Trading Tools
Understand the Language of Trading
Explore commonly used terms and definitions to better understand market information, trading platforms and CFD-related concepts.
A
- Ask Price
- The price at which a financial instrument can be bought. The difference between the ask and bid prices is the spread.
- Asset
- Something with financial or economic value. Financial-market assets can include currencies, stocks, commodities, indices and other instruments.
- ATR Average True Range
- A technical indicator used to measure volatility over a selected period. A higher ATR generally indicates greater price movement.
B
- Base Currency
- The first currency in a pair. In EUR/USD, EUR is the base currency and USD is the quote currency.
- Bear Market
- A market environment characterised by a sustained period of declining prices or generally negative sentiment.
- Bid Price
- The price at which a financial instrument can be sold. It is normally displayed alongside the ask price.
- Bollinger Bands
- A technical indicator consisting of a moving average and upper and lower bands, commonly used to observe movement and volatility.
- Breakout
- A movement beyond established support, resistance or a trading range that may indicate changing behaviour or momentum.
- Bull Market
- A market environment characterised by a sustained period of rising prices or generally positive sentiment.
C
- Candlestick
- A visual representation of price movement during a period, typically showing opening, closing, highest and lowest prices.
- CFD Contract for Difference
- A derivative providing exposure to an underlying market's price without direct ownership. The result reflects opening and closing prices, position size and applicable costs.
- Close Price
- The final price recorded at the end of a specified period. Closing a position also means exiting an existing trade.
- Commission
- A fee that may be charged when opening or closing a position, depending on the account and instrument.
- Commodity
- A raw material or primary product traded in financial markets, such as crude oil, gold, silver or agricultural products.
- Contract Size
- The quantity of an underlying instrument represented by a trading contract. It varies by market and instrument.
- Currency Pair
- Two currencies quoted together to show one currency's value relative to another, such as EUR/USD or USD/JPY.
D
- Day Trading
- An approach where positions are generally opened and closed within the same trading day rather than held overnight.
- Derivative
- A financial instrument linked to the price or performance of an underlying asset, market or benchmark. CFDs are derivatives.
- Dividend
- A distribution a company may make to shareholders from available earnings or reserves. Amounts and schedules can change and are not guaranteed.
- Drawdown
- A decline in an account or investment from a previous peak to a subsequent lower point.
E
- Economic Calendar
- A calendar of scheduled economic announcements and events such as inflation reports, employment data and central-bank decisions.
- Equity
- The current value of a trading account after taking open-position profits and losses into consideration.
- Exchange Rate
- The value of one currency expressed in another. EUR/USD shows how many US dollars are required for one euro.
- Execution
- The process through which a trading order is processed and completed in a market or trading environment.
F
- Forex
- Short for foreign exchange: the market where currencies are exchanged and their relative values trade through currency pairs.
- Free Margin
- The portion of account equity not currently used as margin for open positions and potentially available to support additional exposure.
- Fundamental Analysis
- Market analysis based on economic, financial and business factors such as rates, inflation, earnings, data and supply and demand.
G
- Gap
- A price area where a market moves between levels with little or no trading, often around openings, announcements or volatility.
- Going Long
- Opening a position expecting price to rise. A fall instead may generate a loss.
- Going Short
- Opening a position expecting price to fall. A rise instead may generate a loss.
H
- Hedging
- A risk-management approach using positions intended to reduce or offset certain exposure. It can add costs and does not eliminate all risk.
I
- Index
- A measurement representing a selected group of stocks or instruments, such as the S&P 500, Nasdaq 100 or DAX.
- Indicator
- A calculation or visual tool used to analyse price, momentum, trend or volatility, including RSI, moving averages and ATR.
- Inflation
- A general increase in prices over time that reduces purchasing power and can influence economic conditions and central-bank policy.
L
- Leverage
- Market exposure using less capital relative to total position value. It can increase both potential gains and potential losses.
- Limit Order
- An order to buy or sell at a specified price or better. Execution is not guaranteed because the conditions must be met.
- Liquidity
- The degree to which an instrument can generally be bought or sold without significantly changing its market price.
- Long Position
- A position opened expecting market price to increase. Its value can rise or fall with subsequent movement.
- Lot
- A standardised unit for describing position size. The quantity represented by one lot varies by instrument.
M
- Margin
- The funds required to open or maintain a leveraged position. Requirements vary by instrument, size, leverage and conditions.
- Margin Call
- A notification or condition that may occur when equity falls relative to the margin needed to maintain positions.
- Market Order
- An instruction to trade at the best available price. The final price can differ during volatile conditions.
- Market Volatility
- The degree and frequency of market-price movement. Higher volatility generally means more significant or rapid movement.
- Moving Average
- An indicator calculating an average price over selected periods to smooth fluctuations and observe broader direction.
O
- Open Position
- An active position that has been entered but not closed. Its value changes as market price moves.
- Overnight Financing
- An adjustment that may apply when leveraged positions remain open beyond rollover time, varying by instrument and direction.
P
- Pending Order
- An instruction to open a position only when specified price conditions are met, such as a limit or stop order.
- Pip
- A standard unit for describing movement in many Forex pairs, commonly the fourth decimal place, though conventions vary.
- Position
- The market exposure created when a trade is opened. It can be long or short.
- Position Size
- The quantity involved in a trade, affecting market exposure and the impact of price movement on the account.
- Price Action
- The movement of price over time. Price-action analysis studies charts and behaviour rather than relying only on indicators.
Q
- Quote Currency
- The second currency in a pair, representing the amount required to purchase one unit of the base currency.
R
- Resistance
- An area where upward movement previously slowed, stopped or reversed. It does not guarantee another reversal.
- Risk Management
- The process of identifying, assessing and managing risk through concepts such as position size, leverage, stops and exposure limits.
- Risk-to-Reward Ratio
- A comparison between potential loss and potential return based on predetermined levels.
Risk-to-Reward Ratio = Potential Risk ÷ Potential RewardThe ratio does not indicate the probability of either outcome. - Rollover
- The process associated with carrying certain positions into the next trading day, potentially applying overnight financing.
- RSI Relative Strength Index
- A momentum indicator from 0 to 100 used to examine the strength and speed of recent price movement.
S
- Short Position
- A position opened expecting price to decline. Its value can gain or lose with subsequent movement.
- Slippage
- The difference between an expected order price and the actual execution price, often during rapid movement or changing liquidity.
- Spread
- The difference between bid and ask prices, which can form part of the cost of entering a position.
- Stop Loss
- An order designed to close at a specified level. Exact-price execution is not guaranteed in all conditions.
- Stop Out
- A process where positions may close automatically when equity or margin falls below a specified requirement.
- Support
- An area where downward movement previously slowed, stopped or reversed. It does not guarantee another reversal.
- Swap Rate
- A rate used to determine overnight financing for eligible positions. Long and short positions can have different rates.
T
- Take Profit
- An order designed to close at a specified favourable level, subject to execution and market conditions.
- Technical Analysis
- The study of historical price movement, charts and market data using trends, levels, patterns and indicators.
- Trading Hours
- The periods during which an instrument is available. Hours vary and can change for holidays or daylight-saving adjustments.
- Trend
- The general direction of price movement over a period, commonly described as upward, downward or sideways.
U
- Underlying Asset
- The asset, market or instrument from which a derivative obtains its value. A CFD provides price exposure without ownership.
- Used Margin
- The portion of account funds currently allocated as margin to support open leveraged positions.
V
- Volatility
- The extent to which an instrument's price changes over time. Greater volatility generally means larger or more frequent movement.
- Volume
- A measure of activity during a period. Depending on the market and platform, it may represent traded volume or another activity measure.
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