Trading Glossary: All the Basic Terms

Are you a trading beginner who’s only diving into the world of trading and getting overwhelmed with all these bids, asks, and stop losses? Or do you already feel confident in trading but still need to clarify a thing or two to avoid mistakes that may cost you money? Or maybe you’re looking for something you could miss at the start but need to improve your strategy now.

We collected the list of common trading definitions to cover all these needs. Use it wisely!

A-D

• Advisor

These programs are used to monitor and trade financial markets with the help of algorithms. They find opportunities according to the parameters that were set by a trader.

To enable an Advisor in the MTrading MT4 and to configure it, a trader should select “Options” from the “Tools” main menu. Then please go to the “Expert Advisors” tab and make sure “Allow automated trading” is ticked.

• Arbitrage

The simultaneous purchase and sale of an asset to take advantage of the spread, or the difference between the buy and sell price, or the difference in price between brokers. It’s considered illegal in many places.

• Ask

Also known as an offer rate. The price at which you agree to buy the currency or asset.

• Asset Allocation

The spread of your securities across different sectors or instruments to promote optimal growth within your risk profile.

• Averaging

Averaging is the process of opening additional positions with a standard or increased volume after the first trade execution in order to maintain the average acceptable difference between the opening price and the profit order. This technique is often used by experienced traders.

• Bar

This is one of the options for displaying the price chart in the terminal. In fact it is one small vertical line. By clicking the "bar" option , the trader is able to clearly see what this graph represents within the chosen period of time.

• Base

Currency In a currency pair, the first currency is the base currency. This is the currency being bought or sold.

Example: EUR\USD, the base currency is EUR

• Benchmark interest rate

This is the minimum interest rate, which is established by the central banks of different countries.

• Bear Market

A downward trend in trading instrument prices. It’s characterised by lower highs and lower lows.

• Bid

The price at which you sell a currency or an asset.

• Bid/Ask Spread

The difference between the bid, or buy, price (what a buyer will pay) and ask, or sell, price (what a seller will accept for the security).

Spread = Ask - Bid

• Blue Chip Stocks

These are established, dependable, high cap stocks that are considered low risk.

• Bollinger Bands

A trend indicator chart that shows the asset trading within support and resistance bands.

• Breakout

When the price of a security rises or falls through a trending chart line.

• Bull Market

A series of up-trends in stock prices. You see higher highs and higher lows.

• Candlestick Chart Pattern

A chart that displays the high, low, opening, and closing prices of a security for a specific time period. The pattern of the chart that looks like a candle with a fat middle and ‘wick’ lines extending from the top and bottom.

• CFD or Contract for Difference

An agreement between a broker and a client to pay the difference between a security’s opening and closing price.

• Channel

A chart pattern that shows trading occurring within a defined narrow area.

• Chasing the Trade (FOMO)

Buying a rising asset at a higher price due to fear of missing out on possible profits. Often results in a loss as the asset price settles back down.

• Commodities

Natural resources from the ground, such as minerals and foods, that have a standardized measurement of quality so they can be interchanged such as Crude Oil, Natural Gas, WTI, Silver, Gold, etc.

• Consumer Price Index (CPI)

This is one of the most important indicators of inflation published once a month. This index reflects any changes in the cost of the shopping basket of an average inhabitant of the USA.

• Counter Currency

In a currency pair, the second currency is the counter currency. This is the currency being purchased. It is also known as the quote currency.

Example: EUR\USD, the quote currency is USD

• Currency pair

This is a quotation of two different currencies, with the value of one currency being quoted against the other. In other words, this is how much a national currency of one country is willing to pay for the currency of another country at the moment.

• Debt Ratio

Total liabilities divided by the total debt of a company.

• Derivative

A contract that gets its value from an underlying asset such as an index, stock, commodity, currency, or interest rate. It does not own the asset.

• Demo-account

This is the best trainer for a new trader. It helps to learn how to trade on the market through a terminal by using a virtual account.

• Dividend

Stock company profits paid out to investors. Dividends are usually paid quarterly but can be paid monthly, annually, or as special payouts.

• Doji

A candlestick chart with very short middle and long ends.

• Drawdown

It shows how much a trading account is down from the peak.

E-H

• EBITDA

Earnings Before Interest, Taxes, Depreciation and Amortization. This is used to help determine the value of a company.

• Economic Calendar

A schedule of government and economic reports that may influence market movement.

investing.com

• Equity

It is the current value of the account fluctuating with every tick if a client has opened positions. Equity varies depending on the amount of floating profit and losses of open trades.

• EPS or Earnings Per Share

EPS helps investors understand the health or strength of a company.

• EUR/Euro

The official currency for the European Union member states.

• EV or Enterprise Value

The total assets of a company.

• EV/EBITDA

The most accurate measure of a company's value. It is the enterprise value divided by EBITDA. Low numbers mean better value.

• Exchange Rate

The price attached to a currency pair. Also called the FX rate or foreign exchange rate.

• Fibonacci Lines

A mathematical pattern that suggests areas of resistance on a chart.

• Floating Profit/Loss

These are the profits and losses that have not yet been reported and their value changes every second, along with price changes.

• Floating Spread

It is the difference between the Bid price and Ask price, which is regularly changing, depending on market conditions: increased demand price or offer price.

• Forex Foreign Exchange Market

The market in which government currencies are traded. Other common terms for forex are currency market, foreign exchange, and FX.

• Forex Trading

Buying or selling CFDs or futures contracts in exchanges for currencies of governments and/or cryptocurrencies.

• FTSE 100 Index

Financial Times Stock Exchange 100 Index. This is an index composed of the 100 largest companies listed on the London stock exchange.

• Gap

This is the place on the chart where there were no quotations. Most often, the gap can be observed in between trading sessions or news rapid price change.

• GBP/British pound

The official currency of the UK.

• Hedging

Way of risk-management in trading.

Example: opening a trading position on the same instrument in the opposite directions.

I-L

• In the Money

When an option reaches the price point of the underlying asset.

• Index

This is an indicator of how things are in the financial markets or in a particular industry. In other words, it is a measure that reflects the market`s mood at a certain point in time.

• Indicator

This is a special, mathematically calculated graph, which helps the trader to find the most advantageous moment for opening trades and predict future price movements.

• Instant executions

These are the price changes, which come into the trading system without being asked for, they constantly flow automatically.

• Instrument

In financial terms, this is an asset that can be bought, sold, or traded. It usually refers to a stock, currency pair, or commodity, but can be anything of value that can be traded.

• Investor

A person who invests in financial tools to get the profit. Stocks, bonds, gold, oil, currency pairs and the PAMM are especially popular among investors.

• Investor's account

This is the account of a brokerage company's trader, who has entrusted their deals to be held by a PAMM manager.

• IPO (Initial Public Offering)

The first time a company offers stock for sale to the public.

• JPY /Japanese yen

The official currency of Japan.

• Japanese candles

Chart type on the trading platform, which allows the trader to check market price fluctuations of an instrument. Each candle has 2 parts: body (sector between the Open and Close prices) and shadow\wick (difference between the body and High\Low prices).

• Leading Indicators

This is an index, which consists of the ten most important macroeconomic indicators. It predicts how the economy will develop in the next few months. Leading indicators can be useful to help forecast the timing, magnitude, and duration of future economic and business conditions.

• Leverage

An instrument that allows opening larger positions than clients' capital is.

• Limit Order

The amount you are willing to pay to buy or sell a security.

• Liquidity

It indicates how easy it is to liquidate (sell) a security.

• Liquidity provider

These are the largest financial corporations that help a brokerage company to provide customers with reliable quotes and instant execution of their orders.

• Long position

To buy an asset expecting its price growth.

• Lot

Trading volume of an instrument, e.g. 1 Lot = 100,000 for currency pairs and 1 Lot = 1 share for CFD Shares.

• Low price

This is the lowest point that a price has reached over a specific time frame.

M-P

• MA or Moving Average

It’s a statistic that averages a range of prices to give an indication of the trend a security shows. This line chart indicator smooths out the price fluctuation to show trends, support and resistance.

• MACD

Moving Average/Convergence/Divergence. Long and short exponential moving averages. They help traders see price changes and trends up or down.

• Margin

A certain level of funds needed in your account when you use leverage to trade.

• Margin Call (Stop Out)

The requirement to deposit more funds into your account or partly close the trades in order to prevent automatic closure of all trades. Happens when the balance is not enough to keep margin positions open and the margin level reached 130% and below.

• Market Cap or Market Capitalization

The total value of all the outstanding shares of a company.

• Market Maker

A broker or security exchange that stands ready to buy or sell securities at any given time.

• Market Order

An order to buy or sell at whatever rate the market accepts at that moment.

• Margin Trading

Using borrowed funds provided by a broker in order to open a larger volume position for trading than the trader’s own capital allows.

• MultiTerminal

It is an MT4 terminal, which is intended for simultaneous management of multiple accounts. It is mostly helpful for those who manage investors' accounts and for traders working with many accounts concurrently.

• Nasdaq 100 (NQ100)

An index that includes the 100 largest U.S. companies, mostly technology and internet-related, and listed on the Nasdaq stock exchange.

• NFP (Non-Farm Payroll)

One of the USA's key economic indicators. Represents the total number of paid workers in the U.S. minus farm employees, government employees, private household employees, and employees of nonprofit organizations. Published on the first Friday of the month.

• Non-market quote

This is a quotation within the price gap or a few substantially close price ticks, which form the price gap.

• Open Market

This is the reopening of the market after the trading session closure, at holidays/weekends.

• Open position

This is a transaction to buy/sell that you have opened and have not yet had time to close.

• Oscillator

An indicator type that investigates the market.

• OTC

Over The Counter trades. A method of buying stocks, person-to-person when they are not available on your country’s exchange.

• Out of the Money

When an asset is not in range for the option to be executed.

• Passive Income

Money that comes to you from investments. It is not money you actively worked for or earned in a job.

• Penny Stock

The stock of a small company with a price of less than $5 per share.

• PE Ratio

Price to Earnings Ratio. It compares the current price of a share to the company’s earnings per share by dividing the price of an equity’s stock by its annual earnings. This provides a rough estimate of the asset value and how many years you would need to own the asset in order to earn back the cost of the stock.

• Pip (Price Interest Point or Percentage in Point)

A unit that measures the amount of change in the exchange rate for a currency pair. A pip is usually 1/10,000 or .0001% of the asset.

Example: EUR\USD - 1.19385, 1 pip = digit 5

• Portfolio

The total collection of assets owned or controlled by a trader.

• Profit

This is the trader`s income from a transaction.

Q-T

• Quote Currency

In a currency pair, the second currency is the quote currency. This is the currency being purchased. It is also known as the counter currency.

Example: EUR\USD, the quote currency is USD

• Range

This is the difference between the maximum and minimum price level by a particular period.

• Rebate

Cashback per traded lot.

• Rollover

The money your trade gains or loses when kept overnight for the next trading day.

• RSI or Relative Strength Index

The RSI is a momentum indicator that measures the speed and change of price movements and is shown using a number ranging from zero to 100. It shows oversold and overbought conditions indicating the likelihood of trends and trend changes.

• Scalping

A day trading method many rapid trades prefer to use. They take advantage of very small price changes.

• Short position

To sell an asset expecting its price decrease.

• Short Sale

Selling a security that is not owned by the seller, based on the expectation that it will decline and be bought back at a lower price for a profit.

• Slippage

The difference between the expected trade price and the actual trade price. It is the amount the price changes from when you issue the order until it is executed.

• Standard & Poor’s 500 (S&P 500)

An index that includes the 500 largest U.S. publicly traded companies. Can be used as one of the indicators of the U.S. economy.

• Spike

This is an unexpected difference from the previous quotations. A spike always characterizes the market as disquiet.

• Spot Price

The current price for a currency pair.

• Spread

The difference between the ask/buy price and bid/sell price.

• Stop Loss Order

A predetermined point at which you instruct your broker to sell securities if the value drops. It can be a percentage of change or a specific price point.

• Stop Out

It is a situation when the margin level goes below a certain point and the broker starts to automatically close the positions. It's also called a Margin Call.

• Swap

This is a fee for the transfer of open positions over the night.

• Take profit

This is an order for the broker to close the transaction when the price reaches a specified level.

• Tick

It is a minimum upward or downward movement in the price of an instrument.

• Trading Terminal

Software platform for trading, which allows connecting to the international financial market, trade with various instruments.

• Trailing Stop

It is a standing order to sell your equity when it falls a certain percentage below the equity’s highest value while you own it.

• Trend Line

A line on a chart showing the direction the instrument price is moving. Formed by connecting three or more peaks or valleys.

U-Z

• USD/United States dollar

The official currency of the United States.

• Volatility

The speed of the price changes within the period of time.

Higher volatility brings higher spreads.

• Volume or Trading volume

The number of times a security is bought or sold in a fixed period of time, usually a day.

May the trading luck be with you!