Glossary of TermsABC of Trading
ADR = American Depository Receipt
Arbitrage = The simultaneous buying and selling of a security at two different prices in two different markets, with the aim of creating profits without risk
ASK =The quoted offer at which someone can buy; also called the offer price
AT PAR = At a price equal to the face value of a security
Auction = Many auctions occur in the financial markets; such as the post-market auction on the UK 100. This occurs from 1630 to 1635, after which the official settlement is declared
Authority to deal = Authorising someone to TRADE/Spread bet on your behalf. For this Sky PowersFX would require your written notification.
Back to Base = Any realised profits or losses, adjustments, fees or charges that are denominated in a currency, not of your Base Currency and will be automatically converted back to your Base Currency.
BASE = A technical analysis tool. A chart pattern depicting the period when the supply and demand of a certain stock are in relative equilibrium, resulting in a narrow trading range. The merging of the support level and resistance level
BASE RATE = The official lending rate at which the Bank of England offers to the market
BASIS POINT= Basis point is a way of expressing variations in bond yields. One basis point is 0.01 percentage point. Basis points also are used for interest rates
BEAR = Someone who believes that prices in the stock market are going to decline. Opposite of a bull
BETA = The measure of an asset’s risk in relation to the market
BET PER = Same as TICK, PIP or POINT size. The minimum point movement in each market, for example, the UK 100 has moved 10 ticks this equates to a 10 index/PIP/POINT move in the UK 100 or CURRENCY Pair,
BID=The quoted price at which someone can sell
BID-ASK Spread = The difference between what buyers are willing to pay and what sellers are asking for in terms of price
Bollinger Bands = Plus or minus two standard deviations where the standard deviations are calculated historically in a moving window estimation. Hence, the bands will widen if the most recent data is more volatile. If the prices break out of the band, this is considered a significant move
Bond = Bonds are debt and are issued for a certain period of time
Bull = Someone who believes that prices in the stock market are going to rise. Opposite of a bear
Buy = Same as taking a long position
Buy Order = An instruction to buy at a different price to where the market is currently trading
CABLE (GBP/USD) = A commonly used term to describe the exchange rate between British pound sterling and the U.S. dollar
Call option = An option that gives the holder the right to buy the underlying asset. Opposite of a put
Capital Gains Tax = Under current UK legislation, profits made via financial spread betting are free of CGT. However, tax laws are subject to change and depend on individual circumstances.
Centrally Cleared Trades = Trades that are sent through to a Clearing House, which acts as a central counterparty, which assumes the counterparty risk to trades which are registered with it and by doing so underpins many important financial markets.
CFD = Contract for Difference
Chartist = Person who analyses markets with the use of charts
Clearing House = A clearing house is an organisation that assumes the counterparty risk to trades which are registered with it and by doing so underpins many important financial markets.
ClLOSING PRICE = The price at which a product was traded to close the open position. Also, refers to the price of the last transaction in a day’s trading session
Contingent if done order = Instructions you give us to attach a stop loss and/or limit order to your opening order if it is triggered and filled
Contract Note = The confirmation of your trade describing the market, the unit of trading, the action (buy or sell), the price and the expiry date
Cost of Carry = The interest intrinsic in our share futures prices, excluding any dividends payable during the contract period
CPI = Consumer Price Index used as a measure of inflation
Cross Rates = Foreign exchange rate between two currencies other than the US dollar
Currency future = A financial future contract for the delivery of a specified foreign currency
Daily Funded Trade (DFT) = A Daily Funded Trade (DFT) is typically a short-term spread bet with some of the tightest spreads on offer…
Delist = To remove a stock’s listing on an exchange
Deliver =The sale of a futures contract may require the seller to deliver the commodity during the delivery month if the short position is not offset prior to that time
Delivery Date = Date by which a seller must fulfil the obligations of a forward or futures contract
Delta = The ratio of the change in price of an option to the change in price of the underlying asset
Derivative = A financial contract whose value is based on or derived from, a traditional security (such as a stock or bond), an asset or a market index
Dividend = Portion of a company’s earnings paid to stockholders.
ETF’s = or exchange-traded fund, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like anAn ETF, or exchange-traded fund, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock ETF’s experience price changes throughout the day as they are bought and sold.
ECB = European Central Bank
Equity = is the value of an asset less the value of all liabilities on that asset. Important because it represents the real value of one’s stake in an investment. Investors who hold stock in a company are usually interested in their own personal equity in the company, represented by their shares. Yet, this kind of personal equity is a function of the total equity of the company itself, so a shareholder concerned for their own earnings will necessarily be concerned for the company itself. Owning stock in a company over time will ideally yield capital gains for the shareholder, and potentially dividends as well. It also often bestows upon the shareholder the right to vote in Board of Directors elections, and all of these benefits further promote a shareholder’s concern for the company, both through continued involvement and through personal gain.Home equity is also very important, although for different reasons. Equity on a property or home stems from payments made against a mortgage (including a down payment) and from increases in the value of the property. The reason home equity is a concern for many is that it is often an individual’s greatest source of collateral, and thus can be used in financing for a home-equity loan(often called a “second mortgage”) or a home equity line of credit.When attempting to determine the value of assets in calculating equity, particularly for larger corporations, it is important to note that these assets may include both tangible assets like property, as well as intangible assets, like the company’s reputation and brand identity. Through years of advertising and development of a customer base, a company’s brand itself can come to bear an inherent value. This concept is often referred to as “brand equity,” which measures the value of a brand relative to a generic or store brand version of a product. For example, many people will reach for a Coca-Cola (KO) or Pepsi (PEP) before buying a store brand cola because they are more familiar with the flavour or prefer it. If a 2-liter bottle of store brand cola costs $1 and a 2-liter bottle of Coca-Cola costs $2, then, in this case, coke has a brand equity of $1. Just as equity can be negative, so can brand equity, if people are willing to pay more for a generic or store brand product than for a particular brand. Negative brand equity is rare, and generally only occurs because of bad publicity, such as in the event of a product recall or disaster.
Fast Market = Excessively rapid trading in a specific security that causes a delay in its electronic updating
Fibonacci Retracements = are points which are fractionally related to the immediately previous move, where frequently a stop and reversal will occur in the retracement of that move. These fractions are of course Fibonacci Ratios.
In order to calculate these ratios, the move will need to be measured so it must have had its beginning at an identifiable point. This would be the main pivot for that time basis which is just one of those reversal points you can spot a mile away. Similarly, the ending of that previous move must have also been clearly evident.
With those measurable pivots in place, the total price travel of the move would be measured in pips. Then, marking the ratios of that travel from its end point will give locations to expect possible stop and reversal of the retracement. Most charting packages have Fibonacci Retracement tools which allow easy marking for the trader without doing the math.
The most common ratios used in trading for retracements are 23.6%, 38.2%, 50%, 61.8% and 76.4% with 38.2% and 61.8% holding the greatest weight with most technicians.
Often reversals will occur at a point near or on these calculated locations. That tendency has been very soundly proven however any reliance on a particular one is not statistically dependable. Also while tending to bounce or pause at these areas the retracement will at times continue past them in due course.
These, of course, can be completely ignored by the market and a retracement reverses at some other point or no reversal takes place and instead of a retracement the entire previous move is overdone with a move in the complete opposite direction now shown.
Due to those unknowns, other technical approaches are often combined with greater reliability.
FOREX PAIRS / Nicknames = Forex traders sometimes refer to currencies by their popular nicknames.
For example, GBP/USD is often also known as Cable. The term Cable originated from the transatlantic communication cable between the two countries over a hundred years ago.
Other terms include Swissy for Swiss Franc, Loonie for the Canadian dollar, Aussie for Australian dollar and Kiwi for New Zealand dollar.
Major Currency Pairs = These are the most liquid currencies, I.e. they are the most actively traded currencies in the world. They constitute about 85% of the total trading volume in the forex market. The spreads for these currency pairs are usually tighter compared to the less traded minor currency pairs. EUR/USD is the most traded currency in terms of trading volume. Here are some examples of major currency pairs:
eg: Euro vs. US dollar (EUR/USD) Nickname: euro-dollar
US dollar vs. Japanese yen (USD/JPY) Nickname: dollar-yen
British pound vs. US dollar (GBP/USD) Nickname: cable
Australian dollar vs. US dollar (AUD/USD) Nickname: Aussie dollar
US dollar vs. Swiss franc (USD/CHF) Nickname: dollar swissy
US dollar vs. Canadian dollar (USD/CAD) Nickname: loonie
Minor Currency Pairs = These are not traded as heavily as the major currencies, and so tend to fluctuate more often. Spreads for minor currency pairs also tend to be wider due to the medium sized liquidity in the market, as compared to major currency pairs. Here are some examples of minor currency pairs: eg: Euro vs. Japanese yen (EUR/JPY) Nickname: euro yen
Australian dollar vs. New Zealand dollar (AUD/NZD) Nickname: ‘Aussie kiwi’
Euro vs. Nokkie (EUR/NOK) Nickname: ‘euro nokkie’
Euro vs. Stokkie (EUR/SEK) Nickname: ‘euro stokkie’
FILL = Execution of an opening or closing order
Fundamental Analysis = Examination of a company’s financials, assets, management, market niche, and products to determine value
Futures Contract = Trading contract that specifies a future date for delivery of an object
GAPPING = What is market gapping and slippage? Market gapping occurs when prices literally ëgapí between one price and the next, without trading at the prices in between: usually in times of extreme market volatility.Market gaps are common during times of volatility. Guaranteed orders protect against gapping.
GEARING = The use of debt to increase exposure to high risk/reward. Gearing is also known as leverage
GUARANTEED ORDERS = For a small fee you can protect an order against the risk of any market gaps
HEDGE = A transaction that reduces risk.
IMM = International Monetary Market
IMF = International Monetary Fund
Index Futures = A futures contract on an index in the futures market
Indicators = Indices, either positive or negative, which indicate the strength and significant trends in our nation’s economy. Inflation, interest rates, and employment figures are examples
INFLATION = The rate at which the general level of prices for goods and services is rising
Initial Margin Requirement = Amount needed as available trading resources in your account in order to open a position. This may be reduced by placing a stop loss on a market, where Orders Aware is available and this amount may increase depending on the size of your spread bet or CFD trade. See Step Margin.
IPO = Initial Public Offering. Private company’s first offer of stock to the public
In-the-money Option = A put option that has a strike price higher than the underlying future price, or a call option with a strike price lower than the underlying futures price.
Intrinsic Value = The value of an option if it were to expire immediately with the underlying stock at its current price
Issued Share Capital = Total amount of shares that have been issued
Lagging Indicators = Economic indicators that follow rather than precede a country’s overall pace of economic activity
Last Day of Trading = The last day on which you can open or close a trade in a particular market. Not to be confused with Expiry Date
Leading Indicators = Economic indicators that change before the economy changes
Leverage = Leverage is also known as gearing. Where a position can be taken in a product with only a fraction of its value.
Liability = Debt, financial obligation, or potential loss
LIBOR = London Interbank Offered Rate
LIMIT ORDER = Minimum selling or maximum buying price as instructed by the client. A limit order is an order to buy or sell a better price to where the market is currently trading
Limit UP, limit DOWN = Price change, up or down, a product is allowed to make during one day of trading
LIQUIDITY = A market characterised by the ability to buy and sell with relative ease
LONG = Opening a buy position in expectation that the market price will rise
MARGIN = The deposit or available credit needed on your account in order to have your positions open
MARGIN CALL = A call from the credit department for further funds to be deposited in the account to support additional exposure from running losses
Market Capitalisation = The number of shares of a company in issue, multiplied by its share priceO
NASDAQ = A global electronic marketplace for buying and selling securities, as well as the benchmark index for U.S. technology stocks. Nasdaq was created by the National Association of Securities Dealers (NASD) to enable investors to trade securities on a computerised, speedy and transparent system, and commenced operations on February 8, 1971. The term “Nasdaq” is also used to refer to the Nasdaq Composite, an index of more than 3,000 stocks listed on the Nasdaq exchange that includes the world’s foremost technology and biotech giants such as Apple, Google, Microsoft, Oracle, Amazon, Intel, and Amgen.
OFFER = the price offered at which someone can buy; also called ASK
OCO = Cancels the Other – you can leave two separate opening orders in the same market so that if one of them is triggered and filled, the other is cancelled. This leaves you with just the one open position (Bridging)
OPEN POSITION = A long or short position whose value will change with a change in prices
OPTION = A financial derivative instrument that gives the right to purchase (call) or sell (put) a fixed amount of stock at a specified price and within a certain time limit.
ORDER = Buy or sell instruction given by a client to a dealer
Out-of-the-money Option = A call option is out of the money if the strike price is greater than the market price of the underlying security. That is, you have the right to purchase a security at a price higher than the market price, which is not valuable
PAMM -= Percentage allocation money management or PAMM for short, is a form of pooled money forex trading.
An investor (or anyone wanting to make a ROI) allocates his or her funds in their desired proportion to the money manager(s) PAMM account for trading. These traders/managers may manage multiple forex trading accounts using their own capital and such pooled investment capital from a few too many investors, with an aim to generate profits.such profits or losses are split amongst the investors, based on the percentage of the amount invested in the account.
Partial Fill = Where the client has specified that they wish only part of their stake filled on a closing order
Par Value = Face value of a security
Portfolio = A collection of investments, real and/or financial
POWER OF ATTORNEY = Authorising someone to spread bet on your behalf. For this Sky PowersFX would require your written notification and we would perform an identity check. (Same as Authority to deal)
Price Tolerance = (Slippage) Price Tolerance is the amount of slippage you are prepared to accept in order for your trade to be executed, even if at the time of execution, the price has moved away from that selected by you. This is commonly referred to as slippage, though the benefit of Price Tolerance is that you can control the amount of slippage you are prepared to accept.
PUT OPTION = A financial derivative instrument used in options trading. A put would give an investor the right, but not the obligation, to sell the underlying instrument at a fixed price up to a predetermined date. The opposite of a put is a call
QUOTE = is the difference between the buying and selling price.
Resistance Level = A price level above which it is supposedly difficult for a security or market to rise
Retail Investor = Small individual investors who commit capital for their personal account rather than on behalf of another
Rights Issue = A privilege allowing existing shareholders to buy shares shortly before they are offered to the public at a specified and usually discounted price and usually in proportion to the number of shares already owned.
ROCE = Return On Capital Employed
Rollover = Transferring a trade that is near expiry into the next contract period
Sector = Used to characterise a group of securities that are similar with respect to industry
SELL= Same as taking a short position
Settlement Price = A figure determined by the closing price
Short = Opening a sell position in expectation that the market price of that underlying product will fallSIB = social impact bond is a debt instrument that directly links its yield with a social outcome or series of outcomes. In technical jargon, the utility of the invested capital directly influences the
SIB’s = social impact bond is a debt instrument that directly links its yield with a social outcome or series of outcomes. In technical jargon, the utility of the invested capital directly influences the return on the investment (ROI). Therefore, potential investors must evaluate the effectiveness of the proposed measures that are to be funded by their capital.In contrast, the majority of debt instruments are contractual agreements that channel capital from a creditor to a debtor, while stipulating the terms by which the funds are to be returned. This could include the coupon rate, the term of maturity and/or the par value. Short of declaring bankruptcy, the indebted party is obligated to return the principal with interest to the creditor, regardless of the use the funds were put to.Social impact bonds are not affected by interest rate risk, reinvestment risk or market risk. This stems from the fact that the bonds’ ROI is wholly independent of fluctuations in the fixed income marketplace. However, much like all other bond classes, they are subject to default risk, event risk and inflation risk. Inflation, of course, is forever the scourge of bond-land, as it can eat away at the bondholder’s real return.The nature of a social impact bond is inherently risky. If the proposed outcomes are not achieved, the entirety of the social investor’s capital is at risk.
Spot market = Market in which commodities are bought and sold for cash and immediate delivery
Spread = The difference between the buy and sell price
Step Margin = Step Margin is the process by which the amount of initial margin charged per trade may increase depending on the size of your spread bet or CFD trade. The amount of initial margin charged for any additional trades [within the same market] occurs at specified step margin levels.
STOP LOSS ORDER = An order to close a position at a particular level when the price moves against you
Stop Order = An opening or closing order to buy or sell at a worse price to where the market is currently trading
Strike Price =The stated price per share for which underlying stock may be purchased or sold by the option holder upon exercise of the option contract
Support Level = A price level below which it is supposedly difficult for a security or market to fall. That is, the price level at which a market tends to stop falling because there is more demand than supply; can be identified on a technical basis by seeing where the market has stopped falling in the past
Suspended Trading = Temporary halt in trading in a particular security, in advance of a major news announcement or to correct an imbalance of orders to buy and sell
Swing Trading = Refers to a type of short-term (one day to a couple of weeks) trading, triggered by technical analysis, for example, momentum
S.M.A.R.T. goals are Specific, Measurable, Attainable, Relevant, and Timely. Let’s briefly review each: Specific – A general goal would be, “Get in shape.” But a related specific goal would be, “Join a health club and workout 3 days a week for the next 52 weeks.” A specific goal has a far greater chance of being accomplished because it has defined parameters and constraints. Measurable – There must be a logical system for measuring the progress of a goal. To determine if your goal is measurable, ask yourself questions like How much time? How many total? How will I know when the goal is accomplished? etc. When you measure your progress, you stay on track, reach your target dates, and experience the exhilaration of achievement that spurs you on to continued efforts required to reach your goal. Attainable – To be attainable, a goal must represent an objective toward which you are both willing and able to work. In other words, the goal must be realistic. The big question here is: How can the goal be accomplished? Relevant – Relevance stresses the importance of choosing goals that matter. For example, an internet entrepreneur’s goal to “Make 75 tuna sandwiches by 2:00 PM.” may be Specific, Measurable, Attainable, and Timely, but lacks Relevance to an entrepreneurs overarching objective of building a profitable online business. Timely – A goal must be grounded within a time frame, giving the goal a target date. A commitment to a deadline helps you focus your efforts on the completion of the goal on or before the due date. This part of the S.M.A.R.T. goal criteria is intended to prevent goals from being overtaken by daily distractions.
When you identify S.M.A.R.T. goals that are truly important to you, you become motivated to figure out ways to attain them. You develop the necessary attitude, abilities, and skills. You can achieve almost any goal you set if you plan your steps wisely and establish a time frame that allows you to carry out those steps. Goals that once seemed far away and out of reach eventually move closer and become attainable, not because your goals shrink, but because you grow and expand to match them.
Takeover = Acquiring control of a corporation by stock purchase or exchange
Technical Analysis = Analysis of a financial market by charting its performance, using historical patterns, and focusing on trends
TICK SIZE = The minimum point movement in each market (also PIP or Point)
Time to Maturity = The time remaining until a financial contract expires
Time Value = Portion of an option price that is in excess of the intrinsic value, due to the amount of volatility in the stock; sometimes referred to as the premium. Time value is positively related to the length of time remaining until expiration
Trading Range – Range between the highest and lowest prices at which a Currency pair or stock is traded
Underlying Asset = The security or market that City Index prices are based on (derived from)
Technically speaking, the CBOE Volatility Index does not measure the same kind of volatility as most other indicators. Volatility is the level of price fluctuations that can be observed by looking at past data. Instead, the VIX looks at expectations of future volatility, also known as implied volatility. Times of greater uncertainty (more expected future volatility) result in higher VIX values, while less anxious times correspond with lower values.
The initial VIX was released by the CBOE in 1993. At the time, the index only took into consideration the implied volatility of eight separate S&P 100 put and call options. Following 2002, the CBOE made the decision to expand the VIX to the S&P 500 in order to better capture market sentiment. VIX futures were added in 2004 and VIX options followed in 2006.
VIX values are quoted in percentage points and are supposed to predict the stock price movement in the S&P 500 over the following 30 days. This value is then annualised to cover the upcoming 12-month period. The VIX formula is calculated as the square root of the par variance swap rate over those first 30 days, also known as the risk-neutral expectation. This formula was developed by Vanderbilt University Professor Robert Whaley in 1992.
Investors, analysts and portfolio managers look to the CBOE Volatility Index as a way to measure market stress before they make decisions. When VIX returns are higher, market participants are more likely to pursue investment strategies with lower risk.
Working Order = An order that remains working until it is filled or cancelled