Glossary
Contract for Difference. Margin trading on financial markets.
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 the markets, such as stocks, bonds, ETFs, currencies or commodities.
Forex is an interbank market, which means that banks lend funds to one another for a specified term. Foreign exchange transactions can take place on the foreign exchange market, also known as the forex market. The forex market is the largest, most liquid market in the world, with trillions of dollars changing hands every day.
Indices are groups of securities for top companies’ shares bundled together to track different markets. Traders don’t own the shares, they trade CFDs or ETFs on these baskets such as Dow Jones Index in U.S or DAX30 in Germany. You can either take a long or a short position in the market when trading indices. Shares of the largest companies in the bundle usually have the largest impact on the price as well.
Cryptocurrencies are decentralized digital payment technologies that have gained popularity in the past decade. Though the trend started with Bitcoin, dozens of alternatives are available nowadays. They are recorded in digital registers called blockchains. When a person sends a cryptocurrency to another person, they send it to a digital wallet. The currency can be used as it is or cashed out at the market price. All transactions are verified via a process called mining.
Trading on margin means borrowing money from a brokerage firm in order to carry out trades. When trading on margin, investors first deposit cash that then serves as collateral for the loan, and then pay ongoing interest payments (Swaps) on the money they borrow.
Since margin is essentially the collateral required in order to open a trade, if the market moves against a client’s position and your overall account equity is reduced, then you may not have sufficient funds available to maintain this position.
If your Equity (Balance – Open Profit/Loss) falls below 50% of the margin required to maintain an open position, then the Broker will begin automatically closing the largest losing position in an attempt to increase your equity.
Clients can buy or sell a financial product with substantially less money than the actual full market value of that financial product. A position in a contract with high gearing or leverage stands to make or lose a large amount from a small percentage movement in the underlying instrument.
In a long trade, you purchase an asset and wait to sell when the price goes up. “Buy” and “long” are used interchangeably.
When you're in a short trade, you borrow an asset, sell it, and hope to buy it back when the price goes down. “Sell” and “short” are used interchangeably.
The most common risk management tools in forex trading are the Take Profit order and the stop loss order. A Take Profit order places a restriction on the maximum price to be paid or the minimum price to be received. A stop loss order sets a particular position to be automatically liquidated at a predetermined price in order to limit potential losses should the market move against an investor's position.
A market order is an order to buy or sell a security immediately. This type of order guarantees that the order will be executed, but does not guarantee the execution price. A market order generally will execute at or near the current bid (for a sell order) or ask (for a buy order) price.
A protective order which enables closing a losing position on a predefined level. After activation it is executed as a MARKET type order.
An order which enables closing a profitable position on a predefined level. After activation it is executed as a MARKET type order.
When a market price ‘jumps' significantly from the previously traded price.
Slippage refers to all situations in which a market participant receives a different trade execution price than intended. Slippage occurs when the bid/ask spread changes between the time a market order is requested and the time an exchange or other market-maker executes the order.
The price at which you can buy at or bet that a market will go up.
The price at which you can sell at or bet that a market will go down.
The difference between the bid price and the offer price.
The risk/reward ratio marks the prospective reward an investor can earn for every dollar they risk on an investment. Many investors use risk/reward ratios to compare the expected returns of an investment with the amount of risk they must undertake to earn these returns. Consider the following example: an investment with a risk-reward ratio of 1:7 suggests that an investor is willing to risk $1, for the prospect of earning $7. Alternatively, a risk/reward ratio of 1:3 signals that an investor should expect to invest $1, for the prospect of earning $3 on their investment.
Traders often use this approach to plan which trades to take, and the ratio is calculated by dividing the amount a trader stands to lose if the price of an asset moves in an unexpected direction (the risk) by the amount of profit the trader expects to have made when the position is closed (the reward).
