CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please ensure that you fully understand the risks involved. CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please ensure that you fully understand the risks involved.
From beginners getting acquainted with the world of investing to experts with decades of experience, all traders need to learn – or review – the meanings behind a huge number of terms on an almost daily basis.
We’ve put our 45 years of experience in trading to good use, defining and explaining a comprehensive list of trading vocabulary.
When one company decides to take over another one, it is referred to as an acquisition. The acquiring company will do this by purchasing either the majority or entirety of the ownership stake of the company being taken over.
An American Depositary Receipt (or ADR, for short) is a way in which US investors can trade shares of non-US companies without using their local exchanges.
IG alerts – also known as trading alerts – allow you to set specific criteria and be notified immediately once that criteria has been met. There are three main types: economic announcements, price alerts and indicator alerts.
Alpha is the measurement of an investment portfolio’s performance against a certain benchmark –usually a stock market index. In other words, it’s the degree to which a trader has managed to ‘beat’ the market over a period of time. The alpha can be positive or negative, depending on its proximity to the market.
Amortisation is the process of spreading the repayment of a loan, or the cost of an intangible asset, over a specific timeframe. This is usually a set number of months or years, depending on the conditions set by banks or copyright agencies. Amortisation will often incur interest payments, set at the discretion of the lender.
An annual general meeting (AGM) is a yearly gathering between the shareholders of a company and its board of directors. Generally, this is the only time that the directors and shareholders will meet throughout the year, so it is a chance for the directors to present the company’s annual report.
Arbitrage in trading is the practice of simultaneously buying and selling an asset to take advantage of a difference in price. The asset will usually be sold in a different market, different form or with a different financial product, depending on how the discrepancy in the price occurs.
The ask refers to the price at which you can buy an asset or security from a seller. It can be variously referred to as ask, the ask, or asking price.
An asset class is a category of financial instrument - these can be physical assets or financial assets. The instruments are grouped into asset classes based on whether they show similar characteristics, behave in the same way on the market, or are governed by the same laws and regulations.
An asset is an economic resource which can be owned or controlled to return a profit, or a future benefit. In financial trading, the term asset relates to what is being exchanged on markets, such as stocks, bonds, currencies or commodities.
At the money (ATM) is a term used to describe an options contract with a strike price that is identical to the underlying market price. At the money options see a lot of trading activity, because they are so close to becoming profitable.
An auction market is an environment that facilitates competition between buyers and sellers. In an auction market, buyers indicate the maximum price that they are willing to pay for an asset, while sellers express the lowest price that they would be comfortable accepting.
Automated trading – also known as algorithmic trading – is the use of algorithms for making trade orders.
When a trader purchases an asset, the asset’s price drops, and if the trader purchases more, it is referred to as averaging down.
In trading the term base currency has two main definitions: the first currency quoted in a forex pair, or the accounting currency used by banks and other businesses.
A base rate is the interest rate that a central bank – such as the Bank of England or Federal Reserve – will charge commercial banks for loans. The base rate is also known as the bank rate or the base interest rate.
A basis point is a unit of measurement used to quantify the change between two percentages – it can also be referred to as ‘bp’, which is pronounced ‘bip’ or ‘beep’. A basis point is equal to one hundredth of one percent, or 0.01%.
Bears are traders who believe that a market, asset or financial instrument is going to head in a downward trajectory. In that regard, they hold an opposite view to bulls, who believe that a market is going to head upwards.
When the market is on a sustained downward trajectory, with little optimism from traders to bring about a rally, it is referred to as a bear market.
Being bearish in trading means you believe that a market, asset or financial instrument is going to experience a downward trajectory. Being bearish is the opposite of being bullish, which means that you think the market is heading upwards.
A financial instrument’s beta is a measure of its risk or volatility when compared to the wider market.
In trading and investing, the bid is the amount a party is willing to pay in order to buy a financial instrument.
Blue-chip stocks are the shares of companies that are reputable, financially stable and long-established within their sector. Over time, the companies that are considered blue chip tend to change, so the exact definition of what is required for blue-chip status can be vague. However, a company that is considered blue chip will tend to be at or near the very top of its sector, feature on a recognised index, and have a well-known brand.
The BoE is a popular shortening of the Bank of England, the central bank of the United Kingdom.
Bollinger bands are a popular form of technical price indicator. They are made up of an upper and lower band, set either side of a simple moving average (SMA). Each band is plotted two standard deviations away from the SMA of the market, and they are capable of highlighting areas of support and resistance.
Bond trading is one way of making profit from fluctuations in the value of corporate or government bonds. Many view it as an essential part of a diversified trading portfolio, alongside stocks and cash.
Bonds are a form of financial investment that involve lending money to an institution for a fixed period of time. They usually come in two varieties: corporate bonds and government bonds, depending on the type of institution you are lending to.
While book value reflects what a business is worth according to its financials (its books), market value is the worth of a company according to financial markets – also known as its market capitalisation. The calculation for market value is the current market price per share multiplied by the total number of outstanding shares.
A company’s bottom line is an important factor in share trading. Variously, it can be used to refer to the net earnings or earnings per share (EPS) of a business.
Brent crude – also referred to as Brent blend – is one of three major oil benchmarks used by those trading oil contracts, futures and derivatives. The other two major benchmarks are West Texas Intermediate (WTI) and Dubai/Oman, though there are many smaller oil varieties traded as well..
A broker is an independent person or a company that organises and executes financial transactions on behalf of another party. They can do this across a number of different asset classes, including stocks, forex, real estate and insurance. A broker will normally charge a commission for the order to be executed.
Bulls are speculators who believe that a market, instrument, or sector is going on an upward trajectory. This belief puts them at odds with bears, who take a pessimistic view on a market’s direction.
When a market, instrument or sector is on an upward trend, it is generally referred to as a bull market.
Buying a financial instrument means taking ownership of it from someone else, whether it is a commodity, stock or another asset.
Cable in forex is the nickname of the GBP/USD currency pair. It represents the British pound against the US dollar, and it is one of the most popular pairs on the currency market.
A call option is a contract the gives the buyer the right but not the obligation to buy a specific an asset at a specific price, on a specific date of expiry. The value of a call option appreciates if the asset's market price increases.
Capital expenditure, or CAPEX, is the term used for the money spent by businesses on physical assets. It’s an important part of understanding a company’s accounts.
Capital gains are the profits made from the buying and selling of assets. They are made when traders sell assets – like shares or commodities – for more than they originally paid for them. The opposite of a capital gain is a capital loss.
Capital gains tax (or CGT), is the tax levied by the government on the profits made from financial asset sales. CGT regulations and levels vary from country to country.
When a trader sells an asset at a lower price than they initially paid for it, they have incurred a capital loss. As such, capital loss is the opposite of capital gain: the profit made when an asset is sold for more than originally paid.
Cash flow is the amount of money coming into and going out of a company’s accounts, as reported in earnings announcements. It can refer to a single project or the entire business.
Contracts for difference, or CFDs, are a type of financial derivative used in CFD trading.
A chartist is a trader who relies predominantly on charts to help them understand a financial instrument’s historical price movements, in order to better predict and to speculate on its future performance. They are also commonly known as technical analysts, or technical traders.
A closing price is the last level at which an asset was traded before the market closed on any given day. Closing prices are often used as a marker when looking at movements over a longer term. They can be compared to previous closing prices, or the opening price to measure an asset’s movement over a single day.
Commission is the charge levied by an investment broker for making trades on a trader’s behalf.
A commodity is a basic physical asset, often used as a raw material in the production of goods or services.
An industry’s concentration ratio is the size of a certain number of firms in an industry compared to its total size. It is used to calculate one or more firms’ dominance of their sector.
CFD trading is the speculation on financial markets via contracts for difference (CFDs), a form of financial derivative.
Bond convexity is a measure of the relationship between a bond’s price and interest rates. It is used to assess the impact that a rise or fall in interest rates can have on a bond’s price – which highlights a bond holder’s exposure to risk.
Cost of carry is the amount of additional money you might have to spend in order to maintain a position. This can come in the form of overnight funding charges, interest payments on margin accounts and forex transactions, or the costs of storing any commodities on the delivery of a futures contract.
A covered call is a call option trading strategy. It involves holding an existing long position on a tradeable asset, and writing (selling) a call option against the same asset, with the aim of increasing the overall profit that a trader will receive.
CPI stands for consumer price index, an average of several consumer goods and services that are used to give an indication of inflation.
Crystallisation means selling an asset in order to realise capital gains or losses. When an investor buys an asset, any increase or decrease in the market price will not automatically translate to profit or loss – this is only realised after the position has been closed.
Currency appreciation is when one currency in a forex pair increases in value relative to the other currency in the pair. Forex traders often talk about one currency ‘strengthening’ in relation to another, meaning that it would cost more to buy, or that it can buy more of another currency when sold.
Currency depreciation is the decline of a currency’s value relative to another currency. It specifically refers to currencies in a floating exchange rate – a system in which a currency’s value is set by the forex market, based on supply and demand.
A currency future is a contract that details the price at which a currency could be bought or sold, and sets a specific date for the exchange.
A currency option is a type of options contract that gives the holder the right, but not the obligation, to buy or sell a currency pair at a given price before a set time of expiry. To get this right, the holder of the option pays a premium to the seller (known as the option’s writer).
A currency peg is a governmental policy of fixing the exchange rate of its currency to that of another currency, or occasionally to the gold price. It can sometimes also be referred to as a fixed exchange rate, or pegging.
Dark pools are networks – usually private exchanges or forums – that allow institutional investors to buy or sell large amounts of stock without the details of the trade being released to the wider market.
A day order is a type of order, or instruction from a trader to their broker, to buy or sell a certain asset.
Day trading is a strategy of short-term investment that involves closing out all trades before the market closes.
In the UK, a debenture is an instrument used by a lender, such as a bank, when providing capital to companies and individuals. It enables the lender to secure loan repayments against the borrower’s assets – even if they default on the payment.
Debt ratio is an indication of how much debt a company is holding, when compared to the value of its assets. It can also be applied to individuals: in which case it is the cost accrued by their debt compared to total income each year.
Delta is a measure used in options trading to assess how the price of an options contract changes as the price of the underlying asset moves. It can also sometimes be referred to as a hedge ratio.
Depreciation is the term given to the decline in an asset’s value, either due to market conditions or other factors like wear and tear. It is the opposite of appreciation.
Derivatives are financial products that derive their value from the price of an underlying asset. Derivatives are often used by traders as a device to speculate on the future price movements of an asset, whether that be up or down, without having to buy the asset itself.
A digital option is a type of option that offers the opportunity of a fixed payout if the underlying market price exceeds a pre-determined limit, called the strike price.
Direct market access (DMA) is a way of placing trades directly onto the order books of exchanges. As a result, DMA offers traders flexibility and transparency when trading. But due to the risks and complexities involved, it is usually recommended for advanced traders only.
A dividend is the portion of profit that a company chooses to return to its shareholders, usually expressed as a percentage.
Earnings per share (EPS) is an important metric in a company’s earnings figures. It is calculated by dividing the total amount of profit generated in a period, by the number of shares that the company has listed on the stock market.
EBITDA is a way of evaluating a company’s performance without factoring in financial decisions or the tax environment. The literal meaning of EBITDA is ‘earnings before interest, taxes, depreciation and amortisation’.
EBITDAR is the abbreviation of ‘earnings before interest, taxes, depreciation, amortisation and restructuring or rent costs’. It is used to analyse a company’s financial performance and profit potential where the company is undergoing a restructure or if its rent expenses are higher than average.
When traders talk about the ECB, they are referring to the European Central Bank, the central bank for the Eurozone.
In trading, equity can mean several different things. However it usually comes down to the ownership of an asset without any debt involved.
Equity options are a form of derivative used exclusively to trade shares as the underlying asset.
ETF stands for exchange traded fund, a type of investment security that is bought and sold on exchanges.
Exchange traded products, or ETPs, are a variety of financial instruments that are traded throughout the day on national exchanges.
An exchange is an open, organised marketplace for commodities, stocks, securities, derivatives and other financial instruments. The terms exchange and market are often used interchangeably, as they both describe an environment in which listed products can be traded.
EDSP stands for exchange delivery settlement price, and refers to the price at which exchange-traded derivative contracts are settled. Stock exchanges use EDSP to calculate the amount that each party to an options or futures contract owes at the time of that contract’s expiry.
Exchange delivery settlement price (EDSP) - see full definition
In trading, execution is the completion of a buy or sell order from a trader. It is carried out by a broker.
The point when a trading position automatically closes is known as the expiry date (or expiration date).
In trading, exposure is a general term that can mean three things: the total market value of your trades at open, the total amount of possible risk at any given point, or the portion of a fund invested in a particular market or asset
Fair value has two meanings to investors. Generally, it is used to mean the value attributed to a stock by an individual investor or broker but in futures trading, it can refer to the predicted price of a market which is reflected in the cost to open a position.
The FCA, or Financial Conduct Authority, is the United Kingdom’s financial regulatory body. It is the successor to the FSA, or Financial Services Authority.
The Federal Reserve bank, or the ‘Fed’ for short, is the central bank in charge of monetary and financial stability in the United States. It is part of a wider system – known as the Federal Reserve system – with 12 regional central banks located in major cities across the US.
A fiat currency is a national currency that is not pegged to the price of a commodity such as gold or silver. The value of fiat money is largely based on the public’s faith in the currency’s issuer, which is normally that country’s government or central bank.
A Fibonacci retracement is a key technical analysis tool that uses percentages and horizontal lines, drawn onto price charts, to identify possible areas of support and resistance. Identifying these areas is useful to traders since it can help them decide when to open and close a position, or when to apply stops and limits to their trades.
Fill is the term used to refer to the satisfying of an order to trade a financial asset. It is the basic act of any market transaction – when an order has been completed, it is often referred to as ‘filled’ or as the order having been executed. However, it is worth noting that there is no guarantee that every trade will become filled.
A financial instrument is a monetary contract between two parties, which can be traded and settled. The contract represents an asset to one party (the buyer) and a financial liability to the other party (the seller).
Market can have several meanings within investments. Generally it is defined as a medium through which assets are traded, with their value determined by supply and demand.
Fixed costs are the costs incurred by a company that do not vary with the scale of production. They are one of two main types of cost associated with companies’ balance sheets: the others are variable costs.
A floating exchange rate refers to a currency where the price is determined by supply and demand factors relative to other currencies. A floating exchange rate is different to a fixed – or pegged – exchange rate, which is entirely determined by the government of the currency in question.
The FOMC, or Federal Open Market Committee, is the branch of the Federal Reserve bank that is in charge of short and long-term monetary policy decisions.
The ‘force open’ function on the trading platform allows you to enter a new trade in the opposite direction to an existing trade on the same market.
A forex broker is a firm that buys and sells currencies on behalf of retail traders, usually via a forex trading platform. Like stockbrokers, they charge a fee – though usually in the form of a spread instead of commission – in order to execute orders placed by their clients.
Forex is how market participants convert one currency to another. It can variously be referred to as foreign exchange, FX, or currencies.
Forex trading is the act of taking part in the forex market in order to speculate and attempt to make a profit. It can also be known as FX trading, foreign exchange or currencies trading.
A forward contract is a contract that has a defined date of expiry. The contract can vary between different instances, making it a non-standardised entity that can be customised according to the asset being traded, expiry date and amount being traded.
Fundamental analysis is a method of evaluating the intrinsic value of an asset and analysing the factors that could influence its price in the future. This form of analysis is based on external events and influences, as well as financial statements and industry trends.
Futures contracts represent an agreement between two parties to trade an asset at a defined price on a specified date in the future. They are also often referred to simply as ‘futures’.
Gamma is a derivative of delta: the relationship between a derivative’s price and the price of its underlying asset. Specifically, gamma is the movement of delta in regard to the price of the underlying asset.
GDP stands for gross domestic product, or the total value of the goods and services produced in a country over a specified period. It is used as an indicator of the size and health of a country’s economy.
A gearing ratio is a measure used by investors to establish a company’s financial leverage. In this context, leverage is the amount of funds acquired through creditor loans – or debt – compared to the funds acquired through equity capital.
Gross margin is a way of measuring the amount of profit a company can make from its revenue.
In trading, the term ‘handle’ has two meanings, depending on which market you are referring to. In most markets, it means the whole numbers involved in a quote price, without the decimals included. In forex, it refers to the part of the quote that you see in both the buy and sell price.
Hawks and doves are terms used by analysts and traders to categorise members of Central Bank committee ahead of their votes on monetary policy.
A hedge is an investment or trade designed to reduce your existing exposure to risk. The process of reducing risk via investments is called 'hedging'.
Heikin Ashi is a type of chart pattern used in technical analysis. Heikin Ashi charts are similar to candlestick charts, but the main difference is that a Heikin Ashi chart uses the daily price averages to show the median price movement of an asset.
Helicopter money is the term used for a large sum of new money that is printed and distributed among the public, to stimulate the economy during a recession or when interest rates fall to zero. It is also referred to as a helicopter drop, in reference to a helicopter scattering supplies from the sky.
High frequency trading (or HFT) is a form of advanced trading platform that processes a high numbers of trades very quickly using powerful computing technology. It can be used to either find the best price for a single large order, or to find opportunities for profit in the market in real time.
The Ichimoku Cloud is a technical analysis indicator that defines support and resistance levels, gauges momentum and provides trading signals. In Japanese, it is called the ‘Ichimoku Kinko Hyo’ which roughly means ‘one look equilibrium chart’ – because with just one look, traders can receive a range of information.
In the money (ITM) is defined by an option’s state of ‘moneyness’ – the underlying asset’s status when compared to the price at which it can be bought or sold (its strike price). Specifically, in the money means that an option* on an underlying asset has gone beyond its strike price, giving it an intrinsic value of more than $0.
In trading, an index is a grouping of financial assets that are used to give a performance indicator of a particular sector. The plural term is indices.
Indices trading is the means by which traders attempt to make a profit from the price movements of indices.
Inflation is the increase in the cost of goods and services in an economy. As that in turn means that each unit of the currency’s economy is worth less of any good or service, inflation can also be viewed as a devaluing of currency.
In finance, interest can have more than one definition. Firstly it refers to the charge levied against a party for borrowing money, which can be either a cost or a means of making profit for a trader. Secondly, it can mean the portion of a company’s stocks held by a particular shareholder.
The amount that a lender charges to a borrower for the loan of an asset, usually expressed as a percentage of the amount borrowed. That percentage usually refers to the amount being paid each year (known as annual percentage rate, or APR) but can be used to express payments on a more or less regular basis.
Intrinsic value is a way of describing the perceived or true value of an asset. This is not always identical to the current market price because assets can be over- or undervalued. Intrinsic value is a common part of fundamental analysis, which investors use to assess stocks, as well being used in options pricing.
A trader’s investment capital is the portion of financial resources they have available for trading. It could be in the form of money or other assets.
An investor is any person who devotes capital to an investment in the hope that they will see a return from it. However, in the investment community, investors tend to have a different attitude to investing than traders.
When a company embarks on an IPO (which stands for initial public offering) it goes public on a stock exchange. This can also be known as floating, flotation, or just ‘going public’.
Leverage is a concept that can enable you to multiply your exposure to a financial market without committing extra investment capital.
Leveraged products are financial instruments that enable traders to gain greater exposure to the market without increasing their capital investment. They do so by using leverage.
A company’s liabilities are the debts and obligations represented on its balance sheet. They are the opposite of assets.
LIBOR, or the London Interbank Offered Rate, is a benchmark that dictates daily interest rates on loans and financial instruments around the world.
A limit order is an instruction to your broker to execute a trade at a particular level that is more favourable than the current market price.
Limit up and limit down are the maximum amounts a commodity future may increase (limit up) or decrease (limit down) in any single trading day.
Liquidity is used in finance to describe how easily an asset can be bought or sold in the market without affecting its price – it can also be known as market liquidity. When there is a high demand for an asset, there is high liquidity, as it will be easier to find a buyer (or seller) for that asset.
When used in trading, long refers to a position that makes profit if an asset’s market price increases. Usually used in context as ‘taking a long position’, or ‘going long’.
A lot is a standardised group of assets that is traded instead of a single asset.
M2 is a classification of money supply. It includes M1 – which is comprised of cash outside of the private banking system plus current account deposits – while also including capital in savings accounts, money market accounts and retail mutual funds, and time deposits of under $100,000.
Maintenance margin is the amount that must be available in funds in order to keep a margin trade open. It is also known as the variation margin.
A margin call is the term for when a broker requests an increase maintenance margin from a trader, in order to keep a leveraged trade open.
In trading, margin is the funds required to open and maintain a leveraged position.
Deposit margin is the amount a trader needs to put up in order to open a leveraged trading position. It can also be known as the initial margin, or just as the deposit.
Market capitalisation is the total market value of a company’s shares on the market. It is often abbreviated to market cap. Market capitalisation is an easy way for investors to determine a company’s size, which can help to assess the risk of investing in its shares.
Market data refers to the live streaming of trade-related data. It encompasses a range of information such as price, bid/ask quotes and market volume. Trading venues provide reports on various assets and financial instruments, which are then distributed to traders and firms. Market data is available across thousands of global markets, including stocks, indices, forex and commodities.
A market maker is an individual or institution that buys and sells large amounts of a particular asset in order to facilitate liquidity.
A market order is an instruction from a trader to a broker to execute a trade immediately at the best available price.
While the market value reflects what a business is worth according to market participants, book value reflects what a business is worth according to its financials (its books). The calculation for the book value of a company is its total tangible assets minus its liabilities.
When two or more companies decide to combine and become one entity, it is called a merger.
MetaTrader is an electronic trading platform which is popular among traders around the world.
The moving average convergence/divergence (MACD) is a technical analysis indicator that aims to identify changes in a share price's momentum. The MACD collects data from different moving averages to help traders identify possible opportunities around support and resistance levels.
Moving average convergence/divergence (MACD) - see full definition
A moving average (often shortened to MA) is a common indicator in technical analysis, used to examine price movements of assets while lessening the impact of random price spikes.
Multilateral trading facilities (MTFs) offer traders and investment firms an alternative to traditional exchanges. They allow trading of a wider variety of markets than most exchanges, including assets that may not have an official market.
The multiplier effect is the term used to describe the impact that changes in monetary supply can have on economic activity. When an individual, government or company spends money it has a trickle-down effect to businesses and individuals. The resulting impact can be much wider than the initial action.
Net change is the difference between the closing price of the current trading session, compared to the closing price of the previous trading session. Net change can be positive or negative, as it represents whether the markets are up or down on the previous day.
Net income is the total amount of profit (often known as earnings) made by a company, listed in its earnings report.
Non-current assets represent a company’s long-term investments, for which the full value won’t be realised during the accounting year. This can also include items that don’t have an inherent value – intangible assets, for example – or assets with no fixed expiry such as property or land.
Non-farm payrolls are a monthly statistic representing how many people are employed in the US, in manufacturing, construction and goods companies. They can also be known as non-farms, or NFP.
An ‘off-book’ trade refers to the process of trading shares away from an exchange or regulated body. They are usually executed via the over-the-counter (OTC) market. Off-book transactions are made directly between two parties, outside or ‘off’ of the order books.
Offer is the term used when one trader expresses an intention to buy an asset or financial instrument from another trader or institution.
On exchange is a term used to mean that a trade is taking place directly on an order book. It differs from at quote, which is a trade made at the price quoted by a market maker.
On-balance volume (OBV) is a form of technical analysis which enables traders to make predictions about future price movements based on the asset’s previous trading volume. OBV is mostly used in shares trading, because the volume has an especially large influence on the way share prices move.
OPEC is the Organisation of the Petroleum Exporting Countries. It was founded in 1960 by Saudi Arabia, Venezuela, Iraq, Iran and Kuwait. The other countries that have joined OPEC since are Libya, the United Arab Emirates, Algeria, Nigeria, Ecuador, Gabon, Angola, Equatorial Guinea and the Republic of the Congo – bringing OPEC’s membership to 14, as of January 2019.
Open has several definitions within investing. It can refer to the daily opening of an exchange, and an order or position that has not yet been filled or closed.
An open position is a trade which is still able to generate a profit or incur a loss. When a position is closed, all profits and losses are realised, and the trade is no longer active. Open positions can be either long or short – enabling you to profit from markets rising as well as falling.
An option is a financial instrument that offers you the right – but not the obligation – to buy or sell an asset when its price moves beyond a certain price with a set time period.
There are three main types of options spread strategy: vertical, horizontal and diagonal.
In trading, an order is a request sent to a broker or trading platform to make a trade on a financial instrument.
In trading, an order is a request sent to a broker or trading platform to make a trade on a financial instrument.
OTC stands for over-the-counter, and refers to a trade that is not made on a formal exchange. It is often also referred to as off-exchange trading.
Out of the money is one of three terms used in options trading, referring to an underlying asset’s price in relation to the price at which it can be bought or sold (its strike price).
Overexposure in trading is the term used to describe the mistake of taking on too much risk. Typically, it’s when a trader makes the technical blunder of investing too much capital in a single position or market.
The price-to-earnings ratio, or P/E ratio for short, is a method of measuring a company’s value. The P/E ratio is calculated by dividing the company’s market value per share by the earnings per share (EPS).
A parent company is one which has a controlling or majority interest in another company, which gives it the right to control the subsidiary’s operations. Parent companies can be directly involved in the management of their subsidiaries, or they can have a more hands-off approach.
The term parity can be used in a few ways when trading, but always as an expression of equality.
A pip is a measurement of movement in forex trading, defined as the smallest move that a currency can make.
Pip value is the value attributed to a one-pip move in a forex trade.
A purchasing managers index (PMI) is an economic indicator comprised of monthly reports and surveys from private sector manufacturing firms. The index surveys product managers, who are the individuals that buy the materials needed for a company to manufacture its products.
A portfolio refers to group of assets that are held by a trader or trading company. Assets in a portfolio can come in many forms, including stocks, bonds, commodities or derivatives.
A position is the expression of a market commitment, or exposure, held by a trader. It is the financial term for a trade that is either currently able to incur a profit or a loss – known as an open position – or a trade that has recently been cancelled, known as a closed position. Profit or loss on a position can only be realised once it has been closed.
Power of attorney gives another person the ability to act on your behalf. In trading, this means they can take over your trading accounts.
A profit and loss (P&L) statement is a financial report that provides a summary of a company’s revenue, expenses and profit. It gives investors and other interested parties an insight into how a company is operating and whether it has the ability to generate a profit.
A pullback is a temporary pause or dip in an asset’s overall trend. The term is sometimes used interchangeably with ‘retracement’ or ‘consolidation’. However, a pullback should not be confused with a reversal, which is a more permanent move against the prevailing trend.
A put option is a contract that gives the buyer the right but not the obligation to sell an asset at a specific price, at a specific date of expiry. The value of a put option increases if the asset's market price depreciates.
Quantitative easing (or QE, for short) is an economic monetary policy intended to lower interest rates and increase money supply. It saw an increase in profile and use after the 2008 financial crash and subsequent recession.
The quote currency is the second currency listed in a forex pair. It is also known as the counter currency.
In trading, the quote is the price at which an asset was last traded, or the price at which it can currently be bought or sold.
A rally is a period in which the price of an asset sees sustained upward momentum. Typically, a rally will occur after a period in which prices have been flat, trading in a narrow band, or experiencing a decline.
Random walk theory is a financial model which assumes that the stock market moves in a completely unpredictable way. The hypothesis suggests that the future price of each stock is independent of its own historical movement and the price of other securities.
Range is the difference between a market’s highest and lowest price in a given period. It is mostly used as an indicator of volatility: if a market has a wide range, it's a sign that it was volatile over the period analysed.
Rate of return (ROR) is the loss or gain of an investment over a certain period, expressed as a percentage of the initial cost of the investment. A positive ROR means the position has made a profit, while a negative ROR means a loss. You will have a rate of return on any investment you make.
A ratio spread is a strategy used in options trading, in which a trader will hold an unequal number of buy and sell options positions on a single underlying asset at once.
Reserves are the liquid assets set aside for future use by an individual, central bank or business. Usually they are in the form of currency or a commodity, such as gold. For traders, reserves will usually be kept as cash that can be accessed quickly.
A resistance level is the point on a price chart at which an upward price trajectory is impeded by an overwhelming inclination to sell the asset. If a market price is nearing a resistance level, a trader may opt to close their position and take the profit, rather than risk the price falling back.
A reversal is a turnaround in the price movement of an asset: when an upward trend (or a rally) becomes a downward one (a correction), or vice versa. They can also often be referred to as trend reversals.
A rights issue is when a company offers its existing shareholders the chance to buy additional shares for a reduced price. Usually the discounted price will stand for a specified time frame, after which it is returned to normal.
Risk management is the process of identifying potential risks in your investment portfolio, and taking steps to mitigate accordingly.
In trading, risks are the ways in which an investment can end up losing you money.
The Regulatory News Service, or RNS, is responsible for disseminating regulatory and non-regulatory information on behalf of UK businesses and publicly listed companies. Operating as part of the London Stock Exchange (LSE), the RNS provides businesses with information that can help them to comply with their disclosure obligations.
Return on capital employed, or ROCE, is a long-term profitability ratio that measures how effectively a company uses its capital. The metric tells you the profit generated by each dollar (or other unit of currency) employed.
In trading, a rollover is the process of keeping a position open beyond its expiry.
RSI stands for the relative strength index. It is a key tool used in technical analysis, assessing the momentum of assets to gauge whether they are in overbought or oversold territory.
A scalp in trading is the act of opening and then closing a position very quickly, in the hope of profiting from small price movements.
The SEC stands for the US Securities and Exchange Commission. It is a government agency set up to regulate markets and protect investors in the United States, as well as overseeing any mergers and acquisitions.
Sectors are divisions within an economy or market, useful for analysing performance or comparing companies with similar outputs and characteristics.
SETS stands for the Stock Exchange Electronic Trading Service, the London Stock Exchange’s digital order book.
Share buyback, or share repurchase, is when a company buys back its own shares from investors. It can be seen as an alternative, tax-efficient way to return money to shareholders. Once shares are repurchased they are considered cancelled, but they can be kept for redistribution in the future.
A share price – or a stock price – is the amount it would cost to buy one share in a company. The price of a share is not fixed, but fluctuates according to market conditions. It will likely increase if the company is perceived to be doing well, or fall if the company isn’t meeting expectations.
Shares are the units of the ownership of a company, usually traded on the stock market. They are also known as stocks, or equities.
Shares trading is the buying and selling of company stock – or derivative products based on company stock – in the hope of making a profit.
In trading, short describes a trade that will incur a profit if the asset being traded falls in price. It is also often referred to as going short, shorting or sometimes selling.
Short selling is the act of selling an asset that you do not currently own, in the hope that it will decrease in value and you can close the trade for a profit. It is also known as shorting.
When the price at which an order is executed does not match the price at which it was made, it is referred to as slippage.
A smart order router (SOR) is an automated process used in online trading that follows a set of rules when looking for trading liquidity. The goal of an SOR is to find the best way of executing a trade.
SNB stands for Swiss National Bank, the central bank for Switzerland.
Socially responsible investing is the process of selecting assets to buy based on their social impact as well as on their potential financial returns. It is also known as sustainable investing, socially conscious investing, green investing and ethical investing. Socially responsible investing is closely linked to impact investing, which seeks to make tangible positive change.
In trading, spot refers to the price of an asset for immediate delivery, or the value of an asset at any exact given time. It differs from an asset’s futures price, which is the price for delivery at some date in the future, or its expected price.
In finance, the spread is the difference in price between the buy (bid) and sell (offer) prices quoted for an asset.
Stock analysis is the method used by a trader or investor to examine and evaluate the stock market. It is then used to make informed decisions about buying and selling shares. Stock analysis can also be referred to as market analysis, or equity analysis.
A stock exchange is a centralised location where the shares of publicly traded companies are bought and sold. Stock exchanges differ from other exchanges because the tradable assets are limited to stocks, bonds and exchange traded products (ETPs).
A stock index is a group of shares that are used to give an indication of a sector, exchange or economy. Usually, a stock index is made up of a set number of the top shares from a given exchange.
A stock symbol is an abbreviation used to identify publicly traded companies. When a company decides to go public, it will select the exchange to list on and then choose a unique stock symbol to differentiate itself from other companies on the exchange.
Stockbroking is a service which gives retail and institutional investors the opportunity to trade shares.
Stop orders are types of order that instruct your broker to execute a trade when it reaches a particular level: one which is less favourable than the current market price. They can also be known as stop-loss orders.
A straddle in trading is a type of options strategy, which enables traders to speculate on whether a market is about to become volatile without having to predict a specific price movement. It involves either buying or selling simultaneous call and put options with matching strike prices and expiration dates.
In options trading, the strike is the price at which a contract can be exercised, and the price at which the underlying asset will be bought or sold. It is also known as the strike price.
A support level is the price at which an asset may find difficulty falling below as traders look to buy around that level.
Tangible assets are the assets on a company's books and balane sheet that have a physical form. They comprise the machinery, office equipment and buildings used by a company (fixed assets) and of the materials that are used in producing products (current assets).
Technical analysis is a means of examining and predicting price movements in the financial markets, by using historical price charts and market statistics. It is based on the idea that if a trader can identify previous market patterns, they can form a fairly accurate prediction of future price trajectories.
Tom-next is short for ‘tomorrow-next day’, which is a short-term forex transaction that enables traders to simultaneously buy and sell a currency over two separate business days: tomorrow, and the next day.
A trading floor is the area of a business or an exchange where assets are bought and sold, most commonly associated with stock exchanges and futures exchanges. It is also often referred to as a trading pit.
A trading plan is a strategy set by the individual trader in order to systemise evaluation of assets, risk management, types of trading, and objective setting. Most trading plans will comprise two parts: long-term trading objectives, and the route to achieving them.
A market’s volatility is its likelihood of making major, unforeseen short-term price movements at any given time.
A trailing stop is a type of stop-loss that automatically follows positive market movements of an asset you are trading. If your position moves favourably but then reverses, a trailing stop can lock in your profits and close the position.
Treasury stock is the portion of a company’s shares that it keeps in its own treasury. The shares do not count towards the total amount of outstanding shares listed, and neither pay dividends nor carry voting rights (because a company cannot pay itself, or own itself).
When a market is making a clear, sustained move upwards or downwards, it is called a trend. Identifying the beginning and end of trends is a key part of market analysis. Trends can apply to individual assets, sectors, or even interest rates and bond yields.
A trending share is the term for when a company’s stock is undergoing a significant move in comparison to its underlying index. The trend can be either upwards or downwards.
Unborrowable stock is the stock that no one is willing to lend out to short sellers. When shares in a company become unborrowable, the traditional means of short selling them is impossible.
A market’s volatility is its likelihood of making major, unforeseen short-term price movements at any given time.
Variable cost is a business expense which is subject to change when sales volumes change. This could mean that variable costs either increase or decrease depending on a company’s current output.
VIX is short for the Chicago Board Options Exchange Volatility Index. It is a measure used to track volatility on the S&P 500 index, and is the most well-known volatility index on the markets.
A market’s volatility is its likelihood of making major, unforeseen short-term price movements at any given time.
In trading, volume is the amount of a particular asset that is being traded over a certain period of time. It is often presented alongside price information, as it offers an extra dimension when examining an asset’s price history.
VWAP is the abbreviation for volume-weighted average price, which is a technical analysis tool that shows the ratio of an asset's price to its total trade volume. It provides traders and investors with a measure of the average price at which a stock is traded over a given period of time.
WTI stands for West Texas Intermediate (occasionally called Texas Light Sweet), an oil benchmark that is central to commodities trading. It is one of the three major oil benchmarks used in trading, the others being Brent crude and Dubai/Oman.
A working order is a general term for either a stop or limit order to open. It is used to advise your broker to execute a trade when an asset reaches a specific price.
Yield is the income earned from an investment, most often in the form of interest or dividend payments. Yield is one of the ways in which investments can earn a trader money, with the other being the eventual closing of a position for profit.
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