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.
A market order which automatically closes the position of a profitable security or financial instrument when it reaches a predetermined price level that is suitable for the trader. A T/P can be used in both long (buy) and short (sell) positions.
The time left from the value date of a loan, contract or option until its expiry date (expressed in years, months or days).
The foreign exchange market is divided into three trading sessions: the Asian (or Tokyo), European (or London) and North American (or New York). Also referred to simply as The Forex Three.
The smallest possible change in the price of a security or financial instrument (either up or down).
Specified blocks or portions of trades. The value of a trade corresponds to an integral number of trading units. For example, gold and silver contracts are bought and sold in lot sizes of 10 and 1,000 troy ounces, respectively.
The general and prevailing attitude of traders towards a certain market, security or financial instrument, depict in percentages of currently open buy and sell orders.
What is trailing?
Trailing is the term used to describe a recently completed time frame, in reference to a set of financial data being gathered. For example, when reading the financial report of a company, the data could be “trailing 12 months,” meaning it covers the previous year, or “trailing 3 months,” meaning it covers the previous quarter. Trailing is also used as a risk management technique, a “trailing stop” order, in which a trader instructs his broker to close out his position when it hits a certain point above/below the stock price’s peak. It is referred to as “trailing,” because that peak moves as the share price does, so the stop order refers to the latest time frame before the share price reversed direction.
How does trailing affect forex traders?
As described above, trailing, in terms of a trailing stop order, can be a very effective tool for minimizing risk and maximizing potential profit. When reading financial reports, trailing describes the statistics that enable traders to analyze the short- and long-term strength of a particular company. If a company shows a weak report 12 months trailing, but very strong figures 3 months trailing, it could be an indication that after a difficult period, the company is on the road to recovery.
Of course, the trailing reports should never be the sole factor in technical or fundamental analysis, but they can provide a good insight as to what traders should look for and look at when deciding where to invest funds and what positions to take when trading CFDs.
What is a trailing stop?
A trailing stop is an excellent method with which forex and CFD traders can either minimize their potential losses on a position, or secure potential earnings. It is a standing order that the trader gives his broker to close out his position when it hits a certain point above/below the stock price’s peak. While a trailing stop can be in a dollar amount, it is more commonly a percentage above/below the high/low of a stock price.
How does a forex trader use a trailing stop?
If a trader were to buy 50 shares of a company stock at $50 per share, he may place a trailing stop at 10%. That is to say, if the price drops 10% to $45, then his broker has a standing instruction to sell the shares, thus keeping the loss at a $5/share, or $250 total. However, if the stock price rises, the trailing stop of 10% rises with it, and if the price peaks at $80 before beginning to fall, then the trailing stop is $72, or 10% of the $80 peak that the price reached. If the price now falls below that 10% line, the broker has instructions to sell, thus enabling the trader to earn $22 per share, or $1,100, before the stock price continues to drop.
Successful traders are those who can find the proper balance to ensure that the trailing stop is not too large, thus risking higher losses, but at the same time, big enough to allow for the stock price to correct any anomalies and continue in the desired direction.
The general direction of a market or of the price of a security or financial instrument. The terms “bull” and “bear” are often used to describe the two main types of trends – upward and downward, respectively.
The official currency code for Turkish lira.
An abbreviation for Tokyo Stock Exchange.