Glossary

Our glossary of trading terms will help you get to grips with investment jargon.

Accrued interest

Interest due to be credited or charged, but not yet posted to the account.

Ask price

Otherwise known as the Offer price, the Ask price is the price at which Spread Co is willing to sell the asset to the Client. The Ask price is the price at which the client can buy the contract.

Audit trail

A recorded trail of transactional or performance based activity that allows reconstruction of how events unfolded.

Back office

The department within Spread Co responsible for all the administrational and processing activity relating to trading.

Base currency

The currency in which the underlying instrument is quoted.

Bear

A person who believes that prices will decline.

Bear market

A market characterised by declining prices.

Bid price

The price at which Spread Co is willing to buy the asset (or in FX base currency). The price at which the client will be selling the asset (or in FX the base currency) also sometimes referred to as the “sell price”.

Bull

A person who believes that prices will rise.

Bull market

A market characterised by rising prices.

Business day

A measurement of time that typically refers to any day in which normal business is conducted. This is generally considered to be Monday through Friday from 9am to 5pm local time, and excludes weekends and public holidays. Within the securities industry, any day the financial markets are open for trading is considered to be a business day.

Cable

Common term for the Sterling / US Dollar exchange rate.

Cash market

The market for the purchase and sale of the underlying instrument in exchange for cash.

CFD (Contract For Difference)

An agreement between two parties to settle, in cash, the difference between the price at which one party buys a contract (e.g. a contract on the Dow Jones Index) from another party and the price at which that party then sells the contract back to the other party.

Contingent Order

An order that only becomes active once a primary order has been executed. It is an order that is dependent on another outcome.

Convertible currency

Currency which can be freely exchanged for other currencies without special authorisation from the appropriate central bank.

Counterparty

The other party to a contract or transaction.

Cross rate

Exchange rate that does not involve the US Dollar.

Daily settlement

Daily cash settlement of the profits and losses arising from the price difference between the previous day's closing prices and the current day's closing prices.

Day trading

Refers to opening and closing the same position or positions within the same trading day.

Derivative

Financial instrument whose value is based on an underlying financial instrument.

Discount

Cheaper than the spot price, e.g. forward discount.

Dollar rate

The Dollar rate is when a variable amount of foreign currency is quoted against one unit of the US Dollar.

ERM

Exchange Rate Mechanism (ERM) is part of European Monetary System (EMS) to reduce exchange rate variability and achieve monetary stability in Europe.

Exchange rate depreciation

Currency which loses in value against one or more other currencies, especially if this happens in response to natural supply rather than by an official devaluation.

Exchange rate risk

The potential loss that could be incurred from a movement in exchange rates.

Fed funds rate

Interest rate at which US Banks can refinance themselves with the Federal Reserve Bank (US Central Bank equivalent).

FIFO

First in first out - the methodology at which multiple buy and sell transactions are ordered.

Fixed exchange rate

Fixed exchange rate is a type of exchange rate regime where a currency's value is matched to the value of another single currency or to a basket of other currencies.

Floating exchange rate

When the value of a currency is decided by supply and demand and is traded openly on the forex markets.

Forex

An abbreviation of foreign exchange.

Forward points

The interest rate differential between two currencies expressed in exchange rate points. The forward points are added to or subtracted from the spot rate to give the forward or outright rate.

Fundamental analysis

Analysis based on economic factors.

Gearing

Financial Leverage.

GTD "Good till date" order

An order left with Spread Co to buy or sell at a fixed price that holds only until a particular date.

GTD “Good till date” order

An order left with Spread Co to buy or sell at a fixed price that holds only until a particular date.

Hedging

A hedging transaction is one which protects a position against a fluctuation by taking an equal but opposite transaction in a similar or identical instrument in the same or similar instrument in another market. It is a transaction that offsets or reduces the risk to a particular instrument.

Initial margin

The initial deposit required by Spread Co before a Client can transact a deal of a specific size on a particular instrument.

Interest rate risk

The potential for losses arising from changes in interest rates

Leverage

The effect produced when a client can take a large position in a financial instrument with a minimal investment.

LIBID - London Interbank Bid Rate

The interest rate at which banks are willing to borrow from each other.

LIBOR - London Interbank Offered Rate

LIBOR is a daily reference rate based on the interest rates at which banks offer to lend funds to other banks in the London interbank money market.

Limit order

The client specifies a price and the order can be executed only if the market reaches that price

Liquidation

Forced unwinding of open positions to convert to cash.

Liquidity

A measure of the availability of how many units of a particular financial product can be bought or sold without causing a major change in price.

Long position

A position where the client has bought an asset he does not already own. In forex it can be a currency he does not already own. Normally expressed in base currency terms, e.g. long Dollars (short Japanese Yen).

Margin

Margin is the cash or collateral that is required to post to cover the value of the position.

Margin call

When the margin posted is below the minimum margin requirement, Spread Co issues a margin call. The investor either has to increase the margin by additional funds or he can reduce or close out his positions.

Mark to market

Real time calculation of valuation of a position based on current price of the underlying asset.

Market maker

Spread Co is a market maker as it is constantly quoting buy and sell prices for all the instruments traded with Spread Co

Maturity

Date for settlement.

Mid rate

The arithmetical mean between the bid and offer price. This rate is often used for approximate valuation purposes.

Netting

Offsetting of long and short positions in the same instrument - thereby creating a “net” position.

Offer price

The rate at which Spread Co is willing to sell the underlying asset (or in forex the base currency) also sometimes referred to as the “buy price".

One Cancels Other Order (OCO)

Where the execution of one order automatically cancels the other order.

Open position

Any deal which has not been settled by physical payment or reversed by an equal and opposite deal for the same value date.

OTC - Over The Counter

Term often used to describe off-exchange related trading.

Overnight position

Position held open at the end of the trading day and carried forward to the next trading day.

Pip/point

Smallest unit of measurement for exchange rates.

Premium

Margin is the cash or collateral that is required to post to cover the value of the position.

Principal:

The counter-party that sells and buys currencies for his own account as opposed to a broker who introduces a buyer to a seller and vice versa..

Realised profit or loss

The profit or loss applied to the account as a result of the disposal of the position in a particular instrument.

Resistance

A price level at which you would expect selling to take place.

Resting order

Order to purchase or sell at a price that is not the current market price.

Rollover

Where the settlement date of a deal is extended forward to another value date as a result of closing and then re-opening the position on the date preceding the current value date.

Rollover rate

The rate at which the position is closed and then re-opened in order to extend forward the value date of an open position.

Settlement

Actual physical delivery of one asset for another (e.g. cash for shares). However, CFD trading settlement usually only involves cash settlement - therefore, when a client opens and then closes a position the profit or loss is settled in cash and a debit or credit entry is made to the client's cash ledger.

Short

A market position where the client has sold an asset he does not already own.

Spot price

The current price at which a particular commodity can be transacted at a specified time.

Spread

The difference in prices between bid and offer rates.

Stop loss order (or Stop)

Stop orders are used to limit an investor's exposure in the market.

Technical analysis

Technical analysis is conducted by studying charts of past price movement to predict future priced trends.

Two-way price

Rates for which both a bid and offer are quoted.

Value date

Settlement date of a spot or forward deal.

Variation margin

Amount required to be deposited by a client where adverse price movements have caused a shortfall in funds so that the designated initial margins are not covered. Conversely, where funds exceed amount required for initial margins the excess available for withdrawal by the client.

Volatility

Volatility refers to the standard deviation of the change in value of a financial instrument with a specific time horizon. It is often used to quantify the risk of the instrument over the time period.

 
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