Glossary of trading terms and terminology

Trading Glossary

Although Trading AtoZ tries to use language that is free of acronyms, or terms that are unusual, there may be occasions where they creep in. This trading glossary shall cover those terms with a brief description. The glossary is being constantly reviewed with additions made on a regular basis.

Table of contents

A

ArbitrageArbitrage is the practice of simultaneously buying and selling an asset to take advantage of a difference in price. The asset will usually be bought and sold on different exchanges, using different currencies or with different financial products, depending on how the discrepancy in the price occurs.

Ask – The ask refers to the price at which you can buy an asset or security from a seller. It can also be referred to as “asking price“, “offer” and “offer price“.

Asking Price – See ask.

Asset Class – See the Asset Types page.

ATR – See average true range.

At The MoneyAt the money is a term used in options trading when the strike price is identical to the underlying market price.

Average True Range – The average true range (ATR) is a technical analysis indicator that measures an assets volatility. It is calculated by determining the range of price (High – Low) and then averaging that over a number of trading periods.

B

Base Currency – The term base currency refers to the first currency quoted in a forex pair.

Base Rate – A base rate is the interest rate that a central bank, such as the Bank of England or Federal Reserve, will charge commercial banks for loans. It can also be referred to as “the bank rate” and “the base interest rate”.

Basis Point – The term refers to the smallest unit of measurement in relation to a change in a percentage or price. The most common use is for a base rate. The change in a base rate is usually referenced as a change by a number of basis points. For example, if the Bank of England increases interest rates by 0.25% it would be referenced as in increase of 25 basis points.

Bear/ Bears – A bear is a trader that believes a market or asset is heading in a downwards direction. A bear is the opposite of a bull.

Bearish – This is how bears describe their mentality. A bear is bearish because they believe a market or asset will head in a downwards trajectory.

Bear Market – A bear market is declared when the associated market has a sustained downward trajectory. For equities markets this is typically defined as a fall of more than 20% from the peak.

Bid – The bid refers to the price at which you can sell an asset or security to a buyer.

Bollinger Bands – This is an indicator used by technical analysts. They are formed using an upper band (above the price) and a lower band (below the price). By default, the bands are set at 2 standard deviations away from the current price. When volatility is low the bands will be tight and conversely when volatility is high the bands will be broad. They are often used to identify levels of support and resistance.

Bonds – See the Asset Types page.

Broker – See the Brokers page.

Bull/ Bulls – A bull is a trader that believes a market or asset is heading an an upwards direction. A bull is the opposite of a bear.

Bullish – This is how bulls describe their mentality. A bull is bullish because they believe a market or asset will head in an upwards trajectory.

Bull Market – A bull market is declared when the associated market has a sustained upward trajectory.

C

CableCable refers to the British pound sterling (GBP) against the US dollar (USD). The term was coined when currency quotes were transmitted between the United Kingdom and USA via a cable under the Atlantic.

Call Option – A call option is a contract that gives the buyer the right but not the obligation to buy a specified asset at a specific price, on a specific date of expiry.

Central BankCentral banks are national institutions that control monetary policy for their country. The exception to this is the European Central Bank (ECB) that controls monetary policy for countries that use the Euro as their currency.

CFD – See contract for difference.

Chartist – A chartist is a type of trader that relies heavily on charts for their analysis. This term is highly correlated with technical analysts.

Closing Price – The closing price of an asset is the last official price recorded for a trading session.

Commodity – A commodity is most often referred to as a raw material and is something that can be grown, reared or mined.

Contract For Difference – A contract for difference is a type of financial derivative and are purely speculative instruments. The contract is an agreement to exchange the difference in price of an asset from when the position is opened to when it is closed.

Cost Of Carry – This term refers to how much a position will cost you while it remains open. This is above any opening and closing transaction costs, or any tax that may become payable. It often refers to overnight funding charges, interest payments on margin accounts and forex transactions. The cost of carry can be significant and will affect your overall profitability so must be included and monitored in your trading accounts.

Covered Call – A covered call is when a trader sells (writes) a call option for an asset that they currently own. For example, a trader may own 1000 shares in XYZ corporation and then sell a call option in XYZ corporation. Their shares are then protected from a fall in price as they would simultaneously profit from their call option.

Currency – See foreign exchange.

D

Day TradingDay trading is a short term trading strategy that involves opening and closing a trade in a single day and before the market closes.

Dead Cat Bounce – A dead cat bounce occurs when a price has a temporary recovery after an extended decline, followed by the continuation of the original downtrend. The term dead cat bounce refers to the notion that even a dead cat will bounce if it falls from a great height.

Derivative – A derivative is a financial product that derives its value from the price of an underlying asset. They are often used by traders to speculate on the future price movement of an asset, without having to buy or sell the asset itself.

Dividend – When a company makes a profit they may choose to pay dividends to their shareholders. A dividend is expressed on a per share basis, meaning that the more shares you own, the more dividend you would receive.

Dividend Yield – The dividend yield is simply the amount of dividend per share divided by the current share price, expressed as a percentage.

DMADMA stands for Direct Market Access. It refers to a type of trade execution whereby a trader can place trades directly onto an exchange, without the need for a broker.

Doves – A member of a monetary policy committee that is dovish.

Dovish – Someone who is dovish votes for a looser monetary policy, meaning they want to keep interest rates low to boost economic growth. This should increase spending, which benefits the economy and increases employment. The risk for a dovish policy is that it can lead to increases in inflation.

E

Earnings Per Share – This is perhaps the most important data item a company releases. It shows how much profit a company makes for each share listed.

EBIT(DA) – There are multiple variants of this acronym. The full acronym stands for “earnings before interest, tax, depreciation and amortisation”. Sometimes you will see it referred to as just EBIT, but for this just remove the depreciation and amortisation.

ECB – The ECB is the European Central Bank. The ECB is the central bank for the Eurozone, the countries that use the Euro as their currency.

EMA – See exponential moving average.

EPS – See earnings per share.

Equities – See shares.

ETF – An ETF is an exchange traded fund. See Asset Types for a more in depth explanation.

Exchange – An exchange is a marketplace for commodities, stocks, securities, derivatives and other financial instruments. Note this list does not include foreign exchange.

Execution – The term execution refers to the act of buying or selling an asset. This usually occurs on an exchange and is usually performed by a broker.

Expiry/Expiration DateExpiry dates apply to many financial instruments and is the date when the position automatically closes.

Exponential Moving AverageExponential moving averages (EMA) were developed to mitigate the main problem with simple moving averages. They are calculated in a way that gives each data point more weight than its predecessor. This means they react fast to a change in price action.

F

FCA – The Financial Conduct Authority (FCA) is the organisation responsible for the regulation and oversight of financial markets and financial service firms in the UK.

Federal Reserve – The Federal Reserve (“the Fed”) is the central bank in charge of monetary and financial stability in the United States. The United States have 12 regional central banks located in major cities and these are known as the Federal Reserve system.

Fibonacci Sequence – This is a number sequence where the next number equals the sum of the previous 2. For example, 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55.

Fibonacci Retracement – This is a technical analysis tool used to identify price targets by adopting the fibonacci sequence. When prices retrace from a high or low they often retrace by a percentage that coincides with a number from the fibonacci sequence.

Fill – The term fill relates to the execution of an order. When an order has been completed it is referred to as filled. There is no guarantee that all orders will be filled, either in part or in full. This could happen when the conditions of the order are no longer viable. For example a share price could gap through the price and therefore can not be executed, or filled.

Filled – See fill.

Financial Instrument – A financial instrument refers to any asset that can be traded. The trading of these assets requires a buyer (the new owner of the asset) and a seller (the previous owner of the asset). See asset types for various types of financial instrument.

Financial Market – A financial market is a forum where financial instruments are traded. Financial markets can be either physical or virtual locations and both enable buyers and sellers to participate in the trading of financial instruments.

Fixed CostsFixed costs occur in all businesses. They are costs that do not fluctuate and the most common example is a rent payment.

Fixed Exchange Rate – A fixed exchange rate is relates to a currency that has its price determined by the government of the currency in question.

Floating Exchange Rate – A floating exchange rate relates to a currency that has its price determined by supply and demand.

FOMCFOMC stands for the Federal Open Market Committee. The FOMC is the branch of the Federal Reserve responsible for open market operations in the US.

Force Open – An order specified as force open allows a trader to open a position even if they already have an opposing position active.

Foreign ExchangeForeign exchange is the largest of all financial markets. It refers to the buying and selling of currencies and allows traders to convert one currency into another.

Forex – See foreign exchange.

Forward Contract – A forward contract is similar to a futures contract but with greater flexibility. A forward contract is an agreement between two parties to buy or sell an asset at a specified price on a predefined expiry date. Forward contracts are traded over the counter, can be customised and are negotiable.

FTSE 100 – The FTSE 100 is an index. It consists of the 100 biggest companies by market capitalisation on the London Stock Exchange.

Fundamental AnalysisFundamental analysis is an approach used to determine the intrinsic value of an asset and analyse the factors that could influence its price. See fundamental analysis.

Funding ChargesFunding charges are incurred by traders that hold leveraged positions overnight. They refer to the amount of interest charged by a broker to maintain the leveraged position.

Futures Contract – A futures contract is a more regulated and rigid form of forward contract. A futures contract is an agreement between two parties to buy or sell an asset at a specified price on a predefined expiry date. Futures contracts are traded on an exchange, can not be customised and are not negotiable.

Fx – See foreign exchange.

G

GDP – See gross domestic product.

Grey Market – The grey market is used by traders who want to take a position in shares before their initial public offering (IPO). The price on the grey market is therefore a prediction of what the company will be trading at once the IPO has occurred.

Gross Domestic Product – This is the total value of all goods and services produced in a country over a specified period. The value is used to determine the size and health of an economy. The % change in gross domestic product can be used to compare countries.

Guaranteed Stop – Some brokers offer a guaranteed stop. They are a form of stop loss that gives the trader an absolute guarantee of execution at a predetermined price. This guarantee is valid even if the market gaps through the stop level.

H

Hawkish – Someone who is hawkish votes for a tighter monetary policy, meaning they want to higher interest rates to suppress inflation. This can result in lower economic growth and lower employment.

Hawks – A member of a monetary policy committee that is hawkish.

Hedge – This is a type of investment or trade that is designed to reduce your exposure to risk. For example, if I own 10000 shares of XYZ Stock, I could hedge the investment by buying put options in XYZ Stock.

Heikin-Ashi Chart – A form of chart used to present financial market data. See the types of trading charts page.

I

Ichimoku Cloud – The Ichimoku Cloud is a technical analysis indicator that simultaneously defines support and resistance levels, momentum as well as providing trading signals. Translating from Japanese, the Ichimoku Cloud broadly means “equilibrium chart at a glance” because traders can see multiple pieces of valuable information with a single indicator.

Index – An index is a group of financial assets that provide an indication of performance for a particular sector. For example, the FTSE 100 is an index of the top 100 UK listed companies.

IndicesIndices are the plural term for an index.

InflationInflation is the amount of increase to the cost of goods and services for an economy. Inflation is a key indicator in currency trading as it usually has a direct correlation to interest rates.

Initial Public Offering – When a company issues shares for the first time it is performing an initial public offering (IPO). This means the company now has shares traded on a stock exchange. The term initial public offering is also referred to as floating, flotation, or going public.

In The MoneyIn the money is a term used in options trading. The term refers to the relationship between as assets underlying price and the options strike price. For example, if the underlying price has gone above the strike price for a call option then it is in the money. Additionally, if the underlying price has gone below the strike price for a put option it is also in the money.

Interest Rates – An interest rate is the amount a lender will charge a borrower in return for a loan. This is usually expressed as a percentage and relates to a whole year. For example, if I borrowed £1000 at an interest rate of 5%, then I could expect to pay £50 in interest over the course of the first year.

Intrinsic ValueIntrinsic value is a term used to describe the true value of an asset. Intrinsic value is used widely in many analysis techniques, especially within options pricing models.

IPO – See initial public offering.

J

Japanese Candlestick Chart – A form of chart used to present financial market data. These are unique because they provide a visual representation of the open, high, low and close. See how to read candlestick charts page.

Jesse LivermoreJesse Livermore is one of the greatest speculators of all time. Read some of his classic trading quotes here. If you are interested to know more then you should read Reminiscences of a Stock Operator, available from our suggested reading section.

L

Leverage – See leverage page.

LIBOR – The term LIBOR stands for London Interbank Offered Rate. It is a benchmark rate that determines daily interest rates for loans and financial instruments around the world.

Limit Down – A limit down is the maximum amount that the price of a futures contract will be allowed to decrease in a single trading session. The limit down mechanism is mostly used in futures and commodities markets.

Limit Order – See order types page.

Limit Up – A limit up is the maximum amount that the price of a futures contract will be allowed to increase in a single trading session. The limit up mechanism is mostly used in futures and commodities markets.

Liquidity – The term liquidity is used in financial markets to describe how easily an asset can be bought or sold without unduly affecting its price. An example of a stock with low liquidity could be a penny share, meaning that a small trade volume could have a large impact on the price.

London Interbank Offered Rate – See LIBOR.

Long Position – When traders refer to having a long position they are wanting an asset price to increase in order to makes a profit. For example, if I own 100 shares of XYZ stock then I hold a long position in XYZ stock.

Lot – The term lot has many different meanings depending on the asset type you are trading. It simply means a standard quantity (or size) of assets grouped together. For example, in stocks and shares, 1 lot is typically 100 shares. In forex, 1 standard lot refers to 100000 units of the base currency. In futures trading 1 lot refers to 1 futures contract.

Louis MendelsohnLouis Mendelsohn is the father of artificial intelligence within the trading community. Read more about his achievements in our biography.

M

MACD – See moving average convergence divergence.

Maintenance MarginMaintenance margin is the amount of capital that needs to be available in your account to keep a leveraged position open. This extra margin ensures that you always have enough capital to fund the total value of your position including any running losses.

MarginMargin is the amount of capital required in your trading account to open a leveraged position. The amount of margin can not be used to open or maintain other positions.

Margin Call – A margin call occurs when a position has moved against you and the maintenance margin is no longer sufficient to cover your running losses. A trader can either deposit more capital to cover the increased margin, or close the position. Closing the position may still require additional deposits depending on how far the trade has moved against you.

Margin Deposit – The margin deposit is the amount of margin required in your trading account to open a position.

Market CapitalisationMarket capitalisation is the total market value of a company’s shares on the market.

Market Maker – A market maker is someone that buys and sells large quantities of a particular asset. This facilitates liquidity and ensures the market runs smoothly and efficiently. Market makers are typically large institutional banks.

Market Order – See order types page.

Micro Lot – A micro lot is a currency trade size. A micro lot is equivalent to one tenth of a mini lot. A micro lot is therefore 1000 units of a currency. If you trade a single micro lot for currency pairs based in USD a 1 pip change is worth $0.10.

Mini Lot – A mini lot is a currency trade size. A mini lot is equivalent to one tenth of a standard lot. A mini lot is therefore 10000 units of a currency. If you trade a single mini lot for currency pairs based in USD a 1 pip change is worth $1.

Monetary PolicyMonetary policy can be set by a central bank or a government. The aim of monetary policy is to control money supply to the economy. A tight monetary policy aims to slow the economy by restricting access to finance. A loose monetary policy aims to speed up the economy by increasing access to finance. This is generally achieved by adjusting interest rates, open market operations, direct lending to banks, bank reserve requirements and other unconventional emergency lending programs (such as quantitative easing).

Monetary Policy Committee – Most countries set monetary policy through a monetary policy committee. These are a group of experts independent from government that vote on monetary policy. The UK monetary policy committee is part of the Bank of England.

Moving Average – A moving average is an indicator used in technical analysis that is applied to price charts. They are calculated by finding the average close price for a specified number of trading points. For example a 10 day moving average would total the close price for the past 10 days and then divide the total by 10. The purpose of moving averages is to smooth the price making them less susceptible to short time prices. They are good method of identifying long term price trends. Unfortunately moving averages take a while to identify trends due to their averaging nature.

Moving Average Convergence DivergenceMoving average convergence divergence (MACD) is an indicator used in technical analysis. As the name suggests it is based on moving averages. The MACD is made up of four key data points, a fast (short term) moving average, a slow (long term) moving average, the difference between the fast and slow averages (known as the MACD line), a moving average of the MACD line (known as the signal).

The majority of charting packages will plot MACD with the following default values. Slow moving average of 26, fast moving average of 12, signal moving average of 9. The MACD line and the signal are both plotted as line charts. When the MACD line moves above the signal line it can be interpreted as a buy signal. When the MACD line moves below the signal line it can be interpreted as a sell signal.

A modern approach to calculate MACD is to use exponential moving averages (EMA) instead of simple moving averages. The benefit of using an EMA is to give a greater weight to more recent price changes and therefore changes in momentum are signalled earlier.

N

Nano Lot – A nano lot is a currency trade size. A nano lot is equivalent to one tenth of a micro lot. A nano lot is therefore 100 units of a currency. If you trade a single nano lot for currency pairs based in USD a 1 pip change is worth $0.01.

NFP – See non-farm payrolls.

Non-Farms – See non-farm payrolls.

Non-Farm Payrolls – The non-farm payrolls report is a monthly statistic released in the US. It states how many people are employed in manufacturing, construction and goods companies. They can also be known as non-farms, or NFP. This is one of the most important statistics released and as a trader you should be aware when it is due. See the Trading AtoZ economic calendar for more information.

O

Offer – See ask.

Offer Price – See ask.

OPEC – This acronym stands for Organisation of Petroleum Exporting Countries. OPEC is in effect a cartel as their main purpose is to control the price of oil by limiting the supply from member countries. As of July 2019 it is estimated that OPEC members account for 30% of global crude oil supply and about 80% of global crude oil reserves.

Open InterestOpen interest refers to the total number of outstanding contracts that have not been settled. For each buyer of a futures or options contract there must be a seller.

Open Position – An open position is an active trade. The profit/loss associated with the open position can still change.

Open Outcry – This is a type of trading done by traders at physical exchanges. These traders are usually members of large investment banks. The London Metal Exchange is the last exchange in Europe that offers open outcry trading.

Option – An option is a contract that gives the buyer the right but not the obligation to buy or sell a specified asset at a specific price, on a specific date of expiry. See call option and put option.

Order – An order is a request sent to a broker or trading platform to open or close a trade. There are many types of order. Market, Limit and Stop orders are the 3 most common. See order types page.

OTC – This stands for over-the-counter, and refers to a trade that is not made on a formal exchange. Foreign exchange is the most widely recognised asset that is traded OTC.

Out Of The MoneyOut of the money is a term used in options trading when the underlying market price has yet to reach the strike price. The options contract has no intrinsic value and would therefore expire worthless.

Overexposure – When a trader is overexposed they have committed too much of their capital to a single trade, sector or asset type. Their account therefore becomes too exposed were market conditions to deteriorate.

Over The Counter – See OTC.

P

PipPip stands for price interest point and is used within foreign exchange to represent the last digit of the quoted price. If an exchange rate changes from 0.8714 to 0.8721 then it has increased by 7 pips.

Pipette – A pipette is a tenth of a pip. Some brokers provide foreign exchange quotes using an extra digit so they can give tighter spreads to their customers. Using the example in the pip definition, the quotes using pipettes could be 0.87143 to 0.87214.

Price To Earnings Ratio – The price to earnings ratio is derived by dividing the share price by the earning per share. The resulting ratio provides an indication of how the market values the company. A high ratio, especially compared to their peers, implies it is valued highly. Whereas a low ratio, again compared with their peers, implies it has a low valuation.

Put Option – A put option is a contract that gives the buyer the right but not the obligation to sell a specified asset at a specific price, on a specific date of expiry.

Q

QE – See quantitative easing.

Quantitative EasingQuantitative easing (QE) is a monetary policy tool used by central banks. Central banks create electronic money and use this to purchase government or corporate bonds on a large scale. The intention is to lower interest rates and increase money supply. QE rose to prominence after the 2008 financial crash and subsequent recession.

Quote Currency – The quote currency is the second currency mentioned in a forex pair. For example, the quote currency for the forex pair GBPUSD is USD.

R

Rally – A rally occurs when the price of an asset shows sustained upward momentum. These typically occur after a period when the price has been flat, trading in a narrow band, or after a decline. A rally may be short lived and therefore does not always constitute a trend.

Random Walk TheoryRandom walk theory is a hypothesis where the stock market moves in an unpredictable way. Proponents of this theory believe the future price of any asset is completely independent of its own historical movement. If random walk theory is true then technical analysis can not be true.

Range – Range is the difference between the highest and lowest price of an asset in a given period. For example, if XYZ Stock traded at a high of £10.50 and a low of £10.25 then its range would be £0.25.

Rate of Return – The rate of return is the increase or decrease for an investment over a specified time period. The rate of return is expressed as a percentage of the initial cost of the investment. A positive rate of return means the position has made a profit. A negative rate of return means the position has made a loss. For example if I bought 100 XYZ shares for a total investment of £1000 and then sold them for £1100 I would have made a profit of £100. My rate of return would therefore be £100/£1000 = 10%.

Relative Strength Index – The term relative strength index (RSI) relates to an indicator used in technical analysis. It calculates the momentum of assets to determine whether they are overbought or oversold. Many technical analysts believe that an RSI level above 70 means the asset is overbought and may be reaching a high, where as an RSI level below 30 means the asset is oversold and may reaching a low.

Resistance – A resistance level is a higher price on a chart where the market has previously encountered significant difficulty in overcoming. Resistance levels are commonly used to place orders to either open or close positions.

Return on EquityReturn on equity (ROE) is a way of measuring a company’s profitability. ROE is expressed as percentage of shareholder equity. It is therefore how much income a company generates as a percentage of capital received from shareholders.

Reversal – A reversal is a point on a chart when the price of an asset changes direction. A prior trend has to be in place for a reversal to occur. For this reason they are also referred to as trend reversals.

Rights Issue – When a company offers additional shares to its existing shareholders it is called a rights issue. These additional shares are usually offered at a reduced price for a limited time period.

Risk ManagementRisk management is the process that traders follow to limit and reduce the amount of risk they have in their portfolio.

ROE – See return on equity.

Rollover – When a position reaches its expiry date you may be given the option to automatically rollover into the next contract. This process can occur for most asset types.

RSI – See relative strength index.

S

ScalpingScalping occurs when someone executes a scalp trade.

Scalp Trade – A scalp trade is the act of opening and then closing a position very quickly. Scalp traders attempt to make profits from small changes in price.

Scalp Trading – This is a trading technique that relies on scalping.

SEC – The SEC is the US Securities and Exchange Commission. It is a US government agency that regulates markets and protects investors in the United States. It also has regulatory oversight of US mergers and acquisitions.

Sectors – A sector is equivalent to a category. They are categories of assets within markets and are useful for analysing and comparing companies with similar characteristics.

Share Buyback – A share buyback occurs when a company wants to buy back some of its share from investors. These usually occur within highly profitable companies that can not find other more productive uses for their cash reserves.

Share Repurchase – See share buyback.

Shares – A share is a unit of ownership of a company and are usually traded on a stock exchange. They are also referred to as stocks or equities.

ShortingShorting is the process of short selling.

Short Position– When traders refer to having a short position they are wanting an asset price to decrease in order to makes a profit. For example, if I short 100 shares of XYZ stock at £10 then I make a profit if the price falls below £10.

Short Selling – The process of short selling is when a trader sells an asset that they do not currently own. They want a decrease in value so they can close the trade for a profit. It is also known as shorting.

Simple Moving Average – See moving average.

SlippageSlippage occurs when an order is executed at a price that differs from the requested price. This usually occurs in fast moving markets, or where there is low liquidity.

SNBSNB is the Swiss National Bank. It is the central bank for Switzerland.

Spot Price – The term spot price refers to the current value of an underlying asset. This value is the price it can be bought or sold with the expectation of immediate delivery. The term is most commonly used in the commodities and forex markets.

Spot Rate – See spot price.

Spread BettingSpread betting is a product offered by brokers that allows leveraged trading on financial markets. When a trader uses spread betting they are placing a bet on the direction in which a market will move.

Spread – The spread refers to the difference between the buy and sell prices quoted for an asset. For example, if XYZ Stock has a bid price of £10.05 and ask price of £10.10, it would have a spread of £0.05. Assets with high liquidity tend to have tighter (small) spreads. Assets with low liquidity can have wide (large) spreads.

Standard DeviationStandard deviation is a mathematical calculation. It is used to calculate how much statistical variance there is in a data set. When applied to trading it is a useful calculation to determine volatility. Some technical analysis indicators use standard deviation as part of their formulation.

Standard Lot – A standard lot is a currency trade size. A standard lot is 100000 units of a currency. If you trade a single standard lot for currency pairs based in USD a 1 pip change is worth $10.

Stock Exchange – A stock exchange is a centralised location where the shares of publicly traded companies are bought and sold. A stock exchange differs from other exchanges because they only trade stocks, unit trusts, bonds and some derivative products.

Stock Index – A stock index is a group of shares that are used to gauge the performance for a sector, exchange or economy. For example, the FTSE 100 comprises the top 100 shares (by market capitalisation) listed on the London Stock Exchange.

Stock Market – The stock market is a generalised term that encompasses all the activities that occur on stock exchanges.

Stock Symbol – A stock symbol is an abbreviated form of a publicly traded company name. They are used by exchanges and traders when referencing companies. Stock symbols can also be referred to as stock tickers or ticker symbols.

Stock Ticker – See stock symbol.

StockbrokingStockbroking is a service that provides investors with the means to trade shares.

Stocks – See shares.

Stocks and Shares – See shares.

Stop Loss – A stop loss is a type of order that is used to exit a trade at a predetermined level. They are placed at a level less favourable than the current market price. See order types page.

Stop Order – A stop order is an order that instructs your broker to execute a trade when the price reaches a level less favourable than the current market price. See order types page.

Straddle – A straddle is an options trading strategy. They enable traders to speculate on the volatility of an asset without needing to know the direction of price movement. A straddle trade involves a trader buying or selling simultaneous call and put options. The options must have matching strike prices and expiration dates.

Strike Price – A strike price is a predetermined fixed price at which an options contract can be exercised. It relates to the price that the underlying asset can be bought or sold.

Support – A support level is a lower price on a chart where the market has previously encountered significant difficulty in breaking below. Support levels are commonly used to place orders to either open or close positions.

T

Technical Analysis – See technical analysis page.

Technical Analyst – A technical analyst is someone that researches and executes their trades using technical analysis.

Theta – See time decay.

Ticker – See stock symbol.

Time DecayTime decay (theta) measures how much an options contract price decays for each day of time that passes.

Time ValueTime value is the amount by which an options contract price exceeds its intrinsic value.

Tom-next – The term Tom-next means “tomorrow-next day”. Tom-next transactions mean that traders do not have to take take physical delivery of currency while allowing them to maintain their forex positions overnight. The expected delivery day for forex transactions is two days after they were opened but tom-next can be used to extend the trade beyond this date.

Instead of a trader taking delivery of a currency, the broker swaps any overnight positions for an equivalent contract that starts the following day. The difference between these two contracts is known as the tom-next adjustment rate.

If you are buying a currency with a higher interest rate, then you would receive an interest payment. If you are buying a currency with a lower interest rate, then you would have to pay interest. This payment is known as the cost of carry.

Trading Floor – A trading floor is where financial instruments are bought and sold. The majority of trading floors are now electronic and are present in all major exchanges around the world. The London Metal Exchange is the last exchange in Europe that offers open outcry trading.

Trading Journal – See trading journal.

Trading Plan – A trading plan is a documented strategy that an individual trader follows. It encapsulates their trading system, risk management, types of trading, and objective setting. Trading AtoZ refers to a trading plan as your trading journal.

Trailing Stop – See order types page.

Trailing Stop Order – See order types page.

Trend – A trend exists when a market is performing a sustained move up or down. Identifying trends is key to technical analysis. Trends can apply all asset types.

Trending – An asset that is trending has already begun to show the signs of a trend.

U

Unborrowable Stock – This means that a stock cannot be borrowed for the purposes of selling it. This comes into force when short selling is prohibited for certain stocks.

USD – The abbreviated version of the United States dollar ($)

V

Variation Margin – See maintenance margin.

VIX – VIX is shorthand for the Chicago Board Options Exchange Volatility Index. It is an index used to track the volatility of the S&P 500 index. The VIX index can also be traded.

VolatilityVolatility is a term used to describe how likely an asset is to make price movements. In highly volatile markets an asset is likely to make large price movements. Volatility is key to technical analysis as without it there would be no change in price.

Volume – Volume is the amount of a particular asset that has been traded over a certain period of time. For example, how many shares were traded during a given trading session would represent the volume for that session.

W

WTI – This stands for West Texas Intermediate and refers to crude oil. It is sometimes referred to as Texas Light Sweet.

Working Order – This is a generalised time that refers to a stop or limit order to open a position. See stop order and limit order. See order types page.

Y

Yield – The yield is the income earned from an investment. This could be from shares, ETFs, bonds, or other asset types. See dividend yield.