Trading Academy

Balance:

The amount of funds in an account before opening any positions.

Base Currency:

The first currency mentioned in a currency pair – one unit of which can be purchased for an amount of secondary currency units, as specified by the value of the pair. For ‘EUR/USD = 1.6122’, the euro is the base currency while the U.S. dollar is the secondary (quote) currency. In this case, 1.6122 U.S. dollars are required to purchase 1 euro.

Bear Market:

A market of decreasing security value, reinforced by and reinforcing investor pessimism. As investors seek to sell securities, the prices of these securities decrease even more. These conditions are usually defined by a 20% move lower from highs over a specified period of time.

Bearish:

Investor behaviour, or a market, may be described as bearish when values begin to fall. A bearish belt hold refers to a candlestick pattern that characteristically forms towards the end of a ‘bullish’ market, signalling entry into a bearish market.

BID/Bid Price:

The price a buyer will pay for a security. The amount of securities purchased at that price (lot size) will usually be specified alongside.

Bid/Ask Spread:

The difference between the Bid and Ask prices.

Bitcoin:

Bitcoin is a virtual or digital currency – part of an online financial exchange system that is based on the transfer of encrypted information between users over the internet.

Break-Even Point:

The point at which an investment aimed at generating revenue sees returns, equaling the cost of entering the investment.

Broker:

A person (or agency) that arranges and/or negotiates a transaction between the parties to that transaction (buyer – seller), to be distinguished from an agent, who acts on behalf of one of the parties.

Broker Ratings:

A system of evaluating and assessing brokers, usually based on client input and performance.

Bull Market:

A market of increasing security value, reinforced by and reinforcing investor optimism and confidence. As investors seek to purchase securities, the prices of those securities increase even more.

Bullish:

Investor behaviour, or a market, may be described as bullish when values are rising over a defined period of time. A bullish belt hold refers to a candlestick pattern that characteristically forms towards the end of a bearish market, signalling entry into a bullish one.

Buy Signal:

A buy signal is an indication for investors to invest, usually based in events or conditions that suggest a potential future return on that investment.

Buy Limit:

A pending buy order with the value placed below market price. If the ask price reaches the specified level, a long position is opened.

Buy Stop:

A pending buy order with the value placed above the market price. If the ask price reaches the specified level, a long position is opened.

Cable:

A slang reference to the GBP-USD currency pair dating from the 19^th century, at which time the exchange rate between the two currencies was transmitted between the two countries using the first transatlantic communications cable.

Candlestick Chart:

A candlestick chart plots the price movement of a financial instrument. Each candlestick represents a specified time-frame. Each candlestick also indicates opening price, closing price, maximum price and minimum price for that time-frame.

Carry Trade:

Borrowing (usually money) at a comparatively low interest rate, then converting it into another currency that offers a higher interest rate, and depositing it for interest. Alternately, one may invest in financial instruments or real estate that also offer a higher yield than the currency borrowed.

CBOT:

The Chicago Board of Trade, est. 1848. A for-profit organization (CBOT Holdings) that serves as an exchange for commodities, options and futures on a large variety of products (gold, silver, treasury bonds, wheat) – both open auction style and electronically.

Central Bank:

A country’s regulator of monetary policy tasked with determining base interest rates and controlling inflation. The central bank is also usually the country’s lender of last resort, preventing the country’s banking system from collapse.

CFD:

Contract for Difference; a derivative contract between a buyer and a seller, wherein the seller will pay the buyer the difference between an asset’s current value and its value at a defined closing time.

Charts:

A visual representation of data that usually provides qualitative and quantitative information. The 4 most common types are histogram, bar, pie and line charts. In financial trading, the most frequently used charts are Bar Charts, which follow financial market prices, Candlestick Charts (or OHLC Charts), which display high, low, opening and closing prices throughout the day, and Renko Charts, which provide key support/resistance levels.

Closed Position:

Also referred to as ‘closing’, or ‘squaring’ a position. An opposing transaction to an existing position with the intention of closing (liquidating) the initial position.

Closing Price:

The price at which a security closes at the end of a trading session, remaining at that level until the commencement of trading on the following trading session.

CME:

Chicago Mercantile Exchange (formerly the Chicago Butter & Egg Board, est.1919); a shareholder-owned corporation. The CME is America’s largest futures exchange, trading primarily on currencies, indices, interest rates and some agricultural commodities.

COMEX:

Commodities Exchange, est. 1933 (through the merger of the National Metal Exchange, the New York Rubber Exchange, the National Raw Silk Exchange and the New York Hide Exchange). The world’s largest physical futures exchange (following its merger in 1994 with the New York Mercantile Exchange), COMEX trades both electronically and in open auction (trading floor – Pit).

Commodity:

Basic goods usually used as inputs in the manufacture of products or provision of services. The most common traded commodities are gold, silver and oil.

Contract Size:

A standardized measure of financial instruments, which varies by asset class, traded on an exchange. In currency trading, contract size is measured in lots, each lot being the equivalent of 100,000 units of the base currency.

Core Retail Sales:

A major indicator of U.S. economic health, Core Retail Sales figures are released in the middle of each month for the previous month. They reflect consumer spending, excluding automobile and petrol sales, and assist in calculating price indices, economic activity and GDP.

Counter Currency:

(Secondary Currency) The second currency quoted in a currency pair, it is the currency for which one unit of base currency can be traded, and equal to the pair’s value. Also referred to as the ‘quote currency’.

Cover:

Closing out an existing position in a financial instrument with an opposing transaction.

Credit:

The extension of financial resources to be repaid at a later date. In foreign exchange trading, the transfer of positive interest differential in the investor’s favour to his/her account following a successful transaction (closing a position).

Crude Oil:

(Petroleum) A natural energy-rich liquid found below the earth’s crust and produced by the subjugation of dead organisms to heat and pressure. WTI (West Texas Intermediate) is one variety of crude oil, of higher quality and easier to refine than others, which is quoted on the New York Mercantile Exchange. Another variety commonly quoted is Brent, which represents two-thirds of the world’s traded crude oil.

CSCE:

The New York Coffee, Sugar & Cocoa Exchange, est. 1979; created initially in 1882 as the Coffee Exchange, the CSCE traded electronically in soft commodities – those grown rather than mined – before being acquired by the New York Board of Trade in 1998.

Currency Pair:

The basic currency transaction is comprised of two currencies involved in a currency change – one being sold, the other being purchased. A currency pair’s value is measured by the base currency (the first one quoted) divided by the quote currency (the second), denoting how much of the latter is valued against a single unit of the former.

CySEC:

The Cyprus Securities & Exchange Commission, est. 2001. The agency responsible for regulating the Cyprus Stock Exchange, it also issues licenses to investment firms and brokers operating therein. A member of the European Union, Cyprus attracts numerous retail brokerages as a pan-European licensing agency.

Day Trade:

Buying or selling financial assets within a one-day time period, so that all positions opened during an exchange’s session are closed within the same session. Before the advent of digital technology, day trading was reserved for institutional investors; it is now accessible to individual investors, as well.

DAX:

Deutscher Aktienindex – The leading German index, comprised of the 30 largest public German companies traded on the Frankfurt Stock Exchange.

Deficit:

A negative trade balance, for instance when a country is importing more than it is exporting.

Deposit:

Money placed into an account as savings or as the principal on an investment to accrue interest or profit. In leveraged trading, a margin deposit is a portion of one’s total account reserves used as collateral when holding open a position.

Depreciation:

A loss in value for a financial instrument. For example, when demand for a currency rises (high interest rates, healthy economy) its value rises and the currency appreciates (gains value); when demand decreases (low interest rate, unhealthy economy), the currency depreciates (loses value).

Discount:

The difference between the market price of a security and its face value, in this case, the price quoted in a company’s officially registered documents.

Discretion:

The permission given to a broker by an investor to buy or sell beyond the limits of a limit order, based on the broker’s perception of the trading environment.

Downtrend:

A series of peaks and valleys in a chart in which the general momentum shows decreasing values over time.

Dow Jones:

The Dow Jones Industrial Average is a stock-market index created by the Wall Street Journal and the Dow Jones & Co. publishing firm tracking 30 major U.S.-based public companies (not necessarily industry related).

Economic Indicator:

Economic data (usually macroeconomic) that indicate the health of an economy and its financial market. The most pertinent are those released on a regular basis by government agencies regarding inflation, GDP, employment and prices of major commodities (such as crude oil).

ECN:

Electronic Communications Network: an electronic network that connects investors directly, bypassing personal brokers and enabling individuals to trade directly with major institutions. The network automatically matches orders between buyers and sellers.

Equity:

The amount of funds held by a financial entity (or its net value) after all liabilities have been paid. In trading, the value of securities minus the brokerage input. In margin trading, the total amount deposited by an investor from which collateral against a trade is set aside. In the last case it reflects net profit and loss in real-time.

EUREX:

With over 1,900 instruments traded, the European Exchange, run by the German Bourse, is the largest dealer of European derivatives in the world and one of the most technologically innovative.

European Central Bank (ECB):

Located in Frankfurt, the ECB was established in 1998 as part of the Maastricht Treaty as the European Union’s Central Bank. It is tasked with implementing monetary policy, and maintaining price stability and a 2% inflation rate throughout the Euro zone; but its objectives are not defined by statutory law. National central banks in the Euro zone are shareholders in the ECB, alongside other financial institutions.

Federal Reserve (Fed):

The Central Bank of the United States of America, established in 1913, was originally tasked by the U.S. Congress with maximizing employment, stabilizing prices and maintaining long-term interest rates. It also conducts federal monetary research and policy, regulates banking institutions and provides monetary services to other financial institutions and U.S. government agencies.

Fill:

The fill price is the execution price of a securities or commodities order, agreed upon by the buyer and the seller, once the transaction has been completed.

Fibonacci Retracement:

A technical method for setting support and resistance levels based on Fibonacci ratio divisions of the distance between upper and lower levels on an asset’s price chart. The ratio sequence – named after the 12^th century Italian mathematician – is obtained by adding two subsequent numbers to derive the next sequential number.

FINEX:

Financial Instruments Exchange, est. 1985. The New York Board of Trade’s exchange for currency derivative’s – futures and options on futures. In 1998, after opening a second trading floor in Dublin, Ireland, FINEX became the first exchange agency to be active on two continents.

FINRA:

Financial Industry Regulatory Authority, est. 2007 (formerly, the Securities Industry Regulatory Authority – SIRA). A privately held, self-regulatory body established through the merger of the New York Stock Exchange’s regulation committee and the National Association of Securities Dealers that governs relations between brokers, dealers and investors.

Fiscal Policy:

The use of government income revenues (mostly taxation, but also printing money, taking out loans or consuming reserves) and spending to affect the economy. Fiscal policy may be neutral (when the economy is balanced, expansionary (during a recession) or contractionary (when the economy is expanding, mostly to pay off debts).

Fixed-Income:

A type of investment based on regular and fixed payments by the borrower. A fixed-income security thus provides periodic payments (coupon) and (usually) the return of the principal upon the security’s maturity. Such securities generally offer a lower return on investment (ROI), since income is pledged.

Floor Broker:

Often referred to as a ‘pit broker’, not to be confused with ‘floor trader’ or ‘commission broker’. An exchange-licensed, independent agent who executes trade on the exchange floor for clients he/she represents and in their best interests. Clients are most often institutions, financial services companies, pensions or mutual funds and high-net-worth individuals/traders.

Floor Trader:

A member of the exchange licensed to trade from the floor, or to access the exchange’s electronic trading system on his/her own behalf.

FOK

Fill or Kill Order: an instruction to a broker to buy or sell a financial instrument that must be executed in its entirety within (usually) seconds. If not executed, the entire order is immediately cancelled. The FOK is quite rare and usually involves large quantities of stock.

Foreign Exchange (Forex/FX):

An exchange for currencies belonging to different states. The foreign exchange market is global, decentralized and not bound by time constraints.

FTSE:

Financial Times & London Stock Exchange, est. 2002. Co-owned by the London Stock Exchange and the Financial Times, the FTSE Group provides thousands of market indices – 600 of them in real time – and other data-related services.

Fundamental Analysis:

An analysis form based on identifying the intrinsic value of an asset. This form of analysis relies on real-world indicators and events, such as economic indicators (GDP, employment, interest rates), policymaker and business leader statements, and other current affairs. Based on fundamental analysis, investors try and determine if an instrument’s market price is undervalued or overvalued relative to intrinsic value.

Futures /Forwards:

The contractual obligation of a buyer to acquire an asset, financial instrument or physical commodity at a specific time and price, as opposed to an option, which is the right to purchase the asset. The buyer is usually described as long and the seller – short. Futures are mostly traded on a futures exchange, which acts as a market-maker; forwards are usually traded over-the-counter and may apply to almost any type of commodity.

Gap:

A change in price levels that usually occurs between one session’s close of trading and the subsequent session’s opening. They can be a result of either fundamental or technical adjustments and will either fill (prices return to previous levels) or not. Traders may speculate on the following session’s opening prices and buy or sell after hours. Gaps are defined as either full or partial, and either up or down. They can also be classified as breakaway, exhaustion, common or continuous.

GDP:

Gross Domestic Product: the total fiscal value of all goods manufactured, and services provided in a country over a defined period of time. Changes in GDP are typically measured quarterly or annually, but occasionally monthly. It should not be confused with GDP per Capita, which is the total output per person, nor with GNP (Gross National Product), which measures the total of production and services by the country (regardless of location). Real GDP equals the value of all goods and services adjusted for inflation, whereas Nominal GDP is not adjusted for inflation.

GNP:

Gross National Product:  equals GDP plus income on foreign investments and labour with domestic earnings by foreigners subtracted.

Hedge:

Taken from the term meaning a fence made of shrubbery/trees, to hedge is to fence one’s self off against loss, or, more pertinently, to invest in order to offset potential loss (or gain) that results from another investment. Hedging may be undertaken through a variety of financial instruments (stocks, ETFs, forwards, swaps, options and other derivatives).

Historical Volatility (Statistical Volatility):

Financial volatility describes the price fluctuation of a financial instrument from its average price. Historical volatility computes this over a given time period, whereas implied volatility is the momentary measurement of the deviation.

HKFE:

Hong Kong Futures Exchange, est. 1976. Until 1987, the HKFE dealt in futures and options for underlying stocks, indices, currencies and interest rates. During the global crash of 1987, it underwent a government bailout, and – three years later – it merged with the Hong Kong Stock Exchange and the Hong Kong Securities Clearing Company to form Hong Kong Exchange & Clearing Ltd., Hong Kong’s primary stock and futures exchange.

Holder:

The owner of a financial instrument.

Illiquid Market:

A market in which assets are difficult to buy and sell because of a small number of buyers and sellers. This may be a result of an asset that is highly valued but hard to sell in a swift manner due to the price (requiring a significant discount), a lack of potential buyers, or any other reason. Illiquid assets are those that are difficult to sell (sometimes at any price). Illiquid options are usually those whose expiration dates are distant.

Index (pl. Indices/Indexes):

The aggregate value of a group of selected stocks, the index is used to describe its market and compare returns on investment. Some of the most popular indices include the Dow Jones Industrial Average, NASDAQ Composite, S&P 500, and FTSE 100.

Instant Execution:

A transaction that is immediately executed based on the asset value currently quoted in the platform. ALVEXO traders may also execute in ‘Maximum Deviation’ mode, so that if the quoted price is not immediately available the position will only open if the deviation conforms to that which has been specified by the client.

Institutional investor:

An organization (not banks or financial services companies) that trades in large quantities, thus gaining access to preferential treatment, low commissions and other benefits. Institutions most often include insurance companies, pension funds and other entities that govern major savings or demonstrate large cash flows. They are regulated to a lesser degree but also protected to a lesser degree by regulatory safeguards.

Instrument:

Any asset that can be traded between two parties, including money, documented proof of ownership or interest, and a bonded agreement to receive or sell an interest. In law, contracts, wills and deeds are also considered instruments. The two main forms of financial instruments are cash-bound (securities, bonds, bills, stock, loans or deposits) whose value is determined by the market, and derivatives (futures, options, swaps and forwards), which derive their value from their underlying assets (either cash-bound instruments, indices or interest rates). Derivatives may be traded through an exchange or over-the-counter.

Investment Amount:

The amount one invests in a transaction. In Forex trading, an amount is withdrawn from one’s general account balance and multiplied by the broker’s leverage to provide the investment amount.

ISE:

International Securities Exchange, est. 2000. The first fully computerized options exchange in the U.S., offering equity and index options, as well as market data tools, the ISE is a publicly traded company and a member of EUREX.

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Last Dealing Time:

The final hour of the last trading day for a bid to be placed for an instrument.

Last Trading Day:

The last day upon which a futures contract must be closed out before cash settlement or the underlying asset is actually delivered. Either the commodity or its cash value is then transferred between trading parties. Usually, the futures contract is a means of hedging the asset’s value and the asset itself is not actually delivered.

Leverage:

Leverage is the ratio between an investor’s margin in a position and the broker’s contribution. It enables traders to place a position whose value is higher than the amount of money at their immediate disposal, by using a short-term credit allowance.

LIFFE:

London International Financial Futures Exchange, est. 1982. Following the abolishment of foreign currency controls in Britain in 1979, LIFFE was established as a futures exchange, becoming the largest in Europe in 1996. It was acquired by the New York Stock Exchange in 2007, creating NYSE Euronext – the first global multi-national Euro-American financial services corporation that operates several equity exchanges throughout the world.

Limit Order:

A limit order is a pending order that entails buying or selling an asset (a currency pair, CFD, stock index or commodity) when it reaches a pre-specified price: if a buy limit order, the price is placed below the present market price; if a sell limit order, the price is placed above the present market price. Once the price is hit, the order is triggered and the position is opened.

Line Chart:

A line chart plots the value movement of an underlying asset over a selected time period.

Liquidity:

The ability of an asset to be sold without a major discount. As a measurement, it is the ratio between speed of sale and going price. A market is considered to be liquid if it displays many bids and offers coupled with low spreads and volatility – thereby facilitating trade. Forex is considered the most liquid market of all, with deals related to U.S. dollars being most prominent – it being the most liquid currency.

LME:

London Metal Market and Exchange Company, est. 1877. A commodities exchange that offers options and futures contracts on metals and plastics, as well as hedging and delivery services. Still offering open outcry bidding, it also hosts a telephone and computerized system. Historically, before the establishment of its predecessor, the Royal Exchange, trading was conducted in coffee houses.

Long Position:

The investment in an underlying asset’s value increasing. A long position becomes profitable if market prices rise before the closing of the position.

Lot Size:

Unit of measurement used to determine trade size. The quantity of an instrument denoted by a lot varies by asset class.

London Stock Exchange (LSE):

The LSE (est. 1801) is the largest stock exchange in Europe and the 4^th largest in the world (after NYSE, NASDAQ and Tokyo). Before its establishment, traders operated in coffee houses, since they were not allowed to enter the Royal Exchange (est. 16^th century), and established the first trading room in 1773. The United Kingdom’s regional exchanges merged with the LSE in 1973, which was then privatized in 1986 (the Big Bang), and today, the exchange lists 2500 companies from 68 countries.

Margin (Margin Requirement):

Margin can refer to either 1. the amount of money borrowed to buy a security, 2. the difference between price and production cost, 3. the difference between the given interest and the base interest on an adjustable-rate mortgage, or 4. a portion of one’s total invested equity – initial margin requirement required for the purchase of a security. In Forex trading, margin may refer to used margin – the amount of equity provided by a trader to cover possible losses incurred in a trade, thereby protecting the investor from losing the entire balance; usable margin – the remainder; required margin – the amount of balance required to open a new position.

Margin Call:

In the event that usable margin falls below required margin, the broker’s system will begin to close positions. This protects the client from falling into negative balance.

Mark-to-Market (fair value accounting):

An accounting procedure, by which an institution or company’s financial value may be assessed, based on the fair value or current market price of an asset (or liability). In periods of heightened market volatility, the current market value may be substituted by the value of the asset under orderly market conditions.

Market Capitalization:

The total value of a company’s traded shares (share price multiplied by total number of shares issued). The value reflects a company’s size, rather than total value or company capitalization, which also reflect sales, assets and debt.

Market Execution:

A Transaction execution, in which the order is filled at the best available price. If not available, the order is executed at the closest available price.

Market Maker:

A brokerage, bank or financial institution that quotes both buy and sell prices on financial instruments in which it participates, profiting from the price spread differential. Market makers compete for clients by offering reduced transaction costs. They contribute to a market’s liquidity by facilitating transactions.

Market Quote:

The current asking price for a securities contract on a securities market.

Middle-Market:

A middle-market (mid-market) company is one whose revenues are between $10 million and $1 billion. They are generally too large to be considered small and medium-sized enterprises and too small to be considered large capitalization listed firms.

MiFID:

Markets in the Financial Instruments Directive. The European Union law on harmonizing investment-service regulatory rules went into effect in 2007. While aimed at standardizing the EU’s financial markets, it emphasizes the role of local state supervision, rather than pan-continental. It governs – among others – trade transparency and minimal capital requirements, primarily for banks, financial firms and other market participants.

Model:

A mathematical summary of financial data used to estimate financial trends and predict financial events, used mostly in accounting, corporate finance and quantitative applications, such as valuation, planning, and financing.

Momentum:

The rate at which an asset’s price changes. An indicator that helps generate buy and sell signals.

Monetary Policy:

The control of interest rates, bank reserve ratio requirements, and in some cases money printing, used to influence the supply of money. Monetary policy is determined by a central bank, whereas fiscal policy is usually determined by a nation’s government.

MACD:

Moving Average Convergence/Divergence. A technical indicator that indicates change in a trend’s direction, strength, momentum and expected duration. The MACD is generated upon three exponential moving averages.

Moving average:

A technical indicator that enables trends identification by eliminating momentary noise-generated fluctuations. In its simplest form, each value on a line is computed by the average of a specified number of values preceding it.

MSE:

Madrid Stock Exchange, est. 1831. The MSE was the first stock exchange to implement a fully electronic trading system – CATS (Computer Assisted Trading System), which was developed a decade earlier by the Toronto Stock Exchange.

Neutral:

Neither rising nor falling, profit or loss, positive or negative. A neutral investor (or a delta-neutral portfolio) merely seeks return on investment and not necessarily profit or loss; a cash-neutral (market neutral) strategy involves buying and selling simultaneously of complementary instruments (hedging).

NYFE:

New York Futures Exchange, est. 1979. A former subsidiary of the New York Cotton Exchange that dealt in Treasury Bonds and currency futures.

NYMEX:

New York Mercantile Exchange, est. 1882. Originally the New York Butter & Cheese Exchange, NYMEX is a futures exchange dealing in energy products, metals & other commodities. NYMEX issued itself on the NYSE, merged with COMEX in 1994 and is now owned by the CME Group.

NYSE:

New York Stock Exchange – the Big Board, est. 1792. The world’s largest stock exchange, the NYSE is located in a series of historically listed buildings on Broad and Wall streets in Lower Manhattan. Although some floor trading does take place, since 2007, the main medium of trade has been electronic, this following a transitional process that spanned two decades.

NYSE AMEX:

American Stock Exchange. Established in 1911 as the New York Curb Market Agency to trade primarily in oil, iron, steel, textile and chemical stocks, what later became the New York Curb Exchange was renamed the American Stock Market in 1953. It was acquired by NYSE Euronext in 2008.

Offer/Offer Price (Ask price, ASK):

The minimal price a seller will accept for a security. The amount of securities sold at that price will usually be specified alongside.

OCO:

One Cancels Other Order, Alternative Order, Either or Order. A combined stop order and limit order in which the execution of one order automatically cancels the execution of the other order, characteristically employed on automated and online platforms to lower risk. It is especially useful and efficient under rapidly changing market conditions, especially for hedging purposes.

Open Order:

An order to buy or sell an asset – in effect until cancelled by the trader, expires, or is executed and becomes an open position.

Open P&L:

The sum of a trader’s profits and losses on open positions should all trades be closed.

Open Position:

An active, existing transaction that has not been closed.

Opening Transaction:

Purchasing or selling a security. Opening a transaction – initiating a transaction – that will later be closed, the relative prices at both points dictating profit or loss on that transaction.

Oscillator:

Technical indicators used to examine charts in non-trending situations.

OSE:

Osaka Securities Exchange, est. 1878. The 2^nd largest securities exchange in Japan, the OSE began life in the 17^th century as the first futures exchange in history – trading on future rice crops. The economic center of Japan at the time, by the beginning of the 18^th century rice tickets were officially recognized by the Central Government as assets of value.

Over the Counter:

A transaction not conducted through a centralized exchange.

Over The Counter Market:

Securities traded not through a centralized exchange but through a dealer or dealer network. Stocks traded over-the-counter are referred to as unlisted and are usually offered by smaller companies.

Owner:

One who enjoys the benefit of possessing an asset. Possession is usually registered by an authority to prevent clashing claims of ownership.

Parity:

A situation of equality between two entities. In forex, when the currency pair value equals 1.0000.

Payout:

The financial return on an investment over a defined period. It may be expressed either in quantitative (currency) terms or as a percentage of the investment.

Pending Order:

An order that opens only if the asset achieves a predetermined price value. The four types of pending available are buy limit, sell limit, buy stop and sell stop.

Pip:

‘Percentage In Point’. The standard unit to measure a change in a currency’s value, usually defined as a change of one in the number located in the fourth place after the decimal point – i.e. 1/100^th of a percent. For the Japanese Yen, the pip pertains to the number located in the second place after the decimal point instead of the fourth.

Point:

The unit of change in value for bonds (1%), futures (0.01%), shares ($1) and mortgage fees (1% of the principal) – having a different value for each one.

Position:

An open trade or transaction in securities. Position is opened (the trade is initiated), then closed (the trade is concluded). A position can be long (for an owned security) or short (for a borrowed security).

Position Trading (Buy & Hold Strategy):

Long-term trading on positions (days or weeks). Traders mostly ignore short-term fluctuations and rely on fundamental analysis to a greater degree; but in trend trading (one form of position trading) investors will also follow charts indicating market trends.

Quantitative Easing:

The purchase of financial assets by central banks. As their value increases due to the increased demand created by the central bank, their yield drops and the supply of money increases without requiring the printing of money. Quantitative easing attempts to stimulate the economy by lowering interest rates and increasing lending and liquidity.

Quote:

Used for informative purposes, a quote is an indication of what real market value equals. In Forex, ‘quote’ can also refer to bid and ask prices as they appear in a currency pair.

Quote Currency:

The second currency quoted in a currency pair, it is the currency for which one unit of base currency can be traded, and equal to the pair’s value.

Range:

The difference between the highest and lowest values of an asset during a specific trading session.

Rate:

The price of one currency as related to another – also the price of a currency pair incorporating those two currencies.

Realized Gains & Losses:

Profits or losses incurred as the result of a transaction. Realized gains and losses can be used in accountancy as an offset tool in calculating taxes owed on income. Unrealized (paper) gains and losses are profits and losses not realized, so long as the assets or derivatives are held and not executed, and used to calculate potential exposure to taxation.

Resistance:

In technical analysis, resistance lines on a price chart indicate the level that the price of an instrument will have difficulty rising above. Resistance (and support) lines may indicate future price levels of interest, especially in the case of prices crossing them.

Risk:

The potential of an investment’s return to differ from its projected level, especially with regard to loss. Risk is usually calculated as standard deviations of returns or average returns in the past on a specific investment instrument. The higher the deviation, the higher the risk. On the other hand, high risk is usually associated with higher potential returns.

Risk Management:

Identifying, assessing and prioritizing risks in order to maximize the potential benefits or gains of an investment and minimize potential damage or loss. Hedge fund managers will typically offset riskier investments with low-risk instruments or assets with matching derivatives.

Rolling:

Executing a series of investment strategies aimed at locking in a profit and reducing risk. In financial futures, rolling back involves closing a position and entering a new one for the same underlying asset but with a closer expiration date. Rolling forward entails entering a new position with a later date.

Rollover:

The amount paid for allowing a position to remain open overnight. A forex transaction must usually be settled within two business days (the value date). Rolling over a transaction is chargeable, based on the interest rate differential between the currency pair constituents. If you purchased a pair with a higher rate of interest, you will earn interest. If you sold the pair with a higher rate of interest, you will pay interest. Most positions are rolled over automatically.

RSI:

Relative Strength Index. A technical indicator that measures the strength of an asset’s price movement by measuring its velocity and magnitude. At certain levels, the RSI may indicate a trend reversal.

Sector:

A group of businesses producing similar or related products or services. National economies are typically divided into four main sectors: primary (activities related to the acquiring of natural products), secondary (processing), tertiary (distribution and disseminating services) and quaternary (knowledge-based).

Sell Limit:

A pending sell order with the specified value above market price. If the bid price reaches the defined value, a short position is placed.

Sell Stop:

A pending sell order with the specified value below market price. If the bid price reaches the defined value, a short position is placed.

Shares (stocks):

Ownership interest in a company, asset or fund. Shares are distributed by a company or entity that commands a financially measurable value: each share representing an equal portion of the value. Historically, shares were represented by paper certificates; today, electronic records of ownership levels are maintained, primarily by brokers. Shares may be either common (voting shares) or preferred (also considered as equity or a debt instrument). In case of bankruptcy or dividend payments, common shareholders are repaid only after other debt holders and preferred shareholders have been paid.

Short Position:

A position that becomes profitable if the market price of an asset falls.

Slippage:

The difference between the price of a trade and what was expected. In Forex, this usually refers to when limit or stop loss orders are executed at a worse rate – usually as a result of unexpected news or market volatility.

Spot Price:

Market price.

Spread:

The difference between the buy (bid) and sell (ask) prices – the moneychanger’s or broker’s profit.

Standard Deviation:

The dispersal of data sets around their average value. The wider the dispersal, the higher the deviation. In finance, the higher the deviation, the more volatile the market or the instrument being described.

Stock Index:

The value of a group of selected stocks, used to describe their market and compare returns on investment. Since a stock index is a mathematical concept, it cannot actually be directly invested in per se. However, some mutual funds and ETFs (exchange-traded funds) follow the percentage change of specific indices. Global indices follow large companies, regardless of location, whereas national indices follow the performance of national stock markets, usually selecting the major local companies traded on that market. Other indices follow specific sectors, companies by size, management style or other criteria.

Stop-Loss Order:

An order used to minimize losses if the value of a security starts moving in a position opposed to the desired – resulting in the position losing value. The position is automatically closed if it reaches the value determined by the order.

Stock Exchange:

An exchange that facilitates the purchase and sale of shares issued by companies. Traders must be members of the exchange. The exchange is usually divided into a primary market (where shares are first issued by the company) and a secondary market (where these may be exchanged). Often referred to as a bourse (pocket, bag).

Support:

In technical analysis, support lines on a price chart indicate the level that the price of an instrument has difficulty falling below. Support (and resistance) lines may indicate future price levels of importance, especially in the case of prices crossing them.

Take-Profit Order:

An order used to secure a profit once the value of the asset moves in the desired direction and the value of the position increases. The position is closed once the asset attains a predefined value.

Technical Analysis:

Pattern analysis aimed at predicting an asset’s price movement or that of a market in general.

Tick:

An asset’s minimal unit of measurement and price change.

Trade Balance:

The monetary difference between a country’s import and export values. If positive, referred to as a surplus, if negative – a trade deficit. Trade balance can also be affected by the cost and availability of production and materials, taxes, restrictions and other barriers including foreign exchange and the feasibility of local entrepreneurs producing abroad.

Trader:

Originally, a retail merchant who purchases wholesale and sells retail for a profit, today the term refers to someone who buys and sells financial instruments in the financial markets on their own behalf or on behalf of a client. Unlike an investor, who usually maintains possession of the instrument for the long-term, traders usually trade assets or derivatives at a faster rate, entailing higher transaction costs.

Trading Pit:

In traditional financial trading, the trading pit is the location on the exchange floor where open-outcry trading takes place. This is where traders bid using shouts and hand signals to communicate. The system has mostly been replaced by computerized trading; however, advocates of the open-outcry system claim that physical contact between a buyer and seller enables the two to gauge each other’s motivations and agendas for trading.

Transaction Costs:

The cost of buying or selling a financial instrument. This includes commissions for brokers, banks, agents, search, appraisal and government tariffs, and spreads – the difference between the cost of an instrument and the final price paid by the buyer.

Turnover:

The sum volume of all transactions executed during a specific time period.

Trend (Trend-line):

The directional movement in an asset’s value over time.

Used Margin:

Funds from one’s equity devoted to maintaining open positions.

Volatility:

A measure of the changes of returns for a financial instrument. Volatility is an indication of investment risk, denoting uncertainty in an asset’s future price typically expressed in percentage form.

Wedge:

A chart pattern describing a trend whose formations are narrowing towards a trend reversal. Wedge patterns can rise or fall.

XAU:

The symbol for gold, derived from its Latin name – Aurum – and the forex prefix for metal – X.  

XAG:

The symbol for silver, derived from its Latin name – Argentum – and the forex prefix for metal – X.

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