A  |
| Arbitrage | Taking advantage of a difference in price between two markets for the same asset. |
| Ask | Same as Offer. |
B |
| Base currency | "The first currency in a foreign exchange quotation. For example, in EURUSD the Euro is the base currency." |
| Bear/Bearish/Bear market | "A bear is someone who expects a market to go lower (prices to go down), they are therefore bearish and think that we are in a bear market." |
| Bid | When market-makers quote a price they will always quote two prices - the price at which you can buy (which is the higher price) and the price at which you can sell to them (the lower of the two prices). The lower price is called the bid price. |
| Bid/offer spread | The difference between the bid price and the offer price. |
| Bill of exchange | A signed order requiring the person to whom it is addressed to pay a sum of money to a specified person. A normal cheque (US: check) is an example of a bill of exchange. |
| Blue Chip | A well established company with high creditworthiness that represents a low long-term investment risk. (Not the same as a low short-term trading risk!) |
| Bond holder | A person or organisation that owns a bond. |
| Bond issuer | "An organisation, usually a company or government, that raises money through borrowing money in the form of a bond." |
| Broker | "A firm that executes buy and sell orders for clients, charging commission. A brokerage acts as an agent, not a principal, meaning that they do not stand to profit from the losses of traders." |
| Broker-dealer | "A firm that acts as either a broker or a dealer, depending on the transaction. As a broker the firm acts only as an agent and does not profit from the success or failure of the trade; as a dealer the firm does profit or lose from this success." |
| Bull/Bullish/Bull Market | "A bull is someone who expects a market to go higher (prices to go up), they are therefore bullish and think that we are in a bull market." |
C |
| Capital | Another word for money. |
| Capital stock | The common and preferred stock issued by a company. |
| Cash Market | Same as Underlying. |
| Central Bank | A central bank supervises the monetary system for a country or group of countries (eg the European Central Bank). Responsibilities vary, and may include controlling the supply of money, issuing currency, currency stability, control of inflation, supervising commercial banks, and acting as a lender of last resort with the aim of stabilising the financial system. |
| Correlation | "A statistical measure to show how interdependent two series of numbers are; that is, how a movement in one number series relates to a movement in the other number series. " |
| Correlation coefficient | A number between -1 and 1 used to show correlation between two series of numbers. |
| Counter currency | "The second currency in a foreign exchange quotation. For example, in EURUSD the Dollar is the counter currency." |
| Counterparty | Either the buyer or the seller in a financial transaction. |
| Cover | "To buy back a short position or sell out a long position. After you have covered, your position is zero and you are said to be flat." |
| Credit | Money that is credited to your account is money that is paid to you. |
D |
| DAX 30 | The stock market index of the 30 largest German stocks. |
| Debit | Money that is debited from your account is money that you have to pay. |
| Derivative | "A financial product whose value is derived from the value of another instrument. For example, the value of a CFD is derived from the underlying share upon which it is based." |
| Divergence | When a market price and a technical indicator based on that price move in opposite directions they are said to diverge. |
| Diversificaton | Spreading risk to ensure that single events do not have a large and devastating effect on a trading account. |
| Dividend | "A payment made by a company to its shareholders. Long CFD positions are credited with the dividend (paid this amount) as if they held the underlying shares, while short CFD positions get debited (charged this amount)." |
| Dow Jones Index | "The stock market index of the 30 largest US industrial stocks, often used as a bellwether for the US blue chip stocks." |
| Draft of exchange | See Bill of Exchange. |
| Drawdown | The amount of decline from a peak value. In the case of a trading account, this would be the amount of money lost after one or more losing trades. |
E |
| Edge | The difference between the number of winning and losing trades that can be expected from a trading method: a system with 55% winning trades and 45% losing trades has a 10% edge. |
| Empirical research | Research which uses observations of what actually happened in practice in order to draw conclusions, rather than on purely theoretical reasoning. |
| Entry point | The price and time at which a trade is entered. |
| Event risk | "The risk associated with a significant and unexpected event, such as an earthquake, or a takeover bid." |
| Equities | Another term for stocks (shares). |
| Execution | "When an order to buy or sell shares is carried out, the order is said to be executed." |
| Exposure | If a trader has an open position (long or short) in a market he is said to be exposed to that market. |
| Eventual Ruin | Losing enough money to be forced to cease trading. |
F |
| Federal Reserve | Also known as the Fed, the central banking system of the United States of America. |
| Fill | "The price at which an order is completed or executed. Therefore, a common expression is also that an order has been “filled” when the trade is executed." |
| Flat | When a trader does not have a position (long or short) in a certain market he is said to be flat. |
| Flotation | "Same as an IPO, a flotation is the initial public offering (ie the first time of being offered to the public) of a company's shares or securities on a regulated exchange. " |
| Forward market | A market where contracts are made for delivery of goods at a specified future date at a price agreed today. |
| Free Float | "The float is used to describe the shares of a company that are freely traded on an exchange, as opposed to the shares which are not publicly traded. When a company lists only 60% of its shares then it has a free float of 60%." |
| FSA | The Financial Services Authority. The government appointed authority responsible for regulating the financial markets in the UK. |
| FTSE | "Financial Times Stock Exchange, the body that compiles the most widely followed stock indices for the UK market." |
| FTSE 100 | The index of the UK's largest 100 publicly quoted companies by market capitalization. |
| FTSE 350 | The largest 350 publicly quoted companies by market capitalization in the UK; simply a combination of the FTSE 100 and the FTSE Mid 250. |
| FTSE Mid 250 | "The index of the next largest 250 companies below the top 100, used to gauge the market for medium sized publicly quoted companies" |
| Fundamental analysis | "Determining the value of a company or other asset by considering its business potential: looking at financial statements, management, markets and competitors, etc." |
| Fungible | "Assets that are identical in quality and are interchangeable. For example, cash is fungible since one ten pound note is the same as any other." |
| Futures market | A market that deals in assets for delivery on a date in the future. |
G |
| G7 | A group of seven industrialised nations, in alphabetic order, Canada, France, Germany, Italy, Japan, United Kingdom and the United States of America. |
| Gap through | When a market opens or trades beyond the specified level of a market or stop order without actually trading at the price of the order. |
| GBP | "Great British Pounds, or Pounds Sterling." |
| Gearing | Same as Leverage. |
| Grey market | "Quotes in an instrument where there is no official underlying market, for example, there is often gray market trading in shares in large or famous companies before their Initial Public Offering." |
H |
| Hedge fund | An investment fund for non-retail investors which seeks to use sophisticated trading strategies to generate high returns. |
I |
| Idiosyncratic risk | "The risk specific to an individual share or other asset, such as an unexpected earnings announcement. This risk can be reduced with diversification." |
| Illiquid | A market that trades with very little volume. Prices in illiquid markets can be moved disproportionately by small orders resulting in large amounts of slippage. |
| Initial margin | The size of the deposit that is required to trade a specified position. |
| Initial stop loss | The price level at which a stop loss order is set when the trade is initially entered. |
| Insider trading | The use of any price sensitive information that is not public knowledge for financial gain. Insider trading is a criminal offence in most jurisdictions. |
| Instrument | "Any type of market, eg stocks, bonds, currencies, etc. " |
L |
| Leverage | "Making money work harder by only putting up a percentage of the total amount required. Getting leverage on your capital is achieved by trading on margin, with the margin amount being the money that you are required to have in your account in case the trade moves against you. For example, a trade for £5,000 of the underlying that requires a 10% margin of £500 will have leverage of 10 to 1. Leverage magnifies profits and losses and can lead to losses greater than the total capital in an account." |
| LIBOR | "London Interbank Offered Rate - A rate of interest calculated daily, based on the interest rates at which banks will lend money to other banks in the London wholesale money market. Used for reference when calculating financing charges on CFDs." |
| Linear relationship | A relationship between two series of numbers that could be illustrated on a graph by a straight line. |
| Liquid | "The more liquid an asset, the more likely it is to be bought or sold rapidly, without moving the market price, at any time when the market is open." |
| Log-normal distribution | "A statistical model, often shown as a graph, for how stock market prices are believed to be distributed." |
| Long | "To buy CFDs, also called to hold a long position. You think the market will rise (prices will go up)." |
M |
| Macroeconomic conditions | "The wider economic situation of a country or the world, including interest rates, inflation, employment figures, etc." |
| Margin | Borrowing money from a brokerage or market maker in order to buy or sell securities. Trading on margin allows profits or losses to be magnified. |
| Margin Call | A demand made by a broker or market maker for a trader to deposit more money with them in order to meet the minimum margin requirement on a trade that is losing money. If the margin call is not met with more funds, the position will be closed and further losses could be incurred. |
| Margin Requirements | ONLY THE WORD MARGIN SHOULD BE GLOSSARIED HERE, NOT MARGIN REQUIREMENTS. |
| Market capitalization | The value of the outstanding shares of a publicly listed company. It is calculated by multiplying the number of shares issued by the current share price. |
| Market clearing price | The price at which supply and demand are equalised. |
| Market Maker | A firm which quotes a buy and sell price in a market. Unlike with a brokerage, if you trade with a market maker then your profits are the market maker's losses, and vice versa. |
| Market risk | See systemic risk. |
| Mean | "The average of a group of numbers, found by adding all the numbers and dividing by how many numbers are in the group." |
| Modern Portfolio Theory | Seeks to explain how rational investors should use diversification (having several open positions) to optimise their portfolios for maximum return and minimal risk. |
| Momentum | The rate of acceleration or slowing down in a market price. |
N |
| Net change | The difference between the closing price of an instrument from one trading day to the next. Net change can be positive or negative. |
| Net position | "If a portfolio has 5 long positions and 3 short positions open at a time, its net position is 5 - 3 = net 2 long positions." |
| New issue | A stock that is being offered to the market for the first time. |
| Net Losses | A series of four net losses means any series of trades where there are four more losses than wins, such as 6 wins and 10 losses, in any order. |
| Normal distribution | A bell-shaped curve which describes how a series of numbers is distributed. For example, the height of 1,000 men would follow a normal distribution, with a mean (average) of around 5 feet 8 inches and very few points below 5 feet or above 7 feet. |
| Notional Trading Requirement | Same as Margin |
O |
| Offer | When market-makers quote a price they will always quote two prices - the price at which you can buy (which is the higher price) and the price at which you can sell to them (the lower of the two prices). The higher price is called the ask price. |
| Offsetting Trade | "A trade that cancels a previous action, so after buying 500 CFDs in a certain market the offsetting trade would be to sell 500 CFDs in the same market." |
| Open position | "A position that you hold on your account that has not been closed out (exited). When you have just entered a trade, you now have an open position." |
| Oscillator | A type of technical indicator that moves between two extreme values. |
| OTC | See Over-the-counter market. |
| Over-the-counter market | "A financial market that traded directly between two parties, rather than through an exchange." |
P |
| P&L | Abbreviation of Profit and Loss, the amount of money that was made or lost on a trading account in a given period. |
| Principle | A person or firm who stands to gain or lose as a result of a trade. For example, if you are trading with a market maker and your profits are the market maker's losses, the market maker is a principle to the trade. |
| Profit target | "An amount of profit, met when a market reaches a certain price, at which a trade may be exited." |
| Profits warning | An unexpected announcement of negative news in relation to a company’s profit expectations. |
| Promissory note | "A promise to pay a definite sum of money to a payee, either on a given date or upon request." |
R |
| Random walk | "From the Efficient Market Hypothesis, the random walk theory claims that prices move randomly." |
| Redemption request | "The return of an investor's principal, the amount originally invested." |
| Resting order | An order that is being held by a broker or market-maker prior to being executed. |
| Retail trader | A private individual who trades using his own money (as opposed to a trader inside a bank). |
| Retail investor | A private individual who invests using his own money (as opposed to an investor who works for a fund management company). |
| Rights issue | An offer by a company to existing shareholders to buy additional shares. The offer is normally proportional to the existing shareholding and at a discounted from the prevailing market price. |
| Risk-adjusted return | The amount of risk a portfolio takes on when earning its returns. Obviously the less risk the better. |
| Rolling forward contracts | "A contract that is settled a fixed number of days into the future based on today's date, rather than on a fixed date that never changes." |
S |
| SEC | The Securities and Exchange Commission. The government appointed authority responsible for regulating the financial markets in the USA. |
| Secondary offering | A further issuing of stock after the Initial Public Offering (IPO). |
| Securitised | Debts that are bundled up in such a way that they can be resold are said to be securitised. |
| SETS | SETS is the Stock Exchange Electronic Trading System. It is the system used for trading in UK listed shares. |
| Short | "To sell CFDs, also called to hold a short position. You think the market will fall (prices will go down)." |
| Sideways | When a market is not clearly trending upwards or downwards it can be said to be moving sideways. |
| Size | "The amount of shares, CFDs, forex, etc that can be traded on the bid or offered side." |
| Slippage | "The difference between the price at which you expect to buy or sell, and the price at which your trade is actually filled. In a fast-moving market there is additional risk of slippage." |
| Spot market | A market in which goods or bought and sold for cash and for immediate delivery. Physical delivery does not take place for speculative traders. Also called the cash market or physical market. |
| Spread | The difference between the bid and offer price. |
| Stamp duty | A UK government tax levied on the trading of shares (but not on the trading of CFDs). |
| Standard deviation | A statistical measure that looks at how widely spread from the mean value (the average) a series of numbers is. Found by taking the square root of the variance. |
| Stop loss | "A trading order than exits a failed trade when a certain price is met, meaning that a certain known loss has been incurred." |
| Subordinated debt | Debt that is not first in line to be paid back if the borrower cannot meet his debt obligations. |
| Supranational bonds | "Bonds issued by institutions larger than a single country, such as the World Bank or the European Investment Bank (EIB). They are regarded as being very safe investments, similar to government bonds." |
| Swing high | A highest price of the day (or period) on a bar chart or candlestick chart that is higher than the high point of the periods which surround it. |
| Swing low | A lowest price of the day (or period) on a bar chart or candlestick chart that is lower than the low point of the periods which surround it. |
| Systemic risk | "The risk of the market as a whole, sometimes known as market risk. This type of risk cannot be diversified away." |
T |
| Targeted Risk Per Trade | The amount of risk per trade that we wish to take. In other words, if the trade goes wrong, the maximum amount of money that we wish to risk losing. The targeted risk per trade cannot always be met precisely, due to gaps in market prices or slippage, where orders are not executed at the exact price required. |
| Technical analysis | "Determining price trends of an asset by considering previous price data, often by using charts." |
| Tick | The smallest upward or downward movement in a market price. |
| Ticker Symbol | Most markets have a short symbol to allow them to be quickly identified. For example, Microsoft has the ticker symbol MSFT. |
| Time deposit | Money held for a fixed term on the condition that the depositor can only withdraw the money after giving a specified period of notice. |
| Trade Units | "When allocating capital to trades, the number of trade units is the number of equal amounts into which the initial capital is divided." |
| Trailing stop | "A stop-loss order, to restrict the amount of money that can be lost, that moves as a trade becomes more profitable, to lock in any profits." |
| Treasuries | A bond (debt security) issued by the US Government. |
U |
| Underlying | "The market for the underlying instrument on which the CFD is based. For example, a CFD based on the price of the FTSE 100 has the FTSE 100 as its underlying." |
V |
| Variance | "A statistical measure that looks at how widely spread from the mean value (the average) a series of numbers is. Found by taking the difference of each number from the mean of the group, then squaring each result, then calculating the mean of the squared results." |
| Volume | The number of shares or contracts traded by the market as a whole in a given time period. |
