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Terms in forex trading

Forex Trading 101: Definitions

Terms in forex trading. A-Z glossary of over financial terms, definitions and explanations associated with trading and the markets. Trading terms glossary brought to you by IG.

Terms in forex trading


View more search results. 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.

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.

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: Arbitrage refers to the practice of buying an asset then selling it immediately to take advantage of a difference in price.

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.

The various types of financial instruments are called asset classes, and they come under four broad categories. Asset classes are defined by the similar characteristics of the instruments within them, such as behaviour on the market, laws and regulations.

Assets can be defined in two ways in trading, dependent on whether they are in connection with a company or a financial instrument. In trading, an auction or auction market refers to the process by which the prices of shares are determined before the open, after the close, or during intraday volatility auctions to build or stabilise the order book. They allow traders to place market or limit orders directly on an exchange. Automated trading — also known as algorithmic trading — is the use of algorithms for making trade orders.

In trading the term base currency has two main definitions: The base rate, or base interest rate, is the interest rate that a central bank — like the Bank of England or Federal Reserve — will charge to lend money to commercial banks. It is equal to one hundredth of one percent, or 0. Bears are traders who believe that a market, asset or financial instrument is heading in a downward trajectory.

In that regard, they hold an opposite view to bulls, who believe that a market is going 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.

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. Bollinger bands are a popular form of technical price indicator. They were developed by a pioneering technical trader called John Bollinger in the s.

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: 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. A broker is an individual or company that places trades on behalf of a trader. They can do so in a number of different asset classes, with the most well-known being stockbroking. Bulls are speculators who believe that a market, instrument, or sector is going on an upward trajectory. 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 is one of a few slang terms for different currency pairs; in this case referring to British pound sterling against the US dollar. Occasionally, people also refer to the price of the British pound as cable. Capital expenditure, or CAPEX, is the term used for the money spent by businesses on physical assets. 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: It can refer to a single project or the entire business. CFD trading is the speculation on financial markets via contracts for difference CFDs , a form of financial derivative.

They are also commonly known as technical analysts, or technical traders. This price is often determined by an auction. A commodity is a basic physical asset, often used as a raw material in the production of goods or services.

The cost of maintaining an investment position is often referred to as the cost of carry or carrying charge. It can come in many forms, including interest on margins or the loans used to make the trade, or the cost of storage and insurance associated with holding a commodity. A covered call is when a trader sells or writes call options in an asset that they currently have a long position on. They are also known as buy-writes. CPI stands for consumer price index, an average of several consumer goods and services that are used to give an indication of inflation.

Crystallisation is the term used when a trader or business closes a position and then reopens an identical position immediately. 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. 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: It can also sometimes be referred to as a hedge ratio, and is most often used when dealing in options. 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. It is the opposite of appreciation. A derivative is a financial product that enables traders to speculate on the price movement of assets without purchasing the assets themselves. Because there is nothing physical being traded when derivative positions are opened, they usually exist as a contract between two parties.

A dividend is the portion of profit that a company chooses to return to its shareholders, usually expressed as a percentage. When trading, DMA stands for direct market access. It is derived from the total amount of profit generated in a period, divided by the number of shares in the company listed on the stock market. EDSP stands for exchange delivery settlement price. It refers to the price at which derivative contracts on exchanges are settled.

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 a marketplace where financial instruments — such as commodities, stocks, or derivatives — are traded. They can be either physical, like the New York Stock Exchange, or purely digital like a bitcoin exchange.

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: 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.

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 Fibonacci retracement is a key technical analysis tool, used to gain insight into when to place and close trades, or place stops and limits. Fill is a trading term that refers to the completion of an order to trade a financial asset. Fixed costs are the costs incurred by a company that do not vary with the scale of production.

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 assets on the basis of external events and influences, as well as financial statements on the asset itself.


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