with the DJIA (Dow Jones Industrial Average) and the SPX500 (Standard & Poor’s 500) indices, the NASDAQ Composite is one of three most popular equity indices traded in the United States.

The amount of currency bought or sold which has not yet been offset by opposite transactions.

8:00am – 5:00pm (EST).

An option that pays a fixed amount to the holder if the market never touches the predetermined barrier bevel.

Symbol for NYSE Composite index.

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.

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

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

Attempting to sell at the current market order price.

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

An option that pays a fixed amount to the holder if the market touches the predetermined barrier level.

The precise date and time when an option will expire. The two most common option expiries are 10:00am ET (also referred to as 10:00 NY time or NY cut) and 3:00pm Tokyo time (also referred to as 15:00 Tokyo time or Tokyo cut). These time periods frequently see an increase in activity as option hedges unwind in the spot market.

An instruction to execute a trade.

An order book is a list of orders for a specific market, recorded by an exchange to measure market depth and interest from buyers and sellers.

Order books are often used by traders to identify market sentiment. For short-term traders in particular, order books are valuable as they show whether bulls or bears are dominant in the market.

Typically, order books are made up of three main components:

• Buy orders – shows buyer information including volume and price
• Sell orders – shows seller information including volume and price
• Order history – shows the orders that have been made in the past

Order books don’t cover every order in the market, as ‘dark pools’ also anonymously take orders. Dark pools are private exchanges that don’t show the identity, nor the intent (e.g. buy or sell) of an order. These are orders from whales – large traders in the market such as banks or corporations – who don’t want their trading activity to be publicly available.

Given the large volume of whales’ trades, if this information was widely available it would give traders a clear indication of how a market’s price might move. 

What is order book trading?

Order book trading is a strategy that involves using the information from an order book to profit from the markets.

If an order book is showing a number of large buy orders not being filled, for example, it can indicate a dominance of bulls in the market as traders want to buy at a certain price but are unable to find a seller. Traders can exploit this imbalance and trade accordingly, in this case anticipating a price rise. 

While order book trading can be a profitable strategy for day or short-term traders, there’s often only a small window to trade. It requires quick thinking and split-second decision making.

Refers to the offer side of the market dealing.

A very heavy round of selling.

When only part of an order has been executed.

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

A physical settlement requires the option seller to deliver the underlying asset if it’s a call. For puts, the option seller must buy the underlying asset from the buyer at the strike price. Physical settlement is more common for stocks and commodities than other financial securities.

Most derivative transactions do not get exercised as they’re traded before the delivery dates. However, physical delivery of the underlying asset can occur with some trades, mostly with commodities.

Clearing brokers and agents organise settlements by physical delivery. After the last day of trading, regulated exchanges’ clearing departments report the transactions of underlying assets at the previous day’s settlement (closing) prices.

Traders with short positions in the physical settlement of futures contract to expiration must deliver the underlying asset.

Traders who don’t own them are obliged to buy them at the current price. Whoever owns the assets are compelled to hand them over to the clearing organisation.

Cash vs physical settlement

The most prominent advantage of cash settlement is that it eases trading futures and options, which would present practical difficulties using the physical settlement method.

Cash settlements enable traders to buy and sell contracts on specific commodities or indices impractical to transfer physically.

The main benefit of physical settlement is potential manipulation by either party is removed because the transaction gets checked by the broker and the clearing exchange.

The cash settlement method is where parties choose to settle the gains or losses of transactions through payment in cash once the contracts expire.

In contrast, physical settlement is a mechanism where parties settle the payment by either paying in cash to secure their long position or deliver the security to own the position.

Cash settlement carries minimal risk, and the physical settlement method has a higher amount of risk.

Cash settlement offers more liquidity in derivatives markets, and physical settlement offers negligible liquidity in the derivatives market.

Cash settlement is rapid because transactions happen in cash, while physical settlement takes longer.

Contract sellers find cash settlement convenient and straightforward, making the method popular. Sellers of a contract will not need to pay extra costs for engaging in cash settlement transactions.

In comparison, the physical settlement method is not that straightforward and can be time-consuming. Parties to the transactions pay extra costs for physical delivery and the physical settlement method, such as delivery, transportation, brokerage fees, etc.

Describes quotes to which every market participant has equal access.

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

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

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

Measures the 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 options are financial contracts that give the owner the right, but not the obligation, to sell an underlying asset at a specified price within a specific time. A buyer of a put can profit when the underlying asset falls in price.

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

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

An indicative market price normally used for information purposes only.

A recovery in price after a period of decline.

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

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

Reserve Bank of Australia, the central bank of Australia.

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

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, intra-day speculators.

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

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

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

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 behaviour, which is a key determinant of growth in all major economies.

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

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

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

The employment of financial analysis and trading techniques – such as attaching stops and limits – to reduce and/or control exposure to various types of risk.

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 adjustment is simply the accounting of the cost-of-carry on a day-to-day basis.

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

Symbol for Russell 2000 index.

The Securities and Exchange Commission.

A group of securities that operate in a similar industry.

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

The process by which a trade is entered into the books, recording the counterparts to a transaction. The settlement of trades may or may not involve the actual physical exchange of the asset, but can be settled in cash instead.

Symbol for the Shanghai A index.

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

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.

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.

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

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

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.

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

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

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

Swiss National Bank, the central bank of Switzerland.

The Secured Overnight Financing Rate (SOFR) is the overnight interest rate used for US dollar-denominated loans and derivatives in the overnight market. It indicates how much a bank will have to pay to borrow cash from another institution.

The rate is underpinned by US treasury securities, which a bank will offer as collateral to secure their overnight cash loans. These loans are a vital part of trading derivatives, as they allow parties to speculate on interest rates and borrowing costs.

The Sterling Overnight Index Average (SONIA) is the effective overnight interest rate that banks pay to borrow sterling overnight from other financial institutions. It’s used for overnight funding of trades that occur in off-hours and indicates the depth of business in the marketplace in these hours.

SONIA is calculated using data from banks across the UK on any transactions completed in the previous trading day. The BoE filters out unusual patterns and calculates a weighted average of all transactions over £25 million. The top and bottom 25% are removed, and a mean is taken from the middle 50%. This is rounded to the nearest four decimal places, which is the SONIA rate.

Refers to central banks active in the spot market.

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

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

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

The difference between the bid and offer prices.

A name for the S&P index which tracks 500 of the largest companies on the NYSE and Nasdaq stock exchanges.

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

A nickname for the British pound or the GBP/USD (British pound/US dollar) currency pair.

A market on which securities are traded.

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.

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.

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.

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.

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.

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

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

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

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.

A temporary halt in the trading of a product.

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

The nickname for the Swiss franc or the USD/CHF (U.S. Dollar/Swiss Franc) currency pair.

Take profit refers to limit orders that look to sell above the level that was bought or buy back below the level that was sold.

Assuming control of a company by buying its stock.

The process by which charts of past price patterns are studied for clues as to the direction of future price movements.

Traders who base their trading decisions on technical or charts analysis.

US government-issued debt which is repayable in ten years. For example, a US 10-year note.

An illiquid, slippery or choppy market environment. A light-volume market that produces erratic trading conditions.

UK government-issued debt which is repayable in 30 years. For example, a UK 30-year gilt.

The minimum change in price, up or down.

The time remaining until a contract expires.

09:00 – 18:00 (JST).

Simultaneous buying and selling of a currency for delivery the following day.

The Tokyo Overnight Average Rate (TONAR) is the risk-free unsecured interbank overnight interest rate for the Japanese Yen – it’s also known as TONA.

It was created in 2016 in the move to risk-free reference rates. TONAR is the replacement for LIBOR, which is expected to be completely phased out by June 2023. Learn more about the move away from LIBOR.

Measures the difference in value between imported and exported goods and services. Nations with trade surpluses (exports greater than imports), such as Japan, tend to see their currencies appreciate, while countries with trade deficits (imports greater than exports), such as the US, tend to see their currencies weaken.

A trade confirmation is a receipt of an executed order sent to you by your broker. Trade confirmations are sent to verify that the transaction has taken place and you will receive one after every trade you make.

These can be used to assist with tax filings or settle any discrepancies. Confirmations can also be used to check against monthly statements to ensure they correctly reflect the trades made on an account.

Trade confirmations also verify the exact price that the trade has been placed at.

What is required in a trade confirmation?

A trade confirmation must show certain information about a trade. This includes the market traded, the date and time it was placed, the cost, the net value and any additional costs that may have been charged by the broker, such as commission.

Including all of this information helps to verify any specific aspect of the trade. Having the details formally confirmed like this helps to avoid any disputes on price or cost further down the line.

The number of units of product in a contract or lot.

A pair is acting strong and/or moving higher; bids keep entering the market and pushing prices up.

A postponement to trading that is not a suspension from trading.

A market that feels like it wants to move lower, usually associated with an offered market that will not rally despite buying attempts.

A trading model is a rule-based structure created to govern trading activities. Trading models help take some guesswork out of the markets while encouraging investors and traders to set risk parameters.

Models based on proven rules can remove human emotions from decision making. A thoroughly bench-tested statistical model can provide a framework for successful trading.

Some traders backtest their models using historical data and demo accounts to verify how well they work before committing real funds in live markets.

Example of a trading model

An example of a trading model could include trend trading forex pairs based on various criteria and rules that you decide not to breach.

To build the model, you’d decide what style, method and strategy to employ, how much money to risk on each trade and an acceptable level of market risk at any one time. You would also set profit and loss targets.

The trading rules would most likely include which conditions need to be met before you get in or get out of a market. You might use a combination of technical indicators for these entry and exit decisions.

A pair is acting weak and/or moving lower and offers to sell keep coming into the market.

The range between the highest and lowest price of a stock usually expressed with reference to a period of time. For example: 52-week trading range.

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 unfavourable direction by a specified distance. Placing contingent orders may not necessarily limit your losses.

The cost of buying or selling a financial product.

The date on which a trade occurs.

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.

The total money value or volume of all executed transactions in a given time period.

When both a bid and offer rate is quoted for a forex transaction.

Symbol for CBOE 10-Year Treasury Yield Index.

Describing unforgiving market conditions that can be violent and quick.

Measures the average wage including/excluding bonuses paid to employees. This is measured quarter-on-quarter (QoQ) from the previous year.

Measures the number of people claiming unemployment benefits. The claimant count figures tend to be lower than the unemployment data since not all of the unemployed are eligible for benefits.

Measures the relative level of UK house prices for an indication of trends in the UK real estate sector and their implication for the overall economic outlook. This index is the longest monthly data series of any UK housing index, published by the largest UK mortgage lender (Halifax Building Society/Bank of Scotland).

Measures the change in the number of people claiming unemployment benefits over the previous month.

Measures the change in total labour cost expended in the production of one unit of output.

A name for Brent Crude Oil.

Measures the rate of inflation experienced by manufacturers when purchasing materials and services. This data is closely scrutinised since it can be a leading indicator of consumer inflation.

Measures the rate of inflation experienced by manufacturers when selling goods and services.

A name for the FTSE 100 index.

The actual traded market from where the price of a product is derived.

Measures the total workforce that is unemployed and actively seeking employment, measured as a percentage of the labour force.

Polls 500 US households each month. The report is issued in a preliminary version mid-month and a final version at the end of the month. Questions revolve around individuals’ attitudes about the US economy. Consumer sentiment is viewed as a proxy for the strength of consumer spending.

The theoretical gain or loss on open positions valued at current market rates, as determined by the broker in its sole discretion. Unrealised gains/losses become profits/losses when the position is closed.

A new price quote at a price higher than the preceding quote.

In the US, 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.

A name for WTI Crude Oil.

The interest rate at which US banks will lend to their prime corporate customers.

A name for the Dow Jones index.

Also known as the maturity date, it is the date on which counterparts to a financial transaction agree to settle their respective obligations, ie exchanging payments. For spot currency transactions, the value date is normally two business days forward.

Funds traders must hold in their accounts to have the required margin necessary to cope with market fluctuations.

Shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. The VIX is a widely used measure of market risk and is often referred to as the ‘investor fear gauge.’

An active market that is experiencing rapid price changes, that can present trade opportunities.

Chart formation that shows a narrowing price range over time, where price highs in an ascending wedge decrease incrementally, or in a descending wedge, price declines are incrementally smaller. Ascending wedges typically conclude with a downside breakout and descending wedges typically terminate with upside breakouts.

Slang for a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.

Measures the changes in prices paid by retailers for finished goods. Inflationary pressures typically show earlier than the headline retail.

Where a limit order has been requested but not yet filled.

Acronym for The Wall Street Journal.

Symbol for Silver Index.

Symbol for Gold Index.

A billion units.

The percentage return from an investment.

Abbreviation for year over year.

The yuan is the base unit of currency in China. The renminbi is the name of the currency in China, where the Yuan is the base unit.