A comprehensive A to Z guide to over 200 key terms used in trading and financial markets.
Accumulated distribution is a term related to exchange traded funds (ETFs) trading, meaning that the ETF in question reinvests any income and dividend payments back into the fund.
Accumulation funds automatically reinvest any profits or gains in the hope of making more profits or gains, rather than paying them out to investors.
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.
Active fund managers implement the strategy of an investment fund and manage the trading activities. It the human element of fund or wealth management.
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.
Aggregate demand is the total demand for final goods and services in a market, sector or economy. Aggregate demand shows how current price levels relate to a nation’s real gross domestic product (GDP).
Aggregate supply is the total value of goods or services in a market, sector or economy. Aggregate supply is used to show the amount of goods that can be produced at different price levels in a given time period – usually one year.
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.
An annualised return is the average amount earned by an investment each year over a certain period of time if the annual return was compounded. Compounding means investment returns, from one year to the next, are dependent on each other.
Annual General Meeting
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.
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.
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.
At the Money
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.
An authorised participant (AP) is a recognised body that has a relationship with an ETF provider to create or redeem exchange traded funds (ETFs). Most APs are market makers or large investment houses.
Automated trading – also known as algorithmic trading – is the use of algorithms for making trade orders.
Averaging down is when a market participant buys more of a stock they already own after the price has declined. In doing so, they will reduce the average price at which they purchased the stock and could stand to realise a greater profit if the market value recovers above the new average price.
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%.
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.
An offer made by a seller to a buyer to provide goods or services at a proposed price.
Stocks of large, established, financially sound companies are usually among the larger, more well-known companies in the industry. These stocks are considered to be relatively low-risk, high-safety investments.
A technical analysis indicator used to measure market volatility and price trends.
A low-risk, common fixed-income investment instrument
The ratio of the book value of a stock to its market value, a financial indicator of the valuation of a stock
The bottom line is a term used to describe a company’s net income or earnings per share (EPS). If it’s referring to net income, it is the total profit made, minus any outgoings. And if it’s referring to EPS, it is the bottom line figure divided by the number of outstanding shares in the company.
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..
Brexit’ is a contraction of ‘British exit’, and it is the word used to define the UK’s departure from the EU. The initial referendum took place in June 2016, with 51.9% voting to leave, and 48.1% voting to remain.
An intermediary who facilitates the buying and selling of goods, financial assets, or services between a buyer and a seller.
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.
A consistent upward movement in a stock or other financial market, where most asset prices are rising and the market as a whole is performing well. It is generally considered a bull market if a market rises by more than 20% s or more in two months.
A common term used to indicate optimism that the value of a financial asset will rise.
A trading behavior that represents a trader's confidence in a bullish or positive opinion of an investment
The GBP/USD currency pair exchange rate in the forex market
An option contract that gives the buyer the right to purchase or subscribe to the underlying asset at a specified price (strike price) before the expiration date
An enterprise's expenditures for the acquisition or improvement of various long-lived assets
Capital Gains Tax
Taxes levied on profits obtained from the purchase and sale of assets, often imposed on stocks, bonds, real estate, precious metals, etc.
Inflows and outflows of funds that occur within a specific period of time and for a specific purpose in the economic activity of a specific economic unit
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.
The last traded price of a financial product at the end of a period of time
Commissions or handling fees charged by brokers for trading services provided to traders
Products that can be substituted for each other in commercial trade by type, grade, and specification, including agricultural products, energy, metals, etc.
A method of calculating interest that, in addition to being based on the principal amount, also generates interest on the newly earned interest.
Contracts for Difference
CFD. a financial derivative that allows traders to take advantage of price increases or decreases in the price of the underlying asset
Cost of Carry
The cost of holding an investment or transaction, mainly including opportunity cost and actual cost
An option trading strategy that involves selling a call option on a stock while holding the underlying stock
It is an indicator of price change that reflects the price of products and services related to the life of the population, expressed as a percentage change. It is one of the main indicators of inflation
Indicates the credit rating of a debt issuer or debt instrument, which is the main criterion for assessing the default risk and debt serviceability of an issuer
An increase in the price of a country's currency against other currencies means that the purchasing power of the currency increases. When a country's currency appreciates, it means that it can buy more foreign currency or goods with that currency.
When the price of a country's currency falls in exchange for other currencies, the purchasing power of the currency decreases. When a country's currency depreciates, it means that it can buy less of a foreign currency or commodity with that currency.
An important indicator of short-term solvency and liquidity, which is the ratio of current assets to current liabilities
Day order is a day-limited order in stock or other financial market trading. In other words, if the order is not fully filled during the trading session, the order will be automatically cancelled after the market closes.
A speculative transaction in which a person buys or sells the same financial instrument on the same day in order to avoid the risk of price fluctuations after buying or selling on the stock or financial futures market.
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.
A delta one product is a derivative which has, or is close to having, a one-to-one relationship with an underlying asset in terms of price movements. In other words, when there’s a change in the underlying product’s value, you would expect to see the derivative price move in the same direction and with a similar magnitude.
Derivatives are financial instruments whose value is determined by the price of the underlying asset, price volatility or other derivative indicators. They have no native value of their own, and their value depends entirely on the underlying asset to which they are attached.
DFB is the abbreviation of daily funded bet, a term used in spread betting to describe a position that remains open until you decide to close it. For each day that your bet remains open, an interest adjustment is made to your account to reflect the cost of funding your position – hence the term daily funded bet.
A dividend is the portion of profit that a company chooses to return to its shareholders, usually expressed as a percentage
A drawdown can be one of two things. It can either be the decline in an asset price or a portfolio value over a specific period from peak to trough or high to low, or the proportion of a pension that a retiree withdraws each year.
Earnings Per Share (EPS)
The net profit of the enterprise or the net loss of the enterprise to be borne by the common stockholders for each share held.
Earnings before interest, taxes, depreciation and amortization. EBITDA is widely used by private capital companies to calculate a company's operating performance.
Earnings Before Interest, Taxes, Depreciation, Amortization and Rent. It is an important measure of a company's profit before tax and represents the cash flow from operating activities.
EDS Exchange Delivery Settlement Price
It is the settlement price specified by the exchange for a particular trading day and is mainly used for settlement and profit/loss calculation.
Financial markets in countries or regions with fast-growing economies and imperfect market mechanisms but with significant growth potential. Emerging markets include stock markets, bond markets and other financial markets in developing countries.
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.
ETC stands for exchange traded commodity. It is a type of exchange traded product (ETP), like exchange traded funds (ETFs) or exchange traded notes (ETNs).
Exchange traded products, or ETPs, are a variety of financial instruments that are traded throughout the day on national exchanges.
Companies, particularly those listed on stock markets, will often pay dividends to their shareholders. It’s a reward to the shareholders for lending the company money by buying its shares, and the fact the company can afford to pay some of its profits to its shareholders is a sign that it’s in good financial health and confident about its own future. The steady income provided by dividends can persuade an investor to buy a stock.
Exchange, a platform where various financial products can be traded
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 value of a government-issued and mandated currency depends essentially on the government's decree and the trust of its citizens, rather than on the adoption of a standard or commodity to back it up.
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 variety of contracts or securities that circulate in the financial market and are used to raise funds or make investments. Financial instruments are the basic elements of the financial market, and the concentration and distribution of funds are realized through the issuance and trading of financial instruments.
Activities and places with a certain scale of capital financing, money lending and buying and selling of marketable securities
FOMC stands for the Federal Open Market Committee, which is the branch of the Federal Reserve responsible for reviewing and overseeing open market operations in the US. Through intervening in open market operations – buying or selling government securities – the FOMC can indirectly change the federal funds rate.
The international market for trading exchange rates between the currencies of different countries (regions). The foreign exchange market is huge, with transactions reaching US$5 trillion per day, making it the world's largest and most important financial market.
A fractional share is a portion of one full share. You normally can’t buy fractional shares, but you may end up with them as a result of stock splits or dividend reinvestment plans. However, brokers can batch fractional shares together to create whole shares which can then be bought or sold
FTSE stands for the Financial Times Stock Exchange. The FTSE indexes are owned by FTSE Russell, part of the London Stock Exchange Group. The best known indexes are the FTSE 100, made up of the largest 100 companies trading on the London Stock Exchange, and the FTSE 250, made up of the next largest 250 companies on the exchange.
In investments, full replication refers to a type of physically replicated ETF that holds equities in all of the constituents of the benchmark it is designed to track.
A method of determining the value of a security or commodity by analyzing the various fundamental factors that affect it. Fundamental analysis focuses on the economic substance behind a security or commodity, predicting future price movements by analyzing the various economic, financial and other factors that affect its value.
Funding charges, or interest charges, are the fees levied on leveraged positions that are held open overnight.
An inter-temporal transaction in which a buyer and seller agree to take delivery of a specified quantity of spot at a specified time, price and other trading conditions by entering into a contract
Gamma is a term used in options trading to represent the rate of change in the option’s delta.
GDP is the core indicator of national economic accounting and an important indicator of the economic status and development level of a country or region.
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.
By taking a position on a grey market, you’re taking a position on a company’s potential market cap ahead of its initial public offering (IPO). The price of a grey market is a prediction of what the company’s total market capitalisation will be at the end of its first trading day.
Gross margin, or gross profit margin, is a way of measuring the amount of profit a company has left after subtracting the direct costs associated with selling its goods and services. It can illustrate if a company is generating revenue despite its outgoings.
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.
Hedge is a strategy to mitigate or offset risk by creating a portfolio of investments in opposite directions. Hedge aims to reduce or eliminate the market risk faced by a portfolio, ensuring that investment returns are protected from market fluctuations or to some extent, preserving value.
Heikin Ashi is a unique form of cloud chart that reduces market noise by calculating the average of a series of data points to make the trend clearer. The average range chart shows price changes in a smooth manner, effectively filtering out the noise in the forex market and making the main trends more visible.
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)
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)
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.
Income distribution is a term used in exchange traded funds (ETFs) for when any income or dividend payments are redistributed to investors in the form of a payment.
A fund whose investment objective is to pursue the fund's current income invests mainly in those marketable securities with relatively stable income such as high-performing stocks, bonds and negotiable large depository receipts.
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.
Index trading is the trading of stock index futures, options and other derivative instruments for profit. An index reflects the performance of the entire stock market or market sector, and index trading allows investors to easily participate in the overall market without having to trade individual stocks.
Under the conditions of circulation of paper money, the phenomenon of sustained and widespread price increase over a period of time caused by the depreciation of the currency due to the supply of money being greater than the actual demand for money and the real purchasing power being greater than the supply of output.
It refers to the risk of contraction of asset value and labor returns due to currency depreciation caused by inflation. It is a typical systemic risk that is difficult to mitigate through a diversified portfolio.
Interest is the consideration or value of the use of money in a financial transaction. It is the price that is generated to compensate for the time value of money and credit risk. Interest is usually expressed as an annual rate, reflecting the proportion of interest income to the original principal over a period of time.
Interest rate is the percentage of interest income to the principal amount of loaned funds in a certain period of time, and is an important indicator of the level of interest. The level of interest rates directly affects the interests of borrowers and lenders and is an important factor in the movement of financial markets.
Interest Rate Swap
An interest rate swap is an agreement to exchange interest payments from a financial instrument for interest payments from another financial instrument.
Internal Rate of Return (IRR)
Internal Rate of Return (IRR) is the annualized rate of return of an investment, which makes the net present value of the investment equal to zero. IRR is an important indicator of the effectiveness of an investment and the results of the use of capital, which takes into account the time value of the investment and also reflects the cost of capital.
The point when a trading position automatically closes is known as the expiry date (or expiration date).
Investment grade is a rating applied to a municipal and corporate bond with a low risk of default
Initial Public Offering (IPO) is the first time a company sells its shares to the public
Key Investor Information Document (KIID)
The Key Investor Information Document (KIID) is a document that provides key information about investment funds, in order to help a potential investor compare different investment funds and assess which fund meets their specific needs.
Large cap stands for large capitalisation and is a term used to group stocks and shares. Sitting above mid-cap and small-cap stocks, large-cap stocks generally have a valuation, or market capitalisation, of more than $10 billion.
Leverage refers to the borrowing of funds to purchase financial assets in order to control a larger amount of assets. The leveraging effect allows investors to achieve higher returns with less capital invested, but also increases the risk of loss.
Leveraged ETFs are a form of exchange traded fund (ETF) that seek to deliver multiplied returns of the underlying benchmark they track. For instance, if the FTSE 100 increases 10% in a day, a 2x FTSE ETF will aim to increase 20%.
Leveraged products refer to financial investment products designed with different levels of leverage, including futures, options, leveraged ETFs, and contracts for differences (CFDs). These products are highly leveraged through borrowing or derivatives, and can control a larger trading size and asset exposure with a small amount of margin, magnifying the impact of price changes.
Liabilities are the debts and obligations that detract from a company’s total value, which have to be paid over a certain period of time. The form of the debt can vary – common examples include business expenses, loans, unearned revenues or legal obligations.
Limit order is the price or performance time of the trader to determine the price of foreign exchange contracts for the purchase and sale of the order. It is the second type of financial trading orders often used in the order, which provides the highest price at which the buyer is willing to buy or the lowest price at which the seller is willing to sell.
Limit up/Limit Down
A limit up is the maximum amount that the price of a stock index future or commodity future will be allowed to increase in a single trading session. A limit up is different to a limit down, but both are used to prevent certain assets reaching excessively high volatility levels.
Liquidity is the ability of an asset to be sold successfully at a reasonable price, and it is the relationship between the time scale and the price scale of an investment.
A long position is an investment position in a financial asset that is purchased and held. The investor wants the price of the asset to rise in order to gain a capital gain. A long position is contrasted with a short position, which is a position that gains from a decline in price by selling a financial asset.
A term used in the financial markets for the unit of calculation of a stock, foreign exchange or futures contract.
Maintenance Margin is the minimum amount of margin an investor needs to hold to maintain an open position. If an investor's account balance falls below the maintenance margin, he/she may be at risk of having his/her position forcibly closed.
Margin is the guarantee of funds that investors are required to provide in order to conduct financial transactions. Margin is divided into initial and maintenance margin, and their main function is to ensure that both parties to the transaction fulfill their obligations and control the risk.
Margin Call is a financial term that refers to a margin call issued by a trading platform when a trader's account equity has failed to meet the minimum margin requirement.
Margin deposit refers to the funds that investors need to deposit in order to participate in a financial transaction, which is mainly used as a guarantee for trading and risk control. Margin deposit is generally required to be deposited in a margin account designated by the exchange or broker.
In the case of stocks, market capitalization refers to the "total market value" of a listed company in the stock market. It is generally calculated by multiplying the closing price of the relevant listed company on the relevant stock market by the total number of shares in issue to arrive at the total market price.
Market data refers to various types of information data generated during financial market transactions, including exchange quotes, transaction records, index movements, and block trade information. The timeliness and accuracy of market data are of great significance to investors, as they determine the basis for their analysis and judgment of the market and the value of securities.
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 order by a trader to a broker to execute a trade immediately at the current best available price.
Market Value is the value of an asset or a company in the financial market. It is usually used to refer to the market value of a company and is calculated by multiplying the number of shares outstanding by the current market price.
When two or more companies decide to combine and become one entity, it is called a merger.
Metatrader is an electronic trading platform widely used by online retail forex speculative traders. It was developed by MetaQuotes Software and released in 2005. The software has been licensed to forex brokers, who offer the service to their clients.
Modified Internal Rate of Return (MIRR)
Modified internal rate of return (MIRR) is used to assess the cost and profitability of a future project for a company. Unlike the standard internal rate of return (IRR), MIRR assumes that positive cashflows are reinvested at the cost of capital, and that cash outlays are funded at the current financing cost.
Moving Average Convergence/Divergence (MACD)
MACD is a technical indicator composed of moving average difference and its accompanying deviation value, which is used to judge market trends and financial asset trading opportunities.
Moving Average MA
Moving Average (MA) is a commonly used technical indicator that measures trend direction and support resistance by calculating the average price over a certain period of time. Moving average is mainly used to reduce market noise and to detect trends in price changes.
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.
A mutual fund is an investment fund of pooled money from many investors.
Negative Balance Protection
Negative balance protection refers to the protection provided by a dealer in the event of a negative balance in a client's account. Given the volatility and risks associated with financial markets, it is difficult for even experienced investors to avoid negative account balances due to unforeseen events.
net asset value (NAV)
NAV is the value of an entity's assets minus the value of its liabilities and is typically associated with open-end funds, mutual funds, hedge funds and venture capital funds.
Net income is the total amount of profit (often known as earnings) made by a company, listed in its earnings report.
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-balance Volume (OBV)
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.
The Organization of Petroleum Exporting Countries (OPEC) is an intergovernmental international organization of 13 countries, established in Baghdad on September 14, 1960 by the five founding members. Today its headquarters are located in Vienna, Austria, and it currently has 13 member countries.
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 offer is a secondary market offering that allows existing shareholders in a company to purchase new shares in the business on a pre-emptive basis and at a lower price, or discounted rate, to the prevailing market value.
An option is the right to buy or sell an underlying, but there is no obligation to deliver. The buyer of an option receives the opportunity to profit from changes in the price of the underlying, but the maximum loss is limited to the option premium; the seller receives the option premium in return, but is exposed to the risks associated with fluctuations in the price of the underlying.
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.
OTC Trading refers to the trading of marketable securities not in the centralized market, but at the counter of the securities brokerage firm by means of bargaining, also known as over-the-counter trading.
Out of The Money (OTM)
Out of the money (OTM) is one of three terms used to address an option’s ‘moneyness’, with the other two being at the money and in the money. An out of the money options contract has not yet reached the value of its strike price, meaning it has no intrinsic value and will expire worthless.
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).
The term parity can be used in a few ways when trading, but always as an expression of equality.
Participating preferred shares, give the holder the right to receive dividends paid to preferred shareholders.
A pip is a measurement of movement in forex trading, defined as the smallest move that a currency can make.
An investment portfolio is an aggregate collection of assets that investors choose to allocate to a variety of financial assets based on their own investment objectives and risk appetite. Through diversification and optimal asset allocation, a portfolio can achieve higher risk-adjusted returns.
Positions refer to the various types of financial assets held by investors in the financial markets. Gains and losses from different positions may offset or magnify each other, affecting the overall return and risk of the portfolio.
Post-market means after the market. Some financial markets, like foreign exchange markets, never stop trading, but most individual stock markets have defined trading hours. That’s because the stock exchanges are open generally for the working day of the time zone in which they are located. Post-market generally refers to the late hours after the stock market closes in any jurisdiction (see also pre-market definition).
Pre-market means before the market. While some financial markets, like foreign exchange markets, never stop trading, most individual stock markets have defined trading hours. That’s because the stock exchanges are open generally for the working day of the time zone in which they are located. Pre-market generally refers to the early hours just before that stock market opens.
Profit and Loss (P&L)
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.
Purchasing Managers Index (PMI)
The Purchasing Managers' Index (PMI) is an index of the prevailing direction of economic trends in the manufacturing and service sectors.
Put option is a derivative instrument in financial markets that gives the holder (the purchaser of the put option) the right to sell an asset (the underlying), at a specified price (the strike), by (or on) a specified date (the expiry or maturity) to the seller of the put
Quantitative easing QE
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.
Quote Currency is the second currency in both a direct and indirect currency pair and is used to determine the value of the base currency.
A quote price is the price at which an asset was last traded. It is often defined as the point where supply meets demand, as it's the price that buyers and sellers agree on.
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
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)
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.
Redemption yields are also known as the yield-to-maturity or the book yield.
A REIT, or real estate investment trust, is a listed company (or group of companies) which enables private investors to gain exposure to a portfolio of income-producing properties.
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 reaching a resistance level, a trader may opt to close their position and take the profit, rather than risk the price falling back.
Retail Distribution Review (RDR)
The Retail Distribution Review (RDR) is a Financial Conduct Authority (FCA) initiative that aims to provide greater clarity about different types of financial services available. It also seeks to improve transparency around the costs and fees associated with financial advice.
Retail Price Index (RPI)
The Retail Price Index (RPI) is a measure of inflation, which in turn is the rate at which prices for goods and services are rising.
Return of Capital
Companies sometimes return a portion of capital, or value, to their capital owners. This means an investor like a shareholder will receive back a portion of their original investment.
Return on equity (ROE)
Return on equity (ROE) is a measure of a company’s profitability against its equity, expressed as a percentage. In other words, it is how much income the company is generating relative to the amount of capital received from shareholder investments.
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.
Rho is a term used in options trading to refer to how sensitive an option’s price is to any changes in interest rate levels. Rho can be either positive or negative depending on whether the position is long or short, and whether the option is a call or a put.
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 a management process that includes defining, measuring, evaluating and responding to risk strategies. The objective is to minimize avoidable risks, costs and losses.
Risks refer to the possibility of losses due to various uncertainties in the investment process. Any investment involves a certain degree of risk. Investors should fully identify the investment risks and reasonably assess their own risk tolerance in order to seek an appropriate balance between risk and return.
In trading, a rollover is the process of keeping a position open beyond its expiry.
The Relative Strength Index (RSI) is a technical analysis tool that expresses price strength by comparing price movements; it is a momentum-based oscillator that measures the speed (velocity) and change (magnitude) of price movements.
Scalping 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.
A security is a document that expresses a property right for a price, on the basis of which the holder can prove his ownership or a private right such as a claim.
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 Exchange Traded Fund (EFT)
A short exchange traded fund (EFT), or inverse ETF, is a type of exchange traded fund which aims to rise in value if its benchmark falls in value.
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.
Slippage refers to the difference between the expected price of a trade and the price at which the trade is executed
Smart Order Router (SOR)
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.
Spot trading refers to trading in currency pairs and other financial markets for immediate delivery and ownership of the underlying asset.
The spot price/rate is the price quoted for immediate settlement on an interest rate, commodity, a security, or a currency.
The spread refers to the difference between the bid and ask prices of the same currency pair in the foreign exchange market from different quotation sources. The size of the spread reflects the liquidity of the market and transaction costs, which is one of the important factors affecting the profitability of foreign exchange traders.
Spread betting is a leveraged financial derivative. When spread betting, you are making a bet on the direction in which a market will move. The accuracy of your bet determines the profit or loss when the position is closed.
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.
The stock exchange is a financial market for buying and selling securities such as stocks, corporate bonds, government bonds, treasury bills, and negotiable time deposits. Buyers and sellers of securities are brought together to complete transactions through the intermediation of stockbrokers.
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.
The stock market, or equity market, is a series of exchanges where shares in public companies are issued, bought and sold. Its role is to give private investors a way to own a stake in a listed company, while providing the companies themselves with capital to reinvest in their business.
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.
A stop order is an order to buy or sell a stock once the price of the stock reaches a specified price, known as the stop price.
The Straddle strategy involves two options trades on the same underlying security, trading opposite positions. One holds a long exposure and the other holds a short position.
Performance price, also known as the strike price. In financial transactions, the strike price is the "agreed price" at which the investor can buy or sell the financial asset in the market at an agreed date in the future.
Support level refers to a point in trading below which the price of the asset does not fall
Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities in price trends and patterns seen on charts.
A ticker 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.
Time Decay (Theta)
Time decay refers to the decline in the value of the underlying asset as a result of the reduction in the remaining contractual maturity of derivatives such as futures and options as they approach expiration. Time decay can have a significant impact on the profit and loss of options investors and provides opportunities for arbitrage and hedging transactions.
Time value is a term used in options trading to refer to the portion of an option’s premium that is attributable to the amount of time left until the option expires. Investors will pay more for an option with a longer expiration, because of the additional costs of extending the option's life.
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 plan outlines how a trader will find and execute trading opportunities, including under what conditions they will buy and sell securities, how large of a position they can take, how they will manage positions, what securities can be traded, and other rules for when to trade and when not to.
Trailing Step is a parameter used in grid trading strategies to control the distance a stop is moved. When the market is moving in a favorable direction, the user can maximize profits by constantly adjusting the position of the stop.
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.
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 become impossible.
Value at Risk(VaR)
The value of the maximum expected loss of the asset portfolio due to market price movements within a given confidence interval during the holding period
Vega in options trading measures how sensitive an option’s price is to changes in the implied volatility of an underlying market. It represents the extent to which an option’s premium will change given a 1% change in an asset’s implied volatility.
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.
Volatility refers to the speed and magnitude of changes in asset prices. The size of volatility reflects the active degree of asset price increases and decreases, is an important indicator of market risk, and is also a key parameter for option pricing and investment strategy selection.
Volume refers to the total number of transactions or transaction amounts completed within a certain period of time. Volume is an important indicator of market activity and trading activity, and its size can have a significant impact on trading strategy selection and investment decisions.
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
A warrant is a type of derivative that gives the holder the right, but not the obligation, to buy or sell an underlying security at a certain price before the warrant expires.
A pending order is a general term for either a stop or limit order. It is used to ask your broker to execute a trade when an asset price reaches a specific level.
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.
Yield is an important indicator to measure asset value and investment return, which reflects the attractiveness of investment and the relationship between supply and demand in the market. The higher the yield, the higher the rate of return on asset which makes the investment more attractive. Changes in yields can have a significant impact on asset allocation and trading strategies.