A separately-managed account used by a brokerage firm to keep clients’ money separate from its own funds.
The official currency code for Swedish krona.
Taking a short position on a tradable security, such as a currency pair, stock, index or commodity. Opposite of “buy” (or long position).
The official currency code for Singapore dollar.
The buying back of a security or financial instrument that was earlier sold (in a short position) so as to close out (exit) that position.
What is a short squeeze?
A short squeeze happens when traders who took a short (sell) position, are squeezed into buying back assets at a higher rate than they had hoped to, thus creating an even sharper spike in the price of that asset.
Essentially a short squeeze occurs when traders have anticipated that an asset price would drop, so they sold the asset at a higher rate and with the expectation of buying it back at the lower rate for a healthy profit. However, if the market proves to be surprisingly bullish and the asset price continues to rise, some traders may panic and close their position, even at the higher price, in order to limit their losses. In doing so, they cause the demand of that asset to be even greater than it already was, thus driving the price even higher.
How does a short squeeze affect forex traders?
The short squeeze is basically a situation in which a trader is able to cut his losses, but at the same time, he is helping to ensure that the asset in question will remain unavailable at the lower price that he had anticipated for some time to come. A short squeeze is not considered ideal for traders by any stretch of the imagination, but it does help them avoid something even more unpleasant.
One of the most actively-traded commodities on the market. The standard trading unit for one contract is 1,000 troy ounces. For more information on this commodity click here.
What is slippage?
Slippage refers to the change in an asset price between the time a trader places an order (either long or short) with his broker, and the time that the position is opened. Slippage occurs with financial instruments that are extremely volatile, as well as when extreme movement has taken place on a usually illiquid asset. In general, slippage is viewed unfavorably by traders, but there are times when it can work in the trader’s favor.
How does slippage affect traders?
Imagine a trader that wishes to purchase 100 shares of a stock that he sees is selling at $35/share. He places the request with his broker, expecting to pay $3,500 to open the position. However, if the asset is exceptionally volatile, and a large number of other traders are buying shares at that same time, by the time the broker executes the transaction, the price has risen to $35.15, in which case the trader will pay $3,515 for the investment and already earned $15. The trade still may be a good one, and if the price continues to rise, the trader will see a profit and can close the position when he believes the time is right to do so. Alternately, a trader wishing to go short on an asset that he believes will drop may ask his broker to execute a sell at $35/share, only to see the price down to $34.50 by the time the sell is executed.
Negative slippage can also occur, which is to the trader’s benefit. As in the examples given above, a trader wishing to open a long position at $35 may have his order executed when the price has dropped slightly, or the trader opening a short position can see the price rise.
Links related to short slippage
Swiss National Bank, the central bank of Switzerland.
A trade which requires immediate settlement (in most cases: two business days after its execution).
The difference between a bid (the price a broker or dealer is willing to buy a security or financial instrument) and ask (the price a broker or dealer is willing to sell a security or financial instrument).
Secure Sockets Layer. Provides and maintains a consistent connection between browsers and websites, allowing secure transmission of users’ personal data.
A nickname for the British Pound (GBP).
A market order which automatically closes the position of an unprofitable security or financial instrument when it reaches a specified price, for the purpose of limiting loss and preventing slippage. A S/L can be used in both long (buy) and short (sell) positions. Also known as a “stop order” or “stop-market order”.
Be aware: A Fortrade S/L is not guaranteed and in very volatile conditions may not work, this may lead to further losses.
A margin level (depicted in percent) at which a trading platform will automatically close open trading positions (starting from the least profitable position and until the margin level margin level requirement is met) in order to prevent further potential losses.
Support or support level refers to the price level below which, historically, an underlying instrument has had difficulty falling. It is the level at which buyers tend to enter a Buy position and therefore stop the downward trend.
If the price of a stock or other financial asset falls toward the support level, it is a test for the stock; the support is either confirmed or eradicated. Confirmation occurs as buyers move into the stock, causing it to rise. If the price moves past the support level, it means the support level failed, and the market is looking for a new level.
A price “floor” below which it is believed a market, security or financial instrument will not reach. The opposite of resistance level.
What is Swap?
Swap is the overnight charge/credit amount for an open position. The amount reflects the interest rate difference between the central banks (based on market rates and spreads) of the two assets involved. Swaps are credited or debited once for each day of the week, with the exception of Wednesday, on which they are credited or debited 3 times their regular amount. The swap charge is accrued daily at 20:59 GMT.
How are traders affected by swap charges?
Swap charges are released on a daily basis by the financial institutes which Fortrade works with, and are calculated and determined according to various risk management criteria and market conditions. The swap premium is calculated in the following manner:
Pip Value (depending on trade size) * Swap rate in pips * Number of nights = Swap charge/credit.
You open a short position (Sell) on EUR/USD for 1 lot with an account based in USD:
- 1 Lot = 100,000
- 1 Pip Value = 10 USD
- Swap Rate = -3.2839 Points (equivalent to 0.32839 Pips)
- Number of Nights = 1
Swap Premium: 10 * 0.32839 * 1 = 3.2839 USD
You open a long position (Buy) on Crude oil for 1 lot (1,000 barrels) with an account based in USD:
- Swap Rate = -0.3807
- 1 Cent Value = 10 USD
- Number of Nights = 1
Swap Premium: 10 * -0.3807 * 1 = -3.807 USD
What is Swissy?
A “Swissy” has two meanings in the world of forex. The general term is slang for the Swiss franc (CHF). More commonly, the term “Swissy” refers to the currency pair USD/CHF, which measures the strength of the U.S. dollar to the Swiss franc. It is considered one of the major currency pairs.
How does one use Swissy?
As with any currency pair, the first currency quoted is the “base currency” and is always equal to 1. The second currency is the “quote currency,” or the “counter currency,” and it reflects the value of one unit of the base currency. For example, if the Swissy, which we said is the USD/CHF, is at 1.01652, that means that 1 U.S. dollar is equivalent to 1. 01652 Swiss francs. If the Swissy rises to 1.02000, the USD is stronger, because it can buy more francs than it could before. If the Swissy drops to 1.01225, the franc is stronger. On Fortrade, the up-to-the-minute trading chart of the Swissy can be found here.