General Forex Glossary
A
ADR
American Depository Receipt
Arbitrage
The simultaneous buying and selling of a security at two different prices in two different markets,
with the aim of creating profits without risk
Ask
The quoted offer at which someone can buy; also called the offer price
At Par
At a price equal to the face value of a security
Auction
Many auctions occur in the financial markets; such as the post market auction on the UK 100. This
occurs from 1630 to 1635, after which the official settlement is declared
Authority to deal
Authorising someone to trade on your behalf.
B
Back to Base
Any realised profits or losses, adjustments, fees or charges – that are denominated in a currency not
of your Base Currency – will be automatically converted back to your Base Currency.
Backwardation
This occurs when the bid price exceeds the offer price for a stock. This is a market distortion usually
when stock is suspended or under a share repurchase scheme
Base
A technical analysis tool. A chart pattern depicting the period when the supply and demand of a
certain stock are in relative equilibrium, resulting in a narrow trading range. The merging of the
support level and resistance level
Base Rate
The official lending rate at which the Bank of England offers to the market
Basis Point
Basis point is a way of expressing variations in bond yields. One basis point is 0.01 percentage point.
Basis points also are used for interest rates
Bear
Someone who believes that prices in the stock market are going to decline. Opposite of a bull
Beta
The measure of an asset's risk in relation to the market
Bet Per
Same as tick size. The minimum point movement in each market, for example the UK 100 has moved
10 ticks this equates to a 10 index point move in the UK 100
Bid
The quoted price at which someone can sell
Bid-Ask Spread
The difference between what buyers are willing to pay and what sellers are asking for in terms of
price
Black-Scholes option pricing model
A model for pricing call options based on arbitrage arguments. Uses the stock price, the exercise
price, the risk-free interest rate, the time to expiration, and the expected standard deviation of the
stock return
Bollinger Bands
Plus or minus two standard deviations where the standard deviations are calculated historically in a
moving window estimation. Hence, the bands will widen if the most recent data is more volatile. If
the prices break out of the band, this is considered a significant move
Bond
Bonds are debt and are issued for a certain period of time
Bull
Someone who believes that prices in the stock market are going to rise. Opposite of a bear
Buy
Same as taking a long position
Buy Order
An instruction to buy at a different price to where the market is currently trading
C
Cable
A commonly used term to describe the exchange rate between British pound sterling and the U.S.
dollar
Call option
An option that gives the holder the right to buy the underlying asset. Opposite of a put
Capital Gains Tax
Under current UK legislation, profits made via trading CFD’S are subject to Capital Gains Tax
however, tax laws are subject to change and depend on individual circumstances.
Centrally Cleared Trades
Trades that are sent through to a Clearing House, which acts as a central counterparty, which
assumes the counterparty risk to trades which are registered with it and by doing so underpins many
important financial markets.
CFD
Contract for Difference
Chartist
Person who analyses markets with the use of charts
Clearing House
A clearing house is an organisation that assumes the counterparty risk to trades which are registered
with it and by doing so underpins many important financial markets.
Closing Price
The price at which a product was traded to close the open position. Also refers to the price of the
last transaction in a day’s trading session
Contingent if done order
Instructions you give us to attach a stop loss and/or limit order to your opening order if it is triggered
and filled
Contract Note
The confirmation of your trade describing the market, the unit of trading, the action (buy or sell), the
price and the expiry date
Cost of Carry
The interest intrinsic in our share futures prices, excluding any dividends payable during the contract
period
CPI
Consumer Price Index, used as a measure of inflation
Cross Rates
Foreign exchange rate between two currencies other than the US dollar
Currency future
A financial future contract for the delivery of a specified foreign currency
D
Daily Funded Trade (DFT)
A Daily Funded Trade (DFT) is typically a short term spread bet with some of the tightest spreads on
offer. Daily Financing and dividends are not included in the calculation of Our Price but appear as
separate charges or credits to your account. Each DFT has a long term settlement date. As with all
spread bets, profits and losses are crystallised only when you close or partially close the trade.
Day Trading
Opening and closing of a position in the same contract in one day
Delist
To remove a stock's listing on an exchange
Deliver
The sale of a futures contract may require the seller to deliver the commodity during the delivery
month, if the short position is not offset prior to that time
Delivery Date
Date by which a seller must fulfil the obligations of a forward or futures contract
Delta
The ratio of the change in price of an option to the change in price of the underlying asset
Derivative
A financial contract whose value is based on or derived from, a traditional security (such as a stock
or bond), an asset or a market index
Dividend
Portion of a company's earnings paid to stockholders.
Double Witching Day
The last trading day before expiry of options and futures on the same underlying asset
E
ECB
European Central Bank
EDSP
Exchange Delivery Settlement Price. Used by many markets to arrive at the Expiry Price
Expiry Date
Date at which a contract will be expired. Not to be confused with Last Day of Trading
Expiry Price
Price at which contracts are settled if they are left to expiry
F
Fair Value
Price at which theoretical future contracts should be trading above or below the leading future
contract. Fair values for stock indices are determined by differentials in interest rates and dividend
payments
Fast Market
Excessively rapid trading in a specific security that causes a delay in its electronic updating
Fill
Execution of an opening or closing order
Fundamental Analysis
Examination of a company's financials, assets, management, market niche, and products to
determine value
Futures Contract
Trading contract that specifies a future date for delivery of an object
G
Gamma
The ratio of a change in the option delta to a change in the price of the asset on which the option is
written
Gap
Where the market trades through a level specified by the client in an order. Market gaps are
common during times of volatility. Guaranteed orders protect against gapping
Gearing
The use of debt to increase exposure to high risk/reward. Gearing is also known as leverage
Guaranteed order
For a small fee you can protect an order against the risk of any market gaps
H
Hedge
A transaction that reduces risk
I
IMM
International Monetary Market
Index Futures
A futures contract on an index in the futures market
Indicators
Indices, either positive or negative, which indicate the strength and significant trends in our nation's
economy. Inflation, interest rates and employment figures are examples
Inflation
The rate at which the general level of prices for goods and services is rising
Initial Margin Requirement
Amount needed as available trading resources in your account in order to open a position. This may
be reduced by placing a stop loss on a market, where Orders Aware is available and this amount may
increase depending on the size of your spread bet or CFD trade. See Step Margin.
IPO
Initial Public Offering. Private company's first offer of stock to the public
In-the-money Option
A put option that has a strike price higher than the underlying future price, or a call option with a
strike price lower than the underlying futures price
Intrinsic Value
The value of an option if it were to expire immediately with the underlying stock at its current price
Issued Share Capital
Total amount of shares that have been issued
L
Lagging Indicators
Economic indicators that follow rather than precede a country's overall pace of economic activity
Last Day of Trading
The last day on which you can open or close a trade in a particular market. Not to be confused with
Expiry Date
LCH.Clearnet
A clearing house formed by a merger between The London Clearing House Limited and Clearnet
Leading Indicators
Economic indicators that change before the economy changes
Level Two
Live pricing system that provides market depth
Leverage
Leverage is also known as gearing. Where a position can be taken in product with only a fraction of
its value.
Liability
Debt, financial obligation, or potential loss
LIBOR
London Interbank Offered Rate
Limit order
Minimum selling or maximum buying price as instructed by the client. A limit order is an order to buy
or sell a better price to where the market is currently trading
Limit up, limit down
Price change, up or down, a product is allowed to make during one day of trading
Liquidity
A market characterized by the ability to buy and sell with relative ease
Long
Opening a buy position in expectation that the market price will rise
M
MAM
Multi Account Manager
Margin
The deposit or available credit needed on your account in order to have your positions open
Margin Call
A call from the credit department for further funds to be deposited in the account to support
additional exposure from running losses
Market Capitalisation
The number of shares of a company in issue, multiplied by its share price
N
Normal Market Size (NMS)
A system that categorizes the size of transactions that are normal for a particular security and forces
market makers to deal within these sizes
O
Offer
The price offered at which someone can buy; also called the ask
One Cancels the Other (OCO)
OCO orders you can leave two separate opening orders in the same market so that if one of them is
triggered and filled, the other is cancelled. This leaves you with just the one open position
Open position
A long or short position whose value will change with a change in prices
Option
A financial derivative instrument that gives the right to purchase (call) or sell (put) a fixed amount of
stock at a specified price and within a certain time limit.
Option writer
Also called the option seller; the party who grants a right to trade a security at a given price in the
future
Order
Buy or sell instruction given by a client to a dealer
Order Book
A term used for the SETS system employed in London. Orders to buy and sell are allowed to collect
on an order book where they can match and execute against one another
Our Quote
The dealing quote. Orders can be left based on our quote, meaning they will not be triggered or
filled until the buy or sell price hits the specific level
Out-of-the-money Option
A call option is out of the money if the strike price is greater than the market price of the underlying
security. That is, you have the right to purchase a security at a price higher than the market price,
which is not valuable
P
Partial Fill
Where the client has specified that they wish only part of their stake filled on a closing order
Par Value
Face value of a security
Portfolio
A collection of investments, real and/or financial
Power of Attorney
Authorising someone to trade on your behalf. Same as Authority to deal
Price Tolerance
Price Tolerance is the amount of slippage you are prepared to accept in order for your trade to be
executed, even if at the time of execution, the price has moved away from that selected by you. This
is commonly referred to as slippage, though the benefit of Price Tolerance is that you can control the
amount of slippage you are prepared to accept.
Put Option
A financial derivative instrument used in options trading. A put would give an investor the right, but
not the obligation, to sell the underlying instrument at a fixed price up to a predetermined date. The
opposite of a put is a call
Q
Quote
A quote will incorporate a spread which is the difference between the buying and selling price. Also
see Our Quote
R
Real Time
A real-time stock or bond quote is one that states a security's most recent price as opposed to a
delayed quote. Dealing prices update in real-time
Resistance Level
A price level above which it is supposedly difficult for a security or market to rise
Retail Investor
Small individual investors who commit capital for their personal account rather than on behalf of
another
Rights Issue
A privilege allowing existing shareholders to buy shares shortly before they are offered to the public
at a specified and usually discounted price and usually in proportion to the number of shares already
owned.
ROCE
Return on Capital Employed
Rollover
Transferring a trade that is near expiry into the next contract period
S
SEC
Securities and Exchange Commission
Sector
Used to characterize a group of securities that are similar with respect to industry
Sell
Same as taking a short position
Settlement Price
A figure determined by the closing price
Short
Opening a sell position in expectation that the market price in that underlying product will fall
Slippage
See Gap
Spot market
Market in which commodities are bought and sold for cash and immediate delivery
Spread
The difference between the buy and sell price
Step Margin
Step Margin is the process by which the amount of initial margin charged per trade may increase
depending on the size of your spread bet or CFD trade. The amount of initial margin charged for any
additional trades [within the same market]; occur at specified step margin levels.
Stop Loss Order
An order to close a position at a particular level when the price moves against you
Stop Order
An opening or closing order to buy or sell at a worse price to where the market is currently trading
Straddle
Purchase or sale of an equal number of puts and calls with the same terms at the same time
Strangle
Buying or selling an out-of-the-money put option and call option on the same underlying instrument,
with the same expiration. Profits are made only if there is a drastic change in the underlying
instrument's price
Strike Price
The stated price per share for which underlying stock may be purchased or sold by the option holder
upon exercise of the option contract
Support Level
A price level below which it is supposedly difficult for a security or market to fall. That is, the price
level at which a market tends to stop falling because there is more demand than supply; can be
identified on a technical basis by seeing where the market has stopped falling in the past
Suspended Trading
Temporary halt in trading in a particular security, in advance of a major news announcement or to
correct an imbalance of orders to buy and sell
Swing Trading
Refers to a type of short term (one day to a couple of weeks) trading, triggered by technical analysis,
for example, momentum
T
Takeover
Acquiring control of a corporation by stock purchase or exchange
Technical Analysis
Analysis of a financial market by charting its performance, using historical patterns, and focusing on
trends
Tick Size
The minimum point movement in each market
Time to Maturity
The time remaining until a financial contract expires
Time Value
Portion of an option price that is in excess of the intrinsic value, due to the amount of volatility in the
stock; sometime referred to as premium. Time value is positively related to the length of time
remaining until expiration
Trading Range
Range between the highest and lowest prices at which a stock is traded
U
Underlying Asset
The security or market that prices are based on (derived from)
V
Variation Margin
Same as open P + L e.g. any running profit from an open position can be used as additional margin.
Conversely, any running loss will need to be funded, especially if there is no stop loss in place
Volatile
Situation that changes rapidly or suffers from extreme fluctuations
W
Warrant
A derivative product that is a certificate giving authority to the holder to buy securities at a certain
price. Warrants are like call options, but with longer time spans - sometimes years
Working Order
An order that remains working until it is filled or cancelled