General Forex Glossary

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1 General Forex Glossary A 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 on your behalf. B Back to Base Any realised profits or losses, adjustments, fees or charges that are denominated in a currency not of your Base Currency will be automatically converted back to your Base Currency. Backwardation This occurs when the bid price exceeds the offer price for a stock. This is a market distortion usually when stock is suspended or under a share repurchase scheme 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 size. The minimum point movement in each market, for example the UK 100 has moved 10 ticks this equates to a 10 index point move in the UK 100 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

2 Black-Scholes option pricing model A model for pricing call options based on arbitrage arguments. Uses the stock price, the exercise price, the risk-free interest rate, the time to expiration, and the expected standard deviation of the stock return 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 C Cable 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 trading CFD S are subject to Capital Gains Tax 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. Closing 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

3 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 D Daily Funded Trade (DFT) A Daily Funded Trade (DFT) is typically a short term spread bet with some of the tightest spreads on offer. Daily Financing and dividends are not included in the calculation of Our Price but appear as separate charges or credits to your account. Each DFT has a long term settlement date. As with all spread bets, profits and losses are crystallised only when you close or partially close the trade. Day Trading Opening and closing of a position in the same contract in one day 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. Double Witching Day The last trading day before expiry of options and futures on the same underlying asset E ECB European Central Bank EDSP Exchange Delivery Settlement Price. Used by many markets to arrive at the Expiry Price Expiry Date Date at which a contract will be expired. Not to be confused with Last Day of Trading Expiry Price Price at which contracts are settled if they are left to expiry F Fair Value Price at which theoretical future contracts should be trading above or below the leading future contract. Fair values for stock indices are determined by differentials in interest rates and dividend payments Fast Market Excessively rapid trading in a specific security that causes a delay in its electronic updating Fill Execution of an opening or closing order

4 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 G Gamma The ratio of a change in the option delta to a change in the price of the asset on which the option is written Gap Where the market trades through a level specified by the client in an order. 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 order For a small fee you can protect an order against the risk of any market gaps H Hedge A transaction that reduces risk I IMM International Monetary Market 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

5 L 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 LCH.Clearnet A clearing house formed by a merger between The London Clearing House Limited and Clearnet Leading Indicators Economic indicators that change before the economy changes Level Two Live pricing system that provides market depth Leverage Leverage is also known as gearing. Where a position can be taken in 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 characterized by the ability to buy and sell with relative ease Long Opening a buy position in expectation that the market price will rise M MAM Multi Account Manager 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 price N Normal Market Size (NMS) A system that categorizes the size of transactions that are normal for a particular security and forces market makers to deal within these sizes O Offer

6 The price offered at which someone can buy; also called the ask One Cancels the Other (OCO) OCO orders 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 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. Option writer Also called the option seller; the party who grants a right to trade a security at a given price in the future Order Buy or sell instruction given by a client to a dealer Order Book A term used for the SETS system employed in London. Orders to buy and sell are allowed to collect on an order book where they can match and execute against one another Our Quote The dealing quote. Orders can be left based on our quote, meaning they will not be triggered or filled until the buy or sell price hits the specific level 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 P 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 trade on your behalf. Same as Authority to deal Price Tolerance 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 Q Quote

7 A quote will incorporate a spread which is the difference between the buying and selling price. Also see Our Quote R Real Time A real-time stock or bond quote is one that states a security's most recent price as opposed to a delayed quote. Dealing prices update in real-time 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 S SEC Securities and Exchange Commission Sector Used to characterize 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 in that underlying product will fall Slippage See Gap 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]; occur 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 Straddle Purchase or sale of an equal number of puts and calls with the same terms at the same time

8 Strangle Buying or selling an out-of-the-money put option and call option on the same underlying instrument, with the same expiration. Profits are made only if there is a drastic change in the underlying instrument's price 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 T 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 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; sometime referred to as 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 stock is traded U Underlying Asset The security or market that prices are based on (derived from) V Variation Margin Same as open P + L e.g. any running profit from an open position can be used as additional margin. Conversely, any running loss will need to be funded, especially if there is no stop loss in place Volatile Situation that changes rapidly or suffers from extreme fluctuations

9 W Warrant A derivative product that is a certificate giving authority to the holder to buy securities at a certain price. Warrants are like call options, but with longer time spans - sometimes years Working Order An order that remains working until it is filled or cancelled

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