StreetTraders | Glossary

A

Account Deficit: A negative balance of trade or payments
Accrual: The apportionment of premiums and discounts on forward exchange transactions that relate directly to deposit swap (interest arbitrage) deals, over the preiod of each deal.
Adjustment: An adjustment can be defined as the impact of a company paying ouy dividends on the ex-date. The share price takes a slight dip because money flows out of the company and to the shareholders. The dividend adjustment occurs at the close of business before the ex-dividend date.
Appreciation: Appreciation is defined as the increase in an asset's price over time. Capital appreciation refers to the price increase of financial assets such as property, pensions, commodities, etc.
Arbitrage: Arbitrage describes the practice of buying and selling an asset in order to profit from a difference in the asset's price between markets. It is a trade that profits by exploiting the price differences of identical or similar financial instruments in different markets
Ask price: The price at which you can buy a currency pair from your broker. Often slightly higher than the bid price.
Asset: Anything that is traded in the market, such as a currency pair, index, commodity or stock.
At best: An instruction given to a dealer to buy or sell at the best rate that can be obtained at a specific time.
At or better: An instruction given to a dealer to buy or sell at a specific price or better
AUS 200: A term for the Australian Securities Exchange (ASX 200), which is an index of the top 200 companies by market capitalization listed on the Australian stock exchange.
Aussie: Refers to the AUD/USD (Australian Dollar/U.S Dollar) pair. Also known as 'Oz' or 'Ozzie'.

B

Balance of Trade: The balance of trade sometimes reffered to as the trade balance, is the difference between the value of a country's exports and the value of a country's imports over a set period. Countries that import more goods and services than they export (in terms of value) have trade deficits, and countries that export more goods and services than imports have trade surpluses.
Bar Chart: A type of chart which consists of four significant points: the high and low prices, which form the vertical bar; the opening price, which is marked with a horizontal line to the left of the bar; and the closing price, which is marked with a horizontal line to the right of the bar.
Barrier Level: A certian price of great importance included in the structure of a barrier option. If a barrier level price is reached, the terms of a specific barrier option call for a series of events to occur.
Base rate: The base rate, or a base interest rate, is the interest rate that a central bank - like the Bank Of England or Rederal Reserve - will charge to lend money to commercial banks. Adjusting the base helps a central bank regulate the economy by encouraging or discouraging spending as required.
Basing: A chart pattern used in technical analysis that shows when demand and supply of a product are almost equal. it results in a narrow trading range and the merging of support and resistance levels
Basis point: Basis points, also known as bps (pronounced 'bips'), describe the percentage change in the value of financial instruments or the rate change in an index or other benchmark. Basis points mostly refer to changes in interest rates and beyond yields. One basis point is equivalent to 0.01%.
Bear market: A bear market is any market that experiences a fall of around 20% or more from its recent high. Most commonly applied to stock markets, the term can also be used for anything that is traded, including currencies and commodities. A bear market is the opposite of a bull market
Bid/Ask spread: The bid/ask spread is the difference between a market's buy (bid) and sell (ask) price. For example, if the actual price of a market is $100, the bid price might be $101 and the ask price $99. This makes the spread $2.
Bid price: The price at which you can sell a currency pair to your broker. Usually slightly lower than the ask price.
Black box: The term used for systematic, model-based or technical traders.
Bollinger Bands: A tool used by technical analysis that consists of a band plotted two standard deviations on either side of a simple moving average. it is used to find support and resistance levels.
Bonds: A bond is a fixed-income investment that represents a loan made by an investor to a borrower (who is typically corporate or governmental). It can be illustrated as an I.O.U. between the lender and lender and borrower that includes the details of the loadn and its payments.
Broker: The company that provides you with a trading platform and access to the markets. You place your orders through them.
Buck: The word buck is a slang term for one US dollar. The word’s use traces back to 1748, forty-four years before the first US dollar became minted.
Bull market: A bull market describes any market in which prices are rising or are expected to rise imminently. Typically applied to stock markets, the term can also be used for anything that is traded, including currencies and commodities. A bull market is the opposite of a bear market.
Buy: Taking a long position on a product.
Buy dips: ‘Buy the dips’ is a phrase used in trading, referring to opening a trade on a market as soon as it experiences a short-term price fall. ‘The dip’ is quite literally a dip shown on a market’s chart when its price falls after a bullish period.

C

Cable: The GBP/USD (Great British Pound/U.S. Dollar) pair. Cable earned its nickname because the rate was originally transmitted to the US via a transatlantic cable beginning in the mid 1800s when the GBP was the currency of international trade.
CAD: The Canadian dollar, also known as Loonie or Funds.
Call option: Call options are financial contracts that give you the right, but not the obligation, to buy a market at a specific price within a specific time. The buyer of a call option can profit when the underlying market rises in price.
Candlestick chart: A candlestick chart is a type of chart used to analyze a market’s price in trading. Unlike bar charts, candlestick charts show the market’s high, low, open, and closing price within each period.Its name comes from its candlestick-like appearance, with the body resembling the candle and the lines above and below resembling the wick. Although its origin can be traced back to 18th century Japan, the candlestick chart was adopted and popularized in the US much later.Candlesticks have now become a staple of trading and are one of the most popular ways to view and track a market’s price. This is due to the extensive amount of information shown and the relative ease with which this can be interpreted. For day traders, candlestick charts are especially useful because of this abundance of information.A bar chart is similar to a candlestick chart as it shows the same information. There are some subtle differences, however, one being the bodies in bar charts are thinner than in candlestick charts.
Capitulation: Capitulation is the act of surrendering or giving up. In financial market trading, the term indicates when investors and traders have decided to stop trying to recapture lost gains or maintain their positions, due to falling or rising prices.
Carry trade: A carry trade is a strategy that involves borrowing at a low-interest rate and investing in an asset that provides a higher rate of return.Carry trades typically involve borrowing in a low-interest rate currency and converting the borrowed funds into a high-interest rate asset. The proceeds of the high-interest rate asset are then close out in the original low-interest currency.Carry trades can be used in forex, stock, commodities, or any other asset denominated in a currency with a higher-interest than your own base currency.
Cash market: A cash market is a marketplace where securities are immediately paid for and delivered at the point of sale. For example, a stock exchange is classed as a cash market – because investors receive their shares as soon as they have paid for them.Cash markets are also called spot markets, because the transactions get settled on the spot. They differ from futures markets, where buyers pay for the right to receive goods at a specific future date.Cash market transactions may take place on exchanges like stock markets or via over-the-counter (OTC) methods.Regulated exchanges offer institutional and structured protection against counterparty risks. OTC markets, on the other hand, allow the parties involved to customise their contracts.What is the difference between cash and futures markets?A cash market is where financial instruments get traded and where, for example, the delivery of stock/shares occurs. The total amount of the transaction value must be paid in cash when buying the shares.In contrast, a futures market is where only futures contracts are bought and sold on agreed dates in the future and at predefined prices.Trading in futures doesn’t involve owning shares, and no delivery occurs as the contract expires on the expiration date.Traders can trade on margin with futures, and they don’t have to pay cash at the point of sale. With futures contracts, settlement takes place on a contract’s expiration date.Futures contracts don’t have dividend pay-outs, and they’re used more for hedging, speculation or arbitrage purposes, unlike buying shares for investment reasons.
Central banks: A central bank is a financial institution with special authority to issue government-backed currency. It is often responsible for formulating monetary policy and regulating member banks. Examples of central banks include the Bank of England in the UK and the Federal Reserve in the US.
Cartist: A chartist is a trader that analyses a market’s price history to determine future price trends. A chartist will use a range of analytical tools, as well as indicators, to conduct technical analysis on a market’s price chart.Chartists look for patterns in a market’s price behavior. By identifying these patterns, chartists can then try to predict future price movement and make trades to capitalize on them. For example, they might try to identify a trend as it forms, then profit from the resulting move.A chartist’s trading strategy relies heavily, but not always exclusively, on technical analysis. Sometimes, a chartist can incorporate fundamental analysis along with technical analysis into their trading strategy.
CFD (Contract for Difference): A derivative product that lets you speculate on price movements without owning the underlying asset. You profit or lose based on the difference between entry and exit price.
Choppy market: A choppy market is when an asset’s price shows no clear trend but instead experiences many smaller fluctuations. A choppy market can occur when buyers and sellers of a market are at an equilibrium. If there is high liquidity (large trading volumes) in a market and neither bears nor bulls can dominate, the result is often a choppy market.Choppy markets are associated with rectangular price ranges. A rectangular price range is a pattern that occurs on charts that continuously hits the same support (the lower limit) and resistance (the upper limit) levels. This prevents the market from breaking out into a trend, as its price is instead confined between these two levels – creating a rectangle.Traders often look to profit from price trends, so can find it difficult to successfully trade a choppy market. Those who do trade choppy markets to try take advantage of small price movements over a short-term period, but more volatile markets are likely to present greater opportunities for most traders.
Cleared funds: Cleared funds refers to the balance in a trading account and means that these funds are ready to be traded with. Once funds have cleared, they are free from any obligation and can be used to either make a trade or be withdrawn. If funds aren’t cleared, they might be pending, which will limit what a trader can do with them.On occasion, a deposit of funds can take some time to arrive in a trading account. As a result, a $100 deposit could show up in the account but just not be cleared. At that point, restrictions on how the funds can be used are also likely to apply until the funds are fully cleared.
Clearing: The process of starting a trade.
Clearing house: A clearing house is an organization, institution or third party that settles a financial obligation between a buyer and seller. It’s the job of a clearing house to ensure that all parties in a financial transaction honor the agreements that they’ve committed to and settle them as such.Clearing houses ensure that transactions run efficiently. The buyer receives what they paid for, and the seller receives the amount of money agreed on for the sale.The idea of a clearing house has been around for centuries. Various forms existed in Japan, Italy and France before the first modern-day clearing house as we know them was established in London in 1773.They make up an integral part of financial ecosystems and play a vital role in instilling financial stability.
Closed position: A closed position is a trade that is no longer active and has been closed by a trader. To close a position, you need to trade in the opposite direction to when you opened it.For instance, if you take a long position on a stock, you will have to sell an equal amount of stock to close your position. Once a position is closed, it cannot be reopened. At the point of closure, any profit or loss is realized, and your account balance will be updated accordingly.Closing a position is not always a manual task. Stop-loss and take-profit orders, for example, automatically close your position if a market’s price falls or rises to a certain level.
Closing: The process of stopping (closing) a live trade by executing a trade that is the exact opposite of the open trade.
Closing price: A closing price is a market's final price level before it closes for the day. A market's closing price is used as the price level shown on a typical line chart.Closing prices are the benchmark used to measure a market's daily performance. A market's price can fluctuate during the day, but a close price is a fixed number that can not only be compared with previous close prices, but also compared with close prices of other markets.
Collateral: Collateral is something pledged as security for the repayment of a loan, which can become forfeited in the event of loan default. Examples of collateral include real estate, vehicles, cash, and investments.
Commodity trading advisors: A commodity trading advisor (CTA) is a type of financial advisor that only supplies advice on commodities trading: typically the buying and selling of futures contracts, commodity options or swaps.US commodity trading advisors must be certified. Registration requires CTAs to advise on all forms of commodity investments.To register as a CTA, the applicant must pass proficiency requirements, such as the Series 3 National Commodity Futures Exam – although alternative tests can also prove proficiency. CTA finance explained: Investments in commodities can involve significant leverage, requiring a high level of expertise. Regulations came in from the 1970s onwards to help avoid the potential of substantial losses for firms and individuals, including moves to regulate CTAs.A CTA fund is a hedge fund that uses futures contracts to reach its investment targets. CTA funds typically use various trading strategies to meet their investment goals, such as automated and trend-following systems.Some fund managers might apply discretionary strategies, such as fundamental analysis, combined with systematic trading methods.These fund managers run different strategies using futures, options on futures contracts and FX forwards. CTA funds were originally commodity-focused, but they’ve now expanded their expertise to invest in all futures markets: including commodities, equities and currencies.
Commission: A fee charged by some brokers on each trade, in addition to the spread.
Components: The dollar pairs that make up the crosses (ie EUR/USD and USD/JPY are the components of EUR/JPY). Selling the cross through the components refers to selling the dollar in alternating fashion to create a cross position.
COMPX: Symbol for NASDAQ Composite Index
Confirmation: A document sighed by counterparts to a transaction that states the terms of said exchange.
Consolidating market: In technical analysis, a consolidating market is a market that is neither continuing nor countering a long-term trend. Instead, its price is only experiencing rangebound price activity.This is also seen as market indecisiveness. A market’s price during a period of consolidation will still fluctuate, but it won’t break out of a certain price range. As soon as the market breaks out and moves either above or below the stagnant trading pattern, the period of consolidation ends.Sometimes a market’s trend will reverse after a continuation. This is known as a transition. For example, if EUR/USD consolidates after an uptrend then experiences a selloff, it has transitioned from bullish to bearish.Many successful trading strategies involve identifying and capitalizing on consolidation periods. The aim is not necessarily to trade the consolidation itself, but rather anticipate the market’s next move and benefit from entering the market early before the next move comes. One way to do this is by identifying bullish or bearish flag formations.
Consolidation: A period of range-bound activity after an extended price move.
Construction Spending: Construction spending is the amount of money the government or businesses have spent on construction, labor, and materials over a monthly period. This can refer to either residential and non-residential construction and includes engineering costs. Residential construction refers to the construction of housing and other forms of accommodation. This is significant to traders as the housing market can often reflect the economic health of a country.Non-residential construction refers to businesses and corporations spending money on infrastructure like new factories, offices, or branches. Non-residential construction has an even stronger correlation with economic performance as gross domestic product (GDP) is derived from the output of these businesses, which is a direct measure of economic strength.Although construction spending is not the strongest economic indicator, its relation to GDP makes it significant to traders. If construction spending is high, this implies economic growth as new infrastructure is being built – increasing the capacity of an economy.
Contagion: The tendency of an economic crisis to spread from one market to another.
Contract Size: Contract size is the deliverable amount of a market that makes up a futures or options contract or spot forex. These vary between markets and assets.For instance, in forex the standard size of one contract is typically 100,000 units of the currency. Whereas for stocks, the typical size of a futures contract is 100 shares.A benefit of having contract sizes is that traders and investors know how much of a market they trading are. The size of the contract is a definitive quantity that is often standardized across the board, meaning regardless of the broker, the size of one contract for a market is usual the same.It’s crucial to know the size of the contract you are trading as this will help you know exactly how much exposure you have. This is also significant when thinking about risk management, as you’ll need to know how much you might potentially lose based on the amount you are trading.
Contracts for difference (CFD): A contract for difference (CFD) is a financial contract in which you agree to exchange the difference in the settlement price between the open and closing trades on a particular asset. CFDs enable traders and investors to speculate on whether a market will go up or down, and profit from the price movement without owning the underlying asset.
Controlled risk: Controlled risk is where the amount of risk on a trade is capped at a certain level, typically through a guaranteed stop-loss order. This enables you to set the maximum possible amount you can lose on a trade, giving you full control of your risk.A guaranteed stop is a stop-loss order that you set at a price level of your choosing. Once the price of the market you’re trading hits the level of the guaranteed stop, your position is automatically closed out. Using guaranteed stops to control your risk are effective as, unlike regular stops, they close out your position regardless of market slippage or gapping.
Convergence of mas: A technical observation that describes moving averages of different periods moving towards each other, which generally forecasts a price consolidation.
Corporate action: A corporate action is an effort made by a public company to alter or change its securities (equity or debt). Corporate action is agreed on by the company’s board of directors with authorization from shareholders.For most events, shareholders and/or bondholders get to vote on corporate action proposals.
Corporates: Refers to corporations in the market for hedging or financial management purposes. Corporates are not always as price sensitive as speculative funds and their interest can be very long term in nature, making corporate interest less valuable to short-term trading.
Counter currency: The second listed currency in a currency pair
Counterparty: A counterparty is any other party who participates in a financial transaction. Every transaction must have a counterparty for the deal to become completed. Buyers need pairing with sellers, and vice versa.Counterparties can be individuals, businesses, governments, or any other organization.
Country risk: Risk associated with a cross-border transaction, including but not limited to legal and political conditions
CPI (Consumer Price Index): CPI stands for Consumer Price Index. It is the most popular reference for day-to-day inflation. CPI gets calculated as a measurement of price change using a weighted average basket of consumer goods and services purchased by households.
Crater: The market is ready to sell-off hard.
Crown Currencies: Refers to CAD (Canadian dollar), Aussie (Australian dollar), Sterling (British pound) and Kiwi (New Zealand dollar) - countries off the Commonwealth.
Cup and Handle: The cup and handle is a technical analysis pattern that got its name by resembling a tea cup. It features candlesticks that resemble a shallow, rounded saucer with a downward trending handle extending from the cup’s righthand side. The formation can occur over a timeframe as short as several weeks up to an entire year.
Currency: Currency is the money underpinned by the legal tender system unique to a particular country or economic area. Currency gets used as a medium of exchange for goods and services.Currency in the form of paper or coins gets issued by governments and central banks, and is usually accepted at face value as a payment method.
Currency pair: A currency pair is a price of the exchange rate for two different currencies in FX markets: They are known as the base currency and the quote currency. The exchange rate of a currency pair indicates how much of the quote currency is needed to purchase one unit of the base currency.
Currency risk: Currency risk is the danger of losing capital due to changes in forex prices. In the context of trading, this is the risk to a trader’s portfolio if currency markets experience strong price changes.Trading forex itself can be risky, but it’s not just the forex markets that can be directly affected by currency risk.Due to the interconnectivity of the financial markets, a significant price change in one currency can impact several other currencies, or even other markets such as shares, indices or gold. Imagine you’ve bought gold in USD. If a Federal Reserve interest rate decision causes a depreciation of the dollar, your position would profit as a result of currency risk. This is because gold is a safe-haven asset that’s invested in during times of volatility or market uncertainty due to its intrinsic value.
Currency symbols: A currency symbol is a graphical representation of a currency’s name, often used when referring to an amount of money. Currencies like the US dollar ($) and the British pound sterling (£) are immediately recognized throughout the world by their symbols.In forex trading, you may also see three-letter codes used to abbreviate a currency. This shorthand often appears in international markets instead of using formal currency names.
Current account: The current account records a nation’s global transactions such as imports and exports of goods and services, payments to and from investments abroad, and transfers such as foreign aid and remittances. Together the current account and the capital account make up a nation’s balance of payments.

L

Leverage: Borrowed exposure that lets you control a larger position with a smaller amount of capital. Leverage magnifies both profits and losses.
Lot: A standardised position size in forex. A standard lot is usually 100,000 units of the base currency; mini and micro lots are smaller.

M

Margin: The amount of money your broker locks as a deposit to open and hold a leveraged position.
Margin call: A warning or automatic action from your broker when your account equity falls too close to the required margin, often leading to positions being closed.

P

Pip: “Percentage in point” – the standard unit of movement in forex prices. For most pairs one pip is 0.0001; for JPY pairs it is 0.01.
Pip value: The monetary value of one pip movement for your position size. It depends on the pair and lot size.

S

Spread: The difference between the bid and ask price. It is one way brokers are compensated for facilitating trades.
Slippage: When your order is filled at a different price than requested, often during fast markets or low liquidity.
Stop loss: An order that automatically closes a trade at a predefined price to limit potential loss.

T

Take profit: An order that automatically closes a trade at a predefined price to lock in profit.
Trend: The general direction in which price is moving over a chosen timeframe: uptrend, downtrend or ranging.