Basic Trading Terms
Algorithm - a set of rules and instructions to be followed to solve a problem or for calculations, usually done by a computer.
Algorithmic trading - a method for placing of trading orders using automated and predefined set of rules and instructions.
All-Time-High - the highest price of an asset in history.
All-Time-Low - the lowest price of an asset in history.
Altcoin - a crypto currency introduced after the Bitcoin. The name comes from "alternative coin".
Arbitrage - simultaneous purchase and sale of identical or equivalent financial instruments in different markets, in order to make a profit from the difference in their prices.
Assignment - when the buyer of the option exercises it, the seller is assigned a long position in the underlying asset if a put option is sold or a short position - if a call option is sold.
At-the-Money option - an option with exercise price that is equal to, or approximately equal to the current market price of the underlying asset.
Aussie - the name, in dealers’ jargon, for the Australian dollar (AUD).
Bag - a larger quantity of a crypto currency.
Balance of Payments - a summary of the international transactions (trade in goods and services, capital transactions and the central bank's reserves) of a country for a given period.
Bar chart - a chart in which the opening, closing, highest and lowest prices for a given trading period are displayed by "bars". The daily range between the lowest and highest value is displayed by a vertical line. The opening and closing prices are marked with small lines on the left and right of the vertical line, respectively.
Base currency - the first currency quoted in a currency pair.
Base rate - interest rate set by a Central bank. This is the rate that the Central bank charges the commercial banks for funding.
Basis point - measure of the change between two percentages.
Bear - a market player who expects prices to fall.
Bear spread - used in futures markets. Sale of a contract with delivery in a nearby month and purchase of a contract with delivery in a more distant month. The profit is determined by a change in the difference between the prices of the two contracts.
Bear put spread – an options structure implemented by buying a put and selling another put with lower strike price.
Bearish - someone who is expecting the prices of an asset to go down.
Bid price - this is the price that the buyer is willing to pay for a financial asset.
Bitcoin - the first crypto currency introduced in 2008 by an unknown person or a group of people using the name Satoshi Nakamoto. This is a decentralized network based blockchain technology. The transactions are verified by cryptography.
Blockchain - a continuously growing list of records (blocks) that are linked. These blocks are secured using cryptography.
Bond - a financial instrument for lending money to an institution or corporation. The buyer of the bond is not an owner in the corporation.
Book value - the accounting value of a stock. Assets - Liabilities.
Broker - a company or an individual who executes orders for trading in financial instruments on behalf and for the account of individual or institutional clients.
Bull - a market participant who expects the prices to rise.
Bull market - a market in which the prices rise.
Bull spread - used in futures markets. Purchase of a contract with delivery in a nearby month and sale of a contract with delivery in a more distant month. The profit is determined by a change in the difference between the prices of the two contracts.
Bull call spread - an options structure implemented by buying a call and selling another call with higher strike price.
Buy / Sell on Close - an order for purchase / sale that must be executed at the closing of the trading session. In reality, this happens in the last 10-15 minutes of the trading.
Buy / Sell on Opening - an order for purchase / sale, which must be executed after the opening the trading session. In reality, this happens in the first 10-15 minutes of the trading.
Cable - a name, in dealers’ jargon, for the British pound (GBP).
Call option - an option that gives the right, without obliging the buyer, to acquire (open a long position) in the underlying asset at a predetermined exercise price before the expiry date.
Canceling order - an order that removes a previous order from the market.
Cash balance - the funds that are available in the trading account at the beginning of a period.
Cash settlement - a transaction made on futures, in which a settlement is made based on the purchase/sale price of the futures and the value of the underlying asset on the last trading day.
Clearing - a process in which the clearing house on the exchange maintains the accounts of its members, recording all transactions and controlling the adequacy of the margin depending on the price movements.
Clearing member - these are companies that are members of the clearing house of an exchange. They are responsible for fulfilling the commitments made by their clients when opening a position.
Clearinghouse - an agency or corporation attached to the exchange, responsible for the settlement of trading accounts, transactions, margin maintenance, regulation of actual deliveries and publication of trading data. The clearing house is a counterparty to all option or futures contracts.
Closing range - the range of prices where transactions are made during the closing period of the exchange.
Coin - independently operated crypto currency.
Commission - the charge of the broker for executing trades on behalf of its customers.
Commodity Futures Trading Commission (CFTC) - a federal commission in the United States, established in 1974 under the Commodity Futures Trading Act. The Commission has five members, one of whom is the President. It is appointed by the President after approval by the Senate and is independent of all Ministries. With the adoption of the Commodity Futures Modernization Act of 2000, the Commission also regulates foreign exchange trading.
Consumer Price Index (CPI) - a statistical measure of inflation. Shows the change in consumer basket prices compared to the previous period.
Contracts For Difference (CFD) - over-the-counter financial instruments that will only pay to the buyer the difference between the prices of the underlying at the current time and at the time when the contract is closed.
Cost of carry - additional amount of money you need to spend in order to maintain a position. This could be funding charges or costs of storing of commodities.
Credit Default Swap (CDS) - a financial instrument for which the seller takes the credit risk of a lender. The seller of the CDS will compensate the buyer in case of default.
Crypto currency - a digital medium of exchange based on blockchain technology. The financial transactions are secured by cryptography.
Crop Reports - reports prepared by the US Department of Agriculture for various crops. They include information on the planted areas, yields, expected production, as well as comparisons with previous years.
Cross-Hedging - hedging a commodity by using a different but similar futures contract. For example, hedging soybean meal through soybean oil futures.
Cryptography - an approach for securing information, thus preventing unauthorized third parties access.
Daily trading limit - the maximum price range in which the price of a futures contract can move. It is determined by the exchange.
Day order - an order that is valid only for the trading session during which it is placed.
Day trade - buying and selling futures, stocks or currencies within a day. In this case, the trader ends the day without an open position.
Delivery month - a predetermined month during which a real delivery under a futures contract must take place.
Delta - an indicator measuring how much the premium of the option changes compared to the change in the price of the underlying asset. It is also interpreted as the probability an option to be in-the-money at its expiry.
Derivative - a financial instrument that is based on, or derives its value from the price of an underlying asset.
Digital currency - an electronic currency that is available only in digital form.
Digital option - financial instruments that pay a fixed amount of money at the expiry or nothing at all.
Discount Rate - the interest charged by the Federal Reserve on loans to member banks.
Distributed ledgers - a ledger where data is stored in a network of decentralized nodes.
Depth of Market (DoM) - The DoM panel on the trading platforms shows the closest levels with pending orders and their volume.
DYOR - Do Your Own Research.
Earnings Per Share (EPS) - the net profit of the company divided by the number of the shares. One of the most important financial metrics.
ELI5 - Explain Like I’m 5.
Eurodollars - US dollars on deposit in a bank outside the United States. The bank may be a foreign bank or a branch of a US bank.
Exercise - an action taken by the holder (buyer) of a call option in order to buy the underlying asset, or by the holder (buyer) of a put option in order to sell the underlying asset.
Exercise price - the price at which the underlying asset of an option can be bought (by call) or sold (by put). This term has another name – strike price.
Expiration date - the last day on which the option can be exercised or on which a futures contract can be traded.
Fast market - a condition associated with sharp price changes, increased volatility and heavy volume.
Faucet - a system for rewarding crypto currency users for completing certain tasks.
Federal funds - deposits of member banks in the Federal Reserve. These funds are also used for loans from one bank to another.
Federal funds rate - the interest on loans from federal funds.
Federal Reserve System - the system of central banking in the United States, established in 1913. Includes the Board of Governors, the Federal Open Market Committee (decides on interest rate policy) and 12 banks, members of the Federal Reserve.
Figure - a round number (for example 1.3300 or 103.00) or 100 pips price move (for example the difference between 1.2910 and 1.3010).
Fill-or-Kill (FOK) - an order that must be executed immediately or canceled.
Financial Conduct Authority (FCA) - the institution responsible for the regulation of the financial markets in the UK.
Financial instrument - a contract between two parties that can be traded and settled in cash or via real delivery.
First Notice Day - the first day on which the Clearing House warns the seller that it will have to make a delivery under a futures contract. The clearing house also informs the buyer about the approaching deadline for an actual delivery. After this day, the margin on the position increases.
Floor broker - an individual who executes orders to buy or sell financial instruments on the exchange floor.
Floor trader - A member of the exchange who usually trades on the floor at his own expense.
Forex market - a 24-hour over-the-counter market in which currency transactions are made via the Internet, terminals and by telephone.
FOMO - Fear of Missing Out.
Fork (Blockchain split) - creation of an alternate version of a blockchain. After the fork, the two blockchains operate simultaneously.
Forward contract - a contract in which the seller agrees to deliver an asset at a specified future date. Unlike futures contracts, these are not standardized and are negotiated between the parties involved.
FUD - Fear, Uncertainty and Doubt.
Futures contract - a standardized contract for the future purchase and sale of a financial instrument or commodity with deferred delivery. There are predefined parameters for the quantity and quality of the asset, as well as for the time and place of delivery. It is traded on specialized exchanges.
Futures Exchange - a centralized market, with established rules and regulations, where sellers and buyers can trade futures contracts.
Gamma - a parameter for evaluating options, which measures the dependence of the delta on the movement of the price of the underlying asset.
Genesis block - the first block of data that is processed for the formation of a new blockchain.
Good 'til Canceled (GTC) - an order given to a broker, which is valid until it is executed or canceled by the ordering party.
Gross Domestic Product (GDP) - the value of goods and services produced by a country's economy over a period of time (usually one year).
Hard cap - the maximum amount that an ICO could raise.
Hedger - an individual or company owning or planning to own an asset (soybeans, corn, meat, gold, bonds, stocks, etc.) who want to control the risk of price changes. For this purpose, they open the opposite position on the futures or options market.
Hedging - 1. Purchase or sale of a futures contract as a temporary substitute for a spot market transaction. It usually includes two opposite positions in one asset, one in the spot market and the other in a futures contract or option. 2. In foreign exchange trading, hedging is the ability to maintain both long and short positions in one currency pair. Not all trading platforms offer such an option.
High - the highest price reached for a certain period of time.
High-frequency trading (HFT) - a type of algorithmic trading. High speed and large trading volumes are normal for HFTs. They use powerful computer equipment and fast internet connections as well as complex mathematical and statistical models.
HODL (Hold On for Dear Life) - a type of long-term investment strategy.
Initial coin offering (ICO) - a type of financing via issuing of crypto currencies.
Initial margin - the minimum amount required to open a position in a margin account. The initial margin is specific to the various contracts, depending mainly on market volatility.
Initial public offering (IPO) - the first offering of a company's shares to the investors.
In-the-money option - A call option is in-the-money if the strike price is below the current market price of the underlying asset. A put option is in-the-money if the exercise price is above the current market price of the underlying asset.
Interest rate - the amount a borrower pays to a lender for obtaining a loan.
Intrinsic value - the amount by which an option is in-the-money.
Inverted market - a state of futures markets when the ratio between the prices of different delivery months differs from normal. For example, in the case of corn futures, when the price of the next month is higher than that of the more distant one.
JOMO - Joy Of Missing Out.
Kiwi - a name, in dealers’ jargon, for the New Zealand dollar (NZD).
Lagging indicators - technical indicators that show the main trend and confirm or reject the signals of the leading indicators.
Last trading day - the last day on which a futures contract or option can be traded. A real delivery of the underlying asset or a cash settlement must be made against the unclosed positions.
Leading indicators - technical indicators that precede changes in price movements. The signals generated by them must be confirmed by the price action or by a lagging indicator.
Ledger - a record of financial transactions.
Limit order (LMT) - an order that is executed at a predetermined price or better.
Liquidation - any transaction that closes a long or short open position.
Liquidity - a characteristic of the markets for commodities, stocks and currencies that shows the ability to observe smaller price changes in the execution of large orders. Institutional investors look for more liquid markets so that their trading can have less impact on volatility. The most liquid is the foreign exchange market with a volume of about $6 trillion per day.
Long position - a position at the opening of which an asset was purchased.
Looney - a name, in dealers’ jargon, for the Canadian dollar (CAD).
Lot - Standard size of a position in trading. Usually for the forex market 1 lot is 100,000 units of the base currency, but mini lots are also very popular, which are 10,000 units of the base currency. For example, for EUR/USD 1 lot is 100,000 EUR.
Low - the lowest price reached for a certain period of time.
Maintenance margin - the minimum value of an account, required to maintain an open position. It is usually smaller than the initial margin. If the value of your account falls below the maintenance margin, you receive a call from the broker (margin call). If you want to keep your open position, you must restore your account to the amount of the original margin.
Margin - the amount of trader's money required to open and maintain a leveraged position.
Margin call – this event occurs when the current value of the trading account falls below the required maintenance margin level.
Market capitalization - the total value of a company's shares on the market. The number of shares multiplied by its market price.
Market maker - Large banks and financial companies that determine the current value of the prices of financial instruments through market operations at their own expense.
Market on Close (MOC) - an order to buy or sell a financial asset before the market close.
Market order (MKT) - an order to buy or sell a financial asset at the best possible price, as quickly as possible.
Market-If-Touched (M.I.T.) - an order that automatically becomes a market one when the set price is reached. This order could be executed at any price.
Mark-to-Market - recalculation of the profit / loss of margin accounts, in accordance with the movement of the market price.
Miners - contributors to a crypto currency blockchain that participate in the mining of the currency.
Mining - the process of adding blocks to a crypto currency blockchain and the verifying of the transactions.
Node - a copy of the ledger operated by a member of a blockchain network.
Nominal value (Face Value) - the amount of money printed on the front of the certificate of a share or bond.
Offer price - the price that the seller would like to receive for a financial asset.
Offset operation - an operation opposite to the one that opened a position. For example, if we buy a financial asset, we could close the long position through an offset sale.
One cancels the other (One Cancels Other) - an order that consists of two parts. Execution of one automatically cancels the other.
Open interest - the number of open positions in futures for which holders have an obligation to the exchange, because they have not yet made a real delivery or an offset purchase or sale.
Open market operations - purchase and sale of government securities by the Central Bank in order to regulate the money supply.
Opening range - the range of prices at which transactions are concluded during the opening period of the exchange.
Option - a contract that gives the right, but without the obligation, to the holder to buy (call option) or sell (put option) an underlying asset at a certain price (strike) before the expiry date.
Option premium - the price of an option. The amount of money that the buyer gives to the seller of the option to acquire the rights associated with it.
Or better (OB) - a variation of the limit order, which is used when the market is above the set price.
Out-of-the-money option - an option without a "real" value. For call options - when the exercise price is above the market, for put options - when the exercise price is below the market.
Over-the-counter (OTC) market - markets in which financial instruments (currencies, stocks) are not traded on organized exchanges, but by Internet platforms, terminals, telephone.
Pip - the last digit after the decimal point, in the quote of the currency pair. For example, one pip for EUR / USD is 0.0001 and for USD / JPY is 0.01.
Pit - separate places on the exchange floor where futures and options of one type are traded (for example corn futures).
Position trader - an investor who opens a long or short position and holds it for a longer period of time.
Price/earnings (P/E) ratio - one of the most important measures of a company’s value. It is calculated by dividing the stock's market price by the earnings per share (EPS).
Primary dealer - financial institutions designated by the Central Bank that participate in the placement of Government securities issues.
Primary market - a market in which new issues of securities (stocks and bonds) are offered for the first time.
Pullback - a temporary dip or correction of the main trend.
Put Option - an option that gives the right, without the obligation to the buyer, to sell (open a short position) in the underlying asset at a predetermined exercise price before the due date.
Quote currency - the second currency in a currency pair.
Rally - a period of a sustained and prolonged appreciation of the price of an underlying asset.
Range - the difference between the high and the low for a given period of time.
Rate of return - the profit loss on an investment for a given period of time (usually a quarter or year).
Real delivery - transfer of ownership of the underlying asset from the seller to the buyer of the futures contract or option. Each exchange has specific delivery rules. For some contracts (stock indices) cash settlement is made.
Reciprocal quotation terms - a way of quoting at the foreign exchange markets, which gives the value of the US dollar per unit of foreign currency (EUR/USD, GBP/USD). It is also called European quotation method, as it is mainly used in Europe.
Renminbi - a name, in dealers’ jargon, for the Chinese yuan (CNY).
Repurchase agreements (Repo) - an agreement between a buyer and a seller in which the seller agrees to repurchase the securities at a later date.
Resistance level - a price level above which the price would be difficult to pass. Most often, these are previous highs, moving averages, Fibonacci levels, trend lines.
Return on equity - a measure of the profitability of a company. It is calculated by dividing the net income by the shareholders equity.
Reversal bar - a bar whose closing level is in the opposite direction of the previous trend and is close to the corresponding extreme. If the trend has been downward so far, the closing level of the reversing bar is above the opening level. If the trend has been upward so far, the closing level of the reversing bar is below the opening level.
Risk management - the process of identifying and mitigating risk for your trading positions and portfolio.
Rollover - the process of shifting the expiry of a position to the next expiry date.
Satoshi (SATS) - the smallest unit of bitcoin. Equals to 0.00000001 BTC.
Scalping - trading for small profits. The position is usually opened and closed in a few minutes and the goal is to profit from very small price moves.
Settlement price - the last price for a given trading session. Based on it, the Clearing House determines the profits and losses on open positions, margin requirements, price limits for the next day.
Share - the units of ownership of a company. When the company is public, its shares are traded on the stock exchange.
Share buyback - the process of repurchasing of company's own shares.
Short position - a position that is opened by selling a financial instrument.
Slippage - when the price of execution of an order is different from the price when the order was placed. Very common in fast markets.
Speculator - a trader who buys and sells financial instruments in order to profit from price differences. The speculator does not participate in the markets in connection with the implementation of any production activity or for the purpose of actual delivery of the underlying asset.
Spot - refers to transactions that usually have a real delivery and immediate payment. For example, in the case of spot currency transactions, the payment is up to two working days.
Spot market - a market where real delivery of goods, currencies and financial instruments takes place.
Spread - in the foreign exchange markets this is the difference between the "buy" and "sell" rates. In futures trading, this is a combination of long and short positions in futures or options with different months of delivery or from similar markets.
Stock index - a summary indicator used to examine changes in the price of a group of shares. The behaviour of the index itself depends mostly on the shares that are included and the method of calculation.
Stock market - a market in which shares of public companies are bought and sold.
Stock ticker - an abbreviation used for identification of a particular stock traded on a stock exchange. The ticker is a combination of letters and numbers.
Stop order (STOP) - an order to buy or sell when the market reaches a certain point. This order becomes market order when the price reaches the set level and is executed at the best available price.
Strike - the price at which an option can be exercised by its buyer.
Support level - a price level below which the price would be difficult to pass. Most often, these are previous lows, moving averages, Fibonacci levels, trend lines.
Swissie - the name, in dealers’ slang, for the Swiss franc (CHF).
Technical analysis - a method for analyzing the market by studying the historical movement of the prices of financial instruments presented in charts. Indicators based on price movement are calculated and the formation of price patterns is monitored. In this type of analysis, special attention is paid to the relationship between prices and trading volume.
Tick - the smallest accepted change in the price of a financial instrument.
Time decay - the portion of the price of an option that decreases due to the approaching of its expiry date.
Time value - the amount that buyers of an option are willing to pay above its true price, due to the expectation that over time, the price of the underlying asset will move in the direction of the open position.
TLT - Think Long Term.
Token - a digital unit designed to grant access to a crypto system.
Trading robot (Bot) - a software program that automatically executes trades based on predefined rules.
Trading strategy - a method for trading financial instruments based on a set of predefined rules. The trading decisions are based on technical or fundamental analysis.
Trailing stop - a stop order that automatically follows the price when it moves in the direction of the position.
Trend - the direction of the price movements.
Vertical spread - a spread composed of options with the same month of expiry, but different exercise prices.
VIX - a volatility index of the Chicago Board Options Exchange. Used as a measure of the risk of the overall stock market.
Volatility - a measure of the change in the price of a financial instrument for a given period of time. It is most often calculated as the standard deviation of the percentage change in price or by averaging price ranges.
Volume - the number of transactions made with a financial instrument over a period of time.
Yield curve - a graph that shows the bond yield on the vertical axis and the time to maturity on the horizontal axis. The yield curve is called positive when bonds with longer maturity have a higher yield.
Yield - the income earned from an investment - usually interest or dividend.
Yield curve - a plotting that shows multiple yields to maturity for different contract lengths.