In our Trading vocabulary, you will find all the terms that will help you orient yourself in the world of trading.
A contract for difference (CFD) is a contract between a buyer and seller that stipulates that the buyer must pay the seller the difference between the current value of an asset and its value at contract time. CFDs allow you to use leverage.
When opening a position and choosing option “buy”, trader predicts that the instruments price will rise. If it rises, trader creates profit and if it falls, trader creates loss. Term applying to this is long position.
When opening a position and choosing option “sell”, trader predicts that the instruments price will fall. If it falls, trader creates profit and if it rises, trader creates loss. Term applying to this is short position.
When you want to realise profit or loss (exit the market/trade), one should click close position. It means, trader will no longer be included in given trade.
Hedge is a strategy, in which trader opens counter position, if the market starts going against him. With this, one can minimize the risk.
Bid refers to the highest price a buyer will pay to buy a specified number of shares or instruments at any given time.
The term ask refers to the lowest price at which a seller will sell the stock or an instrument. Another name for it is also offer price.
Spread is the difference between buying and selling price. It will indicate the minus you will start at when opening position.
Taking your funds and using leverage to optimise your earning potential, and of course loss. Example: you have 1.000€ to trade but want to increase potential return. Broker offers leverage 25:1. With their backing you could manage to open a position worth up to 25.000€, with only 1.000€ you have.
The amount of money you need to open a position and at the same time, amount of money that is being invested in open trades.
The amount of money, that is available for future investments and coverage.
Margin call occurs when an investors free margin falls below 0. Or, when margin level falls below 100%.
Formula for it is Equity divided by Margin times 100. When it falls below 100%, you are in so called margin call.
If you have open positions, but lack free margin or equity to cover them, at certain percentage level positions will automatically close.
Function that allows you to automatically close the open position at certain point, when in loss, to prevent you from bigger loss.
Function that allows you to automatically close the position when it reaches desired amount of profit.
Many brokers offer negative balance protection, which means that in the worst-case scenario, you cannot lose more than what you have on account.
Volatility is a statistical measure of movement. The higher the volatility, the greater the risk. However, it can also bring you bigger profit or loss.
Liquidity refers to the efficiency or ease with which an asset can be converted into ready cash without affecting its market price. The most liquid – traded asset of all is cash.
This term applies to the markets, that are mostly or in this moment falling.
This term applies to the markets, that are mostly or in this moment rising.
The interest rate is the amount of a lender charges a borrower. The interest rate on a loan is typically noted on an annual basis. You have met with it if you have borrowed some money from the bank.
Foreign exchange trading, which offers you wide range of currency trading, such as EUR against USD, GBP against JPY, etc.
Commodity instruments, such as oil, gold, silver, aluminium etc. Since you are trading CFDs, you do not physically own them.
Indices follow success of companies in given country. If they perform well, index goes up if they don’t, index falls. Example: S&P500 follows 500 American companies, DAX follows 40 German companies, etc. Since you are trading CFDs, you do not physically own them.
Stocks or shares belong to the company. When buying some, you become shareholder and you are entitled to dividends. Since you are trading CFDs, you do not physically own them and cannot attend meetings etc.
Stock or shares belong to the company. When buying some, you become shareholder and you are entitled to dividends, you can attend meeting if you have enough of them etc. Physical stocks do not allow you to use leverage, meaning trader needs to pay the full price.
In investment world, the term FAANG is for package of five prominent American technology companies: Meta (formerly Facebook), Amazon, Apple, Netflix, and Alphabet (formerly Google).
IPO refers to the process, when company decides to put their stocks to the market, so it can be accessible to the public. It allows a company to raise funds for expansion of their business or to cover debts.
Dividend is the distribution of some of a company’s earnings to their shareholders, as determined by the company’s board of directors. Some of them pay dividends once a year, and some quarterly. However, with quarterly paid dividends, the amount of yearly is divided into 4 pieces.
Yield refers to the earning generated and realized on an investment over particular period. It includes the amount of dividend pay-out.
Earnings per share are calculated as a company’s profit, divided by the outstanding amount of its shares – stocks. The EPS then serves as an indicator of a company’s profitability.
Stock split happens, when company decides that their price of a stock is too high, so they split on stock in 4 for example. With it the price of a stock is divided by 4. Company decides for this move to attract bigger range of investors – students, younger people, etc.
Market capitalisation shows us the total dollar market value of a company or an asset. It is commonly referred also as market cap. It is calculated with the price of a stock multiplied with the among of them.
Stock exchange is an exchange, where stockbrokers and traders can buy and sell securities, such as shares of stock, bonds and other financial instruments.
Financial statements are written records of business activities and financial performance of a company. They are used in earning reports.
Earning reports happen every quarter of the year when companies announce their profits and revenues or loss.
Trading hours is a period when trader can trade certain instrument. Session depends on the stock exchange something is listed on.
Even when market is closed, prices of stocks, commodities etc. can go up or down, depending on the information from the world.
Fundamental analysis is a research of the market, based on the news from the world. It is research of economic events, such as macrodata, geopolitical events, etc.
Technical analysis is based on the movement of the chart and prices. One can apply different indicators, oscillators etc.
This strategy is used by investors, who put their assets to more different instruments, possibly from different sectors. Meaning, you do not put all money on only one thing.
Exchange rate is used to exchange currencies. It is used in forex. You have probably met with it on a bank if you went there to exchange your currency into foreign one.
CPI is a measure that examines the weighted average of prices, including goods and services – transportation, food, and medical care. It is one of the main indicators of inflation.
GDP is the total monetary or market value of all the finished goods and services, that are produced in the same country in a specific period.
Inflation is the decline of purchasing power of a given currency over time. In other words, person can afford less with the same amount of money as when inflation was lower.
Deflation is the increase of purchasing power of a given currency over time. In other words, person can afford more with the same amount of money as when deflation was lower. However, it is bas for economy.
Recession is a significant decline in general economic activity in a designated region – country. Usually, it is recognised by two quarters of economic decline – reflected by GDP and rising unemployment.
Business cycles are a type of fluctuation found in the aggregate economic activity of different nations. It consists of expansion followed by similarly general recessions. This are recurrent, but not periodic.