Glossary of Terms

Search common forex trading terms and definitions from A to Z.

All A B C D E F G H I J K L M N O P Q R S T U V W X Y

Below is a glossary of terms that are used in the online trading industry. Select the first letter of the word you are seeking from the list above to jump to the appropriate section of the glossary.

- C -

Cable

A slang word for the British pound sterling/United States dollar currency pair (GBP/USD). It is also used simply to refer to the GBP.

CAD

The official code for the Canadian dollar. Also known as the “Loonie”, or the “Funds”.

 

Candlestick Chart

What is a candlestick chart?

One of the more effective charts for tracking what the price of a financial instrument has been doing, and to indicate what it is likely to do in the foreseeable future is the candlestick chart.  Each candlestick is a rectangular block that represents a particular time period of trading for the asset. Day traders generally use charts in which the candlesticks represent 1- or 5-minutes, while long-term traders are more likely to measure with candlesticks that represent daily, weekly, or even monthly periods.  Analysts and traders are able to gather all of the raw data they need about how an asset price behaved in a given time period.

If the candlestick is green or white, the asset price rose during the time period, with the bottom of the colored rectangle representing the opening price, and the top representing the closing price. A red or black candlestick means that the asset price fell, with the top representing the opening price and the closing price at the bottom of the rectangle.  A long rectangle indicates that there was a great deal of price movement on the asset, while a smaller, shorter candle indicates that traders were not particularly active on the asset during the time frame in question. At the top and bottom of the rectangle are straight lines, known as wicks, or shadows. The upper wick represents the highest point the price reached during the trading period, and the bottom wick shows the lowest that it reached. The length of each wick, combined with the size of the rectangle, provides insight as to how the trading went during the session.

For example, a long upper wick would show that buyers controlled trading for much of the session, driving the price up, before giving in to the sellers who were able to bring the price down by closing time.

How do forex and CFD traders use a candlestick chart?

Traders and analysts use the candlestick chart to recognize movements and trends trading in a stock price, and, together with other technical tools, attempt to discern how the price will move in the coming sessions, and to predict if and when it will reverse its direction. Accurate predictions help traders to decide when the best time is to buy or sell their shares for maximum profit, or when to best cut their losses.

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Cap-Weighted Index

A stock index in which each stock is weighted according to its market capitalization. As a result, companies with a larger market-cap have more influence on price movements than companies with a lower market-cap. NASDAQ-100, the UK’s FTSE 100, France’s CAC 40 and Spain’s IBEX 35 are examples of cap-weighted indices.

Cash and Carry Trade

An arbitrage trading strategy in which a trader holds a “long” position in a security or commodity together with a “short” position in a future contract on the same security or commodity. In this case, the security is held up until the future’s delivery date, thus covering the short position through the previously-placed investment in the long position.

CBOE

An abbreviation for Chicago Board Options Exchange, the largest market in the world for the trading of exchange-traded securities and options.

Central Bank (CB)

A government or quasi-governmental institution that manages and controls a country’s (or group of countries’) monetary policy. Its responsibilities normally include issuing notes and coins, managing the country’s credit system and supervising over its commercial banking system. Prominent central banks include the Federal Reserve Bank, the Bank of England (BOE), the European Central Bank (ECB), the Bank of Japan (BOJ), and the People’s Bank of China (PBC).

Centralised Market

A national or local exchange in which securities and financial instruments are traded at fixed prices without the influence of any competing market. The quoted prices of the securities listed on the market represent the only price that is available for traders looking to buy or sell a certain security. Major centralised markets around the globe include stock markets such as the TSE, security and commodity markets such as the CME and the ASE. The foreign exchange market, in contrast, is a decentralised market since there is no single, physical place where investors can go to trade on currencies.

CFD

A contract for difference, i.e. an open-ended contract with no fixed settlement date that can be closed out by the holder on demand for which the amount of the cash settlement represents the difference between the underlying asset’s price agreed at the outset of the contract and its market price at the date of the settlement of the contract.

CFD Rollover

What is a CFD Rollover?

When traders hold CFD positions, whether long (buy) or short (sell), the brokerage has in place predetermined dates that the contracts are closed. Traders may, on these dates, close out their positions, buying or selling, as the case may be, and either pocket their earnings or incur their losses, depending on the price movement of their CFD. In the event that a trader does not specifically close his position, the brokerage will automatically rollover the position to the next trading period, charging or crediting the trader with the difference between the closing price on the old contract and the opening bid on the new one.

How does CFD Rollover affect forex traders?

Traders should look at the brokerage’s rollover dates before opening a position on a CFD. Rollover dates are generally every three months on Sunday mornings. Any positions not closed by the end of the trading day on the previous Friday are automatically rolled over on Sunday morning. Traders who see that their positions are profitable and believe that they will continue to be so, will usually not touch the position, and allow it to rollover in the hope that they will earn greater profits. On the other hand, if a trader sees that the position has not been profitable, and does not believe it will turn around the coming trade period may opt to close the position before the rollover. A trader may also close out the position if it has been profitable, but he does not have confidence that it will continue to be so.

Links related to CFD Rollover
Ask
Bid
Bid-Ask Spread
CFD
Close A Position
Open Position
Rollover date

Champagne Stocks

What are Champagne stocks?

Champagne stocks are stocks whose value have risen very high, very quickly, very often unexpectedly so. Champagne stocks can come from any sector of any industry. A prime recent example would be the stock of American Airlines group, which dramatically increased between September 2013 and the end of 2014 by more than a staggering 233%.
The term “champagne stock” derives from the idea that stockholders are so excited by huge earnings over a short period of time that they will open a bottle of champagne to celebrate. Also, the sudden rise of stock prices brings to mind the image of a champagne cork popping and shooting upwards.

How does one use Champagne stocks?

Champagne stocks can be extremely profitable for traders who get in on them early enough. The danger is that just as the value of a Champagne stock can rise so dramatically, the proverbial bubble could also burst, and the stock could just as quickly depreciate. Knowing exactly the optimal time to buy and to sell requires a keen understanding of market trends as well as excellent fundamental and technical analysis.

Links related to Champagne stocks
Active Market
All Time High (ATH)
Cryptocurrency

CHF

The official currency code for the Swiss franc.

Chunnel

A nickname for euro to British pound (EUR/GBP) currency pair.

Client Account

A setup to conduct currency and CFD related transactions on a recognized market, which the customer presently has or may have at any time in the future. The setup typically includes confirmation of transactions, listing of holdings, open and/or pending positions, cash and cash equivalents.

Close a Position

The process of closing an active trade by either selling a long position (also referred to as simply “buy”) or covering a short position (also referred to as simply “sell”).

Closed Trades

A list of recently closed trades.

Closing Price

What is the Closing Price?

The Closing price, also known as the closing quote, is the price of an asset in the trading market at the end of the trading day. It is important to note that the closing price of one day is not necessarily the same as the opening price of the same asset on the following day. Fluctuations in the asset value can, and often do, continue even when the markets are closed while the asset is not being traded.

How does one use the Closing Price?

The Closing Price is the primary indicator for a trader on what the currency pair has done on the day that you are weighing a long or a short position. By examining the closing price, along with the day high and the day low, traders can gauge the volatility of the currency and develop a strategy to either buy, sell, or avoid the currency altogether.

Links related to Closing Price
Buy
Day High
Day Low
Open Price
Volatility

CME

An abbreviation for Chicago Mercantile Exchange, one of the largest and most influential options and futures exchanges in the world.

CNY

The official currency code for the Chinese yuan, when traded in Hong Kong (sign: ¥). Often interchangeable with RBN, “renminbi”, the People’s Republic of China) official form of currency.

Commodity

What is a commodity?

Commodities are agricultural products or raw materials that can be bought, sold or traded. Commodities are broken down into four basic groups:

  • Energy (such as gasoline, crude oil and natural gas)
  • Agriculture (such as wheat, coffee, sugar, and corn)
  • Livestock (such as pork bellies and cattle)
  • Metals (such as gold, silver, and copper)

Commodity prices are heavily dependent on supply-and- demand, and as such are often greatly influenced by weather, natural disasters and geopolitical events. As a result, strong fundamental analysis is crucial to successful commodities trading.

How does one use commodities?

Traders can trade on the price of a commodity, most commonly as a futures contract. This is a contract in which a trader purchases shares of the commodity at a future time, but in which a certain price is guaranteed, in the event that external factors, such as weather-related disasters or geopolitical events, affect the price of the commodity. For traders of CFDs on commodities, investments are based on how the trader believes the price of the commodity will behave in a pre-determined time frame.

Links related to Commodity
Active market
CFD
Futures contract

Compounding

What is compounding?

Compounding is when an investment increases exponentially in value over time. The growth is exponential because both the principal investment and the interest continue to earn interest. For example, if a person invests $20,000 in a company, and earns 25% interest on that investment in the first year, at the end of the year, his investment will be worth $25,000. The following year, it is the full $25,000 that earns the same interest, bringing its value to $31,250 the following year. That means, with compounding, the net amount earned from interest every year is higher than the previous year.

How does one use compounding?

Compounding is a primary tool in money management. The longer you leave an investment in without cashing it out, the more money you are able to earn from your initial investment. The biggest advantage of exponential earning rather than linear earning, is that if the earning was linear, the net increase would remain the same every period. That is to say, if a person earns $2,000 in interest per year, then that is the increase – no matter how much money is in the investment at the time. Compounding, on the other hand, ensures that the more an investment is worth every year, the higher the net increase will be. As a result. Investors are encouraged to leave both the principal and the interest earned in the investment, and watch it grow more quickly than if they kept only the principal.

Links related to Compounding
Account Balance
Interest
Interest Rate

Cross Currency Pairs

What are cross currency pairs?

Foreign currencies are always traded in pairs – the value of one currency compared to a counterpart. Cross currency pairs, also known as minor currency pairs, are pairs that do not include the U.S. dollar, but do include at least one of the world’s other three major currencies. That is to say that the Japanese yen, British pound or the euro are at least one, if not both of the currencies included in the pair. Cross currency pairs are not to be confused with the seven major currency pairs, all of which include the U. S. dollar against one of the six other most liquid currencies in the world.

How does one use cross currency pairs?

Depending on how volatile and liquid a market a trader wishes to invest, he might find that the cross currency pairs are a safer investment than a major pair. As is the case with all other currency pairs, the rates can be influenced by several factors, including economic announcements, geopolitical events, and even global weather. The Fortrade website offers several cross pairs from which traders can choose.

Links related to cross currency pairs
Currency Pair
EUR
GBP
Foreign Exchange
JPY
Minor Currency Pairs (Minors)
Major Currency Pairs (Majors)

Crude Oil

What is crude oil?

Crude oil is one of the most important commodities traded on the open market. It is unrefined petroleum that is used to make diesel, gasoline, and other fossil fuels. Because crude oil is a nonrenewable source, in recent years, much progress has made in finding alternative energy sources – including solar and wind – which will never be in danger of running out. As a result, it is difficult to know how much longer crude oil will be considered a critical commodity. However, for now, it certainly is, and many countries are major suppliers, including the United States, Russia, and Saudi Arabia. Crude oil prices generally reflect WTI (West Texas Intermediate) oil, which is primarily drilled in the United States, and the European Brent Crude. The third major benchmark is the OPEC Basket.
Like most commodities, the price of crude oil is driven primarily by supply and demand, and is extremely vulnerable to external factors. At times, for example, members of OPEC (Organization of Petroleum Exporting Countries) have decided to limit production of oil, causing the global supply to dwindle, and the price of oil to rise. Alternately, when oil-rich countries (OPEC and others) are producing excessive amounts of oil, the supply outweighs the demand, and the prices can drop.

How does one use crude oil?

While some traders purchase spot contracts on crude oil (in which ownership of the oil changes hands at the moment, and the price reflects the cost of crude at that moment), it is far more common for traders to purchase futures contracts on oil. With futures contracts, the price agreed upon reflects what both the buyer and seller believe will be the price of oil at a predetermined future date. Those who trade on oil CFDs are essentially predicting how the price of oil will move before the position closes.

Links related to crude oil
Brent crude (EB)
Close a position
Futures contract
OPEC Basket
Spot
WTI crude (CL)

Crude oil – Brent vs. WTI

What is the difference between Brent crude and WTI crude?

Brent crude and WTI (West Texas Intermediate) crude are the two primary benchmarks for global oil prices. When a price of oil per barrel is quoted, it is generally referring to one of these two oils, and the prices of Brent and WTI tend to be fairly close to one another.

The primary differences between the two are:

  • Location: Brent crude is drilled in one of the four oil fields in the North Sea, between England, Germany and Scandinavia. WTI is drilled from oil wells in the United States
  • Transport: Because Brent is drilled from the ocean and is water borne, it is less expensive to transport, as opposed to the more expensive WTI, which is transported through pipelines
  • Gravity and sweetness: Brent is considered to be a light oil (as measured by density) and a sweet oil (as measured by sulfur content). WTI is lighter and has even less sulfur (sweeter)
  • Supply: Approximately 60% of the world’s oil supply comes from Brent oil

Like most commodities, the price of Brent and WTI is driven primarily by supply and demand, and is extremely vulnerable to external factors. If, for example, members of OPEC (Organization of Petroleum Exporting Countries) decide to limit production of oil, the global supply will dwindle, and the price of Brent and WTI will rise. Alternately, when oil-rich countries (OPEC and others) produce excessive amounts of oil, the supply outweighs the demand, and the prices can drop.

How do CFD and commodities traders use crude oil?

Most trading on crude oil is in futures contracts, where both the buyer and seller agree on the price that they believe will be the price of oil at a predetermined date. Those who trade on oil CFDs are essentially predicting how the price of oil will move before the position closes. Brent contracts are traded on major exchanges, such as ICE (International Exchange), while WTI contracts are traded on the New York Mercantile Exchange.

Links related to crude oil
Brent crude (EB)
Futures contract
OPEC Basket
Spot
WTI crude (CL)

Currency Pair

The exchange of one currency unit against another currency unit. The currency that is quoted (=denominator) is referred to as the base currency and the currency used as reference is called the counter currency or quote currency (=numerator). The result of a currency pair is its exchange rate. Click here to see a complete list of currency pairs available for trading.

Did you know?
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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.