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.
The amount of money in an account at the start of a business day, including all deposits, withdrawals and/or other cash and cash equivalents (= credits minus debits). If a trader has decided to close an open position, the account balance will be changed in accordance to his/her profit or loss amount.
The interest accumulated on a security from premiums and discounts that relate directly to deposit swap (interest arbitrage) deals over the period of each deal.
A market-wide movement or trend that affects nearly all stocks and sectors. The term originates from the big board used historically in the NYSE for marking price movements.
A market in which a lot of buying and selling is going on.
A market in which prices are generally rising. Also referred to as a Bull Market.
Trading of a company’s stock after the market has closed.
What is an Aftermarket report?
An Aftermarket report is the initial report released by a company after it has begun trading on the public stock exchange. Typically, before a company begins trading on the stock exchange, an investment bank evaluates the company’s worth, and determines how to break down that value in shares that will be sold to the public. After an initial sale of shares to large investors, known as the primary market. Once the primary market sales have been made, the company is able to be traded on a major stock exchange, such as the New York Stock Exchange (NYSE) or NASDAQ. This happens when some of the initial investors decide to sell some (or all) of their stock shares, and any investor of any size can purchase them.
Once the offerings appear on the secondary market, the company releases an Aftermarket report, providing the name of the company, its ticker symbol, the offer date, and offer and closing prices. Often, Aftermarket reports will provide additional information, including financial data and ratios and a description of the company.
How does one use an Aftermarket report?
Aftermarket reports are extremely helpful for investors to gauge an initial public interest in a newly traded company. While it does not guarantee how the company’s market value will move in the future, it does give investors and traders a reasonable idea of what to look for, and whether or not the purchasing of shares early on would be a wise investment. CFD traders can invest on how they believe the market price will react in the days immediately following an Aftermarket report.
What is an all-time high?
The all-time high is the highest price any given asset has ever reached on the open market.
How does one use an all-time high?
An asset reaching a new ATH can provide both opportunities and pitfalls for traders. If the asset is reaching a new ATH on a regular basis, traders can recognize the upward trend, and invest accordingly. However, a strong technical and fundamental analysis is also necessary in order to determine when the asset price will hit its resistance and begin to drop again. An all-time high should not, in and of itself be used to develop a trading strategy, but it can – and should be – one of several tools taken into account.
The annual rate of return on an investment. For example, a £10,000 investment at 5% per year earns £500 a year and has an APR of 5%. Also referred to as the annual percentage rate or simply APR.
Effecting sales and purchases simultaneously in the same or related securities in order to take advantage of price differentials between markets.
During the summer, starts at 00:00 GMT and lasts to 9:00 GMT and during the winter starts at 23:00 GMT and lasts to 08:00 GMT. Also known as the Tokyo trading session.
In the over-the-counter market, the term “ask” refers to the lowest price at which a broker is willing to sell a security (e.g. currency, stock, index or commodity) at any given time. The ask price, also known as the “offer” price, will almost always be higher than the “bid” price (= the highest price a broker is willing to pay to buy a security at any given time). Brokerage firms typically make money on the difference between the bid price and the ask price. This difference is called the “ask-bid spread.”
The official code for the Australian dollar.
A nickname for the Australian dollar.
A type of chart, widely used by traders and financial professionals, which is represented by horizontal rectangular bars with lengths proportional to the magnitudes of what they represent. The top of the bar is the highest point the price reached during a defined period and the bottom of the bar is the lowest. A dash on the left-hand side of the bar denotes the opening price and a dash on the right-hand side the closing price for that period.
In currency pairs, the first currency is the “base” currency (numerator) and the second currency is the “quote” currency (denominator). The value of the base currency is always one. Therefore, the quoted currency expresses the amount of the second currency compared to one base currency. In the British pound sterling/United States dollar currency pair (GBP/USD), for example, the value of the dollar is expressed in terms of one pound.
A market condition in which the prices of securities are falling 20% or more. It is generally accompanied with widespread pessimism that, in turn, sustains the flow of negative sentiments. Its opposite is a bullish market, in which the sentiment towards prices is positive.
A trader who believes that the price of a particular security will fall. The opposite of bull/bullish.
A standard or average used for comparison or to indicate an overall trend of a certain stock, bond, commodity or other security.
What is the best bid?
The Bid, also known as the Sell, is the highest price that a bank or a brokerage is willing to buy an asset from a trader. That is to say, it is the most a trader can receive when he sells an asset or security. Along with the Ask (also known as the Buy), the Bid is one half of a price quotation, which is the indicative cost upon which the buyer and seller agree when trading forex and CFDs.
The Bid rate is always lower than the Ask rate, and the difference between the two is referred to as the Spread. Each broker and bank has its own bid, that is to say, its own highest price that it is willing to pay for an asset, and different banks may have different bids. The highest bid offered by any bank or broker is known as the best bid.
How do forex traders use best bid?
Seeing the best bid (and its counterpart, the best ask), enables traders to choose with which brokerage or bank they wish to trade forex and CFDs, so that they may see the highest potential earnings, while minimizing their risks and losses as much as possible.
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A nickname for the Euro-Russian rubble (EUR/RUB) pair.
In the over-the-counter market, the term “bid” refers to the highest price at which a market maker or broker is willing to pay in order to buy a security (e.g. currency, stock, index or commodity) at any given time. The bid price will almost always be lower than the “ask” price (= the lowest price a market maker or broker is willing to sell a security at any given time). Market makers and brokerage firms make money on the difference between the bid price and the ask price. This difference is called the “bid ask spread”.
The amount by which the “ask” price exceeds the “bid” price. This is essentially the difference in price between the highest price that a broker is willing to pay for a security and the lowest price for which it is willing to sell the security. The bid-ask spread is also referred to as a bid-offer spread; a buy-sell spread or simply as bid-ask.
What is Bitcoin?
Bitcoin is the world’s largest cryptocurrency and digital payment system. It operates using blockchain technology, which is a public ledger recording all transactions. While Bitcoin is completely unregulated, which might make some investors think twice, it has also proven to be extremely secure, as no hackers have succeeded in compromising the blockchain technology.
How does one use Bitcoin?
Using a hashing algorithm, “miners” can discover bitcoins, although there is a limited number (21 million) Bitcoins that will ever be mineable. Of the bitcoins already on the market and in circulation, they can be traded like any other asset, and many forex brokers – including Fortrade.com – do enable traders to trade Bitcoin CFDs on their platforms.
An abbreviation for Bolsas y Mercados Españoles, the Spanish company that runs the four major stock exchanges in Spain.
The central Bank of Canada.
The central Bank of the United Kingdom.
The central Bank of Japan (also known as Nippon Ginko).
A legal contract in which a borrower (bond issuer) such as a government, credit institution or company issues a certificate by which it promises to pay a lender (bondholder) a specific rate of interest for a fixed duration and then redeem the contract at its principal value once it reaches maturity. Click here to learn about the government bonds Fortrade offers.
The amount of money given to a trader by a broker for online trading purposes. Redeeming and withdrawing bonus credit typically requires the trader to meet certain trading volumes.
What is Brent crude oil?
Brent crude oil is crude oil that is drilled in one of the four oil fields in the North Sea, between England, Germany and Scandinavia. It is one of the two major benchmark oils in the world, the other being WTI (West Texas Intermediate) crude. Crude oil is defined as natural, unrefined petroleum that can be refined into thousands of products, known as petrochemicals. The most common uses of refined crude oil include gasoline, diesel fuel, kerosene, heating oil and kerosene.
Because crude oil is a nonrenewable source, and poses many dangers to the environment and world eco-system, in recent years, much progress has been made in finding alternative energy sources – including solar and wind – which are safer and will never run 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.
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 Brent crude oil?
While some traders purchase spot contracts on Brent crude (in which ownership of the oil changes hands at the moment of trade, and the price reflects the cost of crude at that moment), it is far more common for traders to purchase futures contracts. With futures contracts, the price agreed upon reflects what both the buyer and seller believe will be the price of Brent crude 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.
An individual agent or party who arranges transactions between buyers and sellers for a predetermined fees or commission rates.
The currency code for Bitcoin.
A slang term for one million dollars.
A market condition in which the prices of securities are rising, the general public’s views on the market are positive. Its opposite is a bearish market, in which the sentiment towards prices is negative.
A trader who believes that the price of a particular security will rise. The opposite of bear/bearish.
Taking a long position on a tradable security such as a currency pair, stock, index or commodity. Opposite of “sell” (or short position).
What is a buy limit order?
When a trader sees a financial instrument that he wishes to purchase, but only at a price lower than where it currently stands, he may place a buy limit order, which would instruct his broker to automatically open the position if and when the price reaches what the trader is willing to pay for it. In essence, it is the trader’s way of instructing his broker to open a position at a better rate than the current market price.
The advantage to a buy limit order is that the trader decides how much he is willing to pay for an asset, and not have to spend more than that amount. The disadvantage is that if the price drops close to his limit, yet without touching it before shooting back up, he will not have spent anything, but he will have missed the opportunity to earn a profit when the asset price reversed direction.
How do traders use a buy limit order?
Imagine a trader sees that the stocks of a company that he has been following are trading at $35 per share, and he believes that when the price hits $29, it will rise again. He might place a buy limit order for 100 shares of that stock at $30. If and when the price reaches $30, his broker will automatically open the position, and if his prediction was accurate, he can earn a nice profit on his 100 shares. if the price reaches $32 without hitting/ reaching as low the Limit level of $30, the Limit Order will not be triggered.
Please note: No brokerage, including Fortrade, can guarantee that a buy limit order will be filled at exactly the price requested by the trader. Rather, the broker will execute the order at the requested price, and the position will be opened at the first available price in the market from that time. When conditions are especially volatile, there may be slippage – which is a change in price – between the time that the broker executes the order to open a position and the time the position is open, thus resulting in a lower profit for the trader.
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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.
The official code for the Canadian dollar. Also known as the “Loonie”, or the “Funds”.
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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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.
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.
An abbreviation for Chicago Board Options Exchange, the largest market in the world for the trading of exchange-traded securities and options.
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).
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.
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.
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.
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.
The official currency code for the Swiss franc.
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.
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”).
A list of recently closed trades.
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.
An abbreviation for Chicago Mercantile Exchange, one of the largest and most influential options and futures exchanges in the world.
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.
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.
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.
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.
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.
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.
What are cryptocurrencies?
Cryptocurrencies, also known as digital currencies, are virtual currencies that many analysts and experts believe will eventually replace paper money. The cryptographic technology (hence the name cryptocurrencies) makes the currencies extremely hard to counterfeit, which makes the currencies very enticing. Because the digital currencies are decentralized, and not regulated by any government agencies anywhere in the world, they have an independence that many traders like. However, no regulation also makes transparency a potential issue for other traders.
How does one use cryptocurrencies?
Different cryptocurrencies can be obtained in different ways. For example, Bitcoins, the most widespread digital currency, can be “mined” by users, although there is a limited number of new coins available for mining at any given time. Once they have been mined, they can be traded on forex exchanges for fiat currencies, or used as a form of payment online. Currently, more than 100,000 vendors and companies accept digital currencies as a valid form of payment, and as these cryptocurrencies increase in value, that number seems likely to grow. Many forex brokers, – including Fortrade.com – provide traders with the option of trading CFDs of the larger cryptocurrencies, such as Bitcoin, Ethereum, Dash, and Litecoin.
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.
What is the daily change?
The daily change represents the fluctuation of any given security over the course of a trading session. It is measured very simply by comparing the price of the security at the end of a trading session to its closing price at the end of the previous session.
How does one use the daily change?
The importance of the daily change is quite straightforward.
- It enables traders to track how much money they have earned or lost during a day’s trading.
- It is used, together with the daily changes of previous and subsequent days to determine long-range trends of the security, thus providing traders with an excellent technical analysis tool for building trading strategies.
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The highest price at which a security or financial instrument has traded during the day.
The lowest price at which a security or financial instrument has traded during the day.
What are derivate markets?
Derivatives are contracts whose values are based on underlying assets, and are determined by the rise and fall of that underlying asset. Prime examples of this include futures contracts and Contracts for Difference (CFDs). Derivative markets are markets on which these derivatives can be traded. Most derivatives are traded over-the- counter (OTC), and are not regulated by government authorities, which means they are far riskier than the derivatives that are traded on regulated exchanges.
How do derivate markets affect forex traders?
The most commonly traded derivatives are futures contracts, in which the buyer and seller mutually agree on a price that reflects what they believe will be representative of the asset at a predetermined future date. Other derivatives include CFDs, forward contracts, options, and interest rate swaps.
A financial instrument or security whose value is derived from and is dependent on the value of another underlying asset or financial instrument (such as an exchange rate, commodity, stock, index, bond or mortgage contract). The main use of derivatives is to lower risk for one party while offering a potentially high return at a higher risk to another party. There are four main types of derivatives contracts: forwards, options, futures and swaps.
Markets for buying and selling derivative instruments. There are two major types of derivative markets: regulated futures and option markets and over-the-counter markets.
A downloadable software through which traders can access financial markets, open, edit and close online trading positions and receive live streaming of quotes, graphs and other technical indicators, via a PC or Mac desktop or laptop computer.
What is the Deutsche Börse Group?
The Deutsche Börse Group owns and operates all seven stock exchanges in Germany, the largest of which is the Frankfurt Stock Exchange. Since 1997, the Frankfurt Stock Exchange has used a completely electronic trading platform, called Xetra, which was developed by the Deutsche Börse Group, and has since been adopted by several other European exchanges.
The Deutsche Börse Group has approximately 600 companies listed, with a combined domestic market capitalization of over $1.7 billion. Since 2014, it has been a member of the U.N. Sustainable Stock Exchanges initiative. The Deutsche Börse Group oversees the German stock exchanges, and is regulated by the European Securities and Markets Authority, the Federal Financial Supervisory Authority, and the Trading Surveillance Office.
How do forex traders use Deutsche Börse Group?
As with any stock exchange, the most obvious use of the Deutsche Börse Group is for forex and CFD traders to see the market prices for all financial instruments on the group’s stock exchanges. While banks and brokers each provide their own bid and ask prices for assets, exchanges allow traders to see the general range of what each price should be. By watching whether the exchanges operated by the Deutsche Börse Group are bullish or bearish, traders gain a strong tool for developing a trading strategy.
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The central Bank of the Federal Republic of Germany (equivalent to the Federal Reserve Bank), and the most important member of the European System of Central Banks (ESCB).
An official change in the price of a security or financial instrument, especially in regards to a currency (where it means a decrease in the value of its exchange rate). The opposite of revaluation.
A dividend is a way of a company to distribute a percentage of its net earnings to its shareholders. The dividend amount is decided by the company’s board of directors, and can be issued as a cash payment, shares or other assets.
Most commonly, the dividend is determined in terms of money per share, which means that each shareholder will get a dividend respectively to his holdings, for example:
In case you own 1,000 shares, and the dividend announced is $3 per share – you will get $3,000.
Other common way of quoting a dividend is terms of percentage of current market price, which is also known as “yield”, for example:
If you hold 1,000 shares, the current market price is 100, and the dividend announced is 2% – it means you will get $2 for every share you hold, which are $2,000.
Other ways to pay a dividend are: Shares (giving out shares instead of cash), property, interim and more.
When a dividend is paid, the company’s value is immediately effected for the simple reason that the cash it is giving out as a dividend will no longer belong to the company, so its share price decreases in the rate of the dividend payment.
The change in the share’s price is taking place in the ex-dividend date.
As a result, Fortrade needs to credit/debit the clients holding the dividend paying share during the ex-date, in order to cover for the paid dividend and making sure that all of our shareholding clients will receive the dividend and won’t be effected by “fake” declines of the share’s price.
* The term “fake” refers to market price movements that are not a result of real market conditions, but a result of a synthetic conditions like dividend payout.
All client holding a dividend paying share in a short position during the ex-dividend day will be debited in the size of the dividend.For example:If you hold 1,000 shares in a short position in an opening price of $110 while the current market price is $100, and the paid dividend is equal to $2 per share → The share price will drop in $2 in the ex-dividend day, meaning that you will earn more money in your short position due to the “fake” share price movement, so Fortrade will have to charge that exact amount (with no further fees or commission) to your commission.
P&L before the ex-dividend day → 1,000 * (110 – 100) = $10,000
<shares amount * (opening price – market price before the dividend payout)>
P&L after the ex-dividend day (assuming there were no other real market effects on the share price) → 1,000 * (110 – 98) = $12,000
<shares amount * (opening price – current market price)>
Dividend charge → 1,000 * $2 = $2,000 <shares amount * dividend paid per share)>
Final P&L calculation → 1,000 (110 – 98) – 2,000 = $10,000
<shares amount * (opening price – current market price) – Dividend amount>
All client holding a dividend paying share in a long position during the ex-dividend day will be credited in the size of the dividend.For example:If you hold 1,000 shares in a long position in an opening price of $90 while the current market price is $100, and the paid dividend is equal to $2 per share → The share price will drop in $2 in the ex-dividend day, meaning that you will lose money in your long position due to the “fake” share price movement, so Fortrade will have to credit you with that exact amount (with no further fees or commission) to your commission.
P&L before the ex-dividend day → 1,000 * (100 – 90) = $10,000
<shares amount * (market price before the dividend payout – Opening Price)>
P&L after the ex-dividend day (assuming there were no other real market effects on the share price) → 1,000 * (98 – 90) = $8,000
<shares amount * (Current market price – Opening Price)>
Dividend credit → 1,000 * $2 = $2,000
<shares amount * dividend paid per share)>
Final P&L calculation → 1,000 (98 – 90) + 2,000 = $10,000
<shares amount * (Current market price – Opening Price) + Dividend amount>
** All dividends credits/charges will appear in the “commission” column of the position.
An abbreviation for the Dow Jones Industrial Average (also known as the US30 index or simply The Dow). For more details on the index, click here.
The official currency code for Danish krone.
A situation in which each successive peak or trough on a security’s price chart is lower than the ones preceding it. The opposite situation is an uptrend.
A downward trend opportunity refers to events in which our research department believes the technical analysis of an underlying product indicates that it may decrease in price. It is your decision to trade if you feel you agree, we always recommend you to consider other external sources and only open a trade if it is appropriate for you. Visit our research analysis page for more information.
What is GERMANY 30?
The GER 30 (indicative of the DAX 30) is an index that tracks the 30 largest companies being traded on the Frankfurt Stock Exchange (FWB), as measured by market capitalization and order book volume. Fortrade offers futures contracts on the index, with trading hours Monday-Friday, 07:01 – 20:59 GMT.
The idea of a stock market index is to measure how a certain segment of stocks on a particular exchange are trading, and it can be an effective indicator of the general stock market.
How do forex traders use GERMANY 30?
Because the DAX 30 is a leading indicator of the major stocks being traded on the German stock exchange, CFD traders are able to learn a great deal about which stocks are worth watching closely, and which are to be avoided. Seeing whether the GERMANY 30 is bullish or bearish, traders gain a strong tool for developing a trading strategy.
Links related to GERMANY 30
What is the Economic Calendar?
An economic calendar is a detailed list of economic events, including financial policy statements as well as regular weekly, monthly and quarterly economic reports and economic indicators that are expected to have an effect on trading markets. The events appear on the calendar in chronological order, and are all rated on a scale of 1-3 as to how large an impact the event is expected to have on the markets. Finally, when an economic report is scheduled, the calendar includes analysts’ predictions as to what the numbers of the report will be, and whether they will represent a rise or fall from the previous report. The economic calendar can help traders predict if the markets will be bullish or bearish, active or quiet, and by doing so, enable traders to develop strong strategies based on the scheduled events and the fundamental analysis made possible by the calendar. Click here to visit the economic calendar on Fortrade.com.
How does one use the Economic Calendar?
By watching the economic calendar and having an idea what to expect from various economic reports and policy statements, traders have a very powerful tool for fundamental analysis. Of course, as with every aspect of forex trading, nothing is foolproof. Analyst predictions may be wrong, or the reaction of the markets to the events in the economic calendar may be other than anticipated, due to unforeseen, external circumstances. That being said, the economic calendar remains a very effective tool at a trader’s command, and it should be checked daily and followed closely.
A government-issued statistic (such as a country’s Gross Domestic Product (GDP), Consumer Price Index (CPI), industrial production or unemployment rate), which allows analysis of the economy’s performance as a whole.
An index calculated by averaging the percentage change of each of the listed stocks included in the group, regardless of their market cap or economic size (i.e. sales and earnings). In this sense, it is different from a cap-weighted index, in which stocks are weighted on a daily basis according to their total market value. Most of the widely used indices such as the S&P 500 offer equal weight versions in addition to their cap-weighed indices.
The amount of money in an account that is available for trading. Equivalent to the trader’s ‘Open P&L’ + ‘Account Balance’.
What is an equity market?
Equities are the value of assets that traders have at their disposal. An equity market, also known a stock market, is the place where investors meet to buy and sell stocks. Equity markets can be privately held stocks dealt via dealers on over-the-counter (OTC) markets, or can be publicly traded stocks, on regulated exchanges such as NASDAQ, New York Stock Exchange, and the Dow Jones in the United States, or stock exchanges in Europe, Asia, and the Middle East, such as the London Stock Exchange, IBEX (Spain), Hang Seng Hong Kong), and Tadawul (Saudi Arabia). Most developed countries in the world have stock exchanges. Stock exchanges are heavily regulated, as opposed to the unregulated OTC markets.
How do equity markets affect forex traders?
Besides the obvious fact that it is on equity markets that traders can keep track of how various stocks are performing, the markets are also an excellent trading asset in and of themselves. CFD trading on stock markets is especially popular, as traders determine how they believe an equity market will behave within a determined trading period.
The official currency code for the official currency of the Eurozone.
A stock market index consisting of Europe’s 50 leading blue-chip companies. Click here for more details.
The central bank for Europe’s single currency, the euro. Its main task is to maintain the euro’s purchasing power and ensure the stability of the Eurozone.
Starts at 7:00 GMT and lasts to 16:00-17:00 GMT. Also known as the London trading session for Forex.
The carrying out of an order to purchase or sell a security or financial instrument.
What are exotic currency pairs?
Most forex trading involves the major currencies (USD vs. one of the six other major currencies – EUR, GBP, JPY, CHF, CAD, AUD, NZD) or the minor currencies (which do not involve the USD, but do include either the EUR, GBP or JPY). When the USD, or one of the other major currencies is traded against a currency with a far lower trading volume, this is referred to as an exotic trading pair. Examples of the exotics include the USD/RUB (U.S. Dollar vs. the Russian ruble), GBP/TRY (British pound vs. Turkish lira), and EUR/SEK (Euro vs. Swedish krone).
How does one use exotic currency pairs?
Traders who wish to minimize their risks (as well as their potential earnings) might choose to trade exotics because they are more illiquid than the majors and minors. Exotic pairs are affected by many of the same factors that influence currency pairs with greater liquidity, such as economic announcements, geopolitical events, and global weather, and can therefore be used as a good “training ground” for higher risk trading. The Fortrade website offers several exotic pairs from which traders can choose.
The time at which an option or future contract lapses.
The date at which a security or financial instrument expires or becomes due for settlement. Also called “maturity date”.
A type of moving average that gives more weight to recent price changes, meaning it reacts much quicker than a simple moving average.
The central banking system for the United States. Considered the largest monetary authority in the world.
What is fiat money?
How does one use fiat money?
The very basis of online trading, specifically forex trading, whether major currency pairs, minor pairs or exotics, is centered around the strength of fiat currencies to one another. Each currency’s value can be affected by a plethora of external factors, but the most consistent factor may be the faith that the general public has in the strength of that particular currency. For example, if the various economic realities in the United Kingdom make investors question the strength of the British pound, then the GBP value against other currencies – specifically the euro and the USD will drop, as investors shy away from relying on what they see as a weak fiat currency. Gone are the days when that value would be linked to the price of gold, so the less faith the public has in a currency – and the higher the inflation rate of that currency – the lower its intrinsic value may fall.
The highest and lowest prices that a security or financial instrument has traded in the last 52 weeks.
What is the FCA?
The Financial Conduct Authority (FCA) is an independent body responsible for regulating more than 56,000 financial brokers (including Fortrade) and markets in the United Kingdom. Its three-point goals are to:
- Protect consumers of financial services in the U.K.
- Maintain the integrity of the U.K. financial system
- To encourage healthy competition among the financial services in a way that benefits consumers
Regulated brokers and markets are generally more transparent than non-regulated ones, and where there is a suspicion of unfair or illegal practices, traders can turn to the regulatory body to seek justice. It is important to note that by definition, the FCA has no authority over any brokers trading on the OTC Market.
How does one use the FCA?
The first step for a trader is to check that the broker they wish to use is in fact regulated by an overseeing body, in whatever country the broker is incorporated to work. The Fortrade FCA authorization can be seen here. In the event of a dispute with your broker, if you are unable to resolve the matter on your own, then you may turn to the FCA for arbitration. If the FCA determines that a broker has behaved in violation of the law, or of the FCA’s guidelines and standards, then the regulatory body may step in and impose fines, or even withdrawing FCA authorization from the broker if the proper standards are not met.
What is a financial instrument?
In its most basic form, a financial instrument is any asset that can be bought, sold, or traded. Financial instruments can be currency, shares in a company or bonds. Financial instruments can also be derivatives, which are contracts whose values are based on underlying assets, and are determined by the rise and fall of that underlying asset.
How do financial instruments affect forex traders?
Financial instruments are the basis of stock markets, foreign currency exchanges, and CFD trading. Traders either trade actual possession of financial instruments, such as purchasing one currency for an equivalent (at the time) amount of a different currency, or shares of publicly traded companies. CFD traders do not take actual possession of the currencies or stocks, but rather trade against the projected price action.
A summary of all transactions and positions (both long and short) between a broker and a client. Also known as an “Account statement”.
With regard to online trading, financial strength reflects a trader’s ability to open new trades from within a trading platform. It is calculated according to his/her free margin (i.e., the difference between equity and used margin).
A term with three different meanings: with regard to market movements, a flat market is neither rising nor falling; when referring to a specific asset, a flat asset is a financial instrument that has neither gained nor lost interest; with regard to trading, a trader is said to have a flat trading position if he is neither long nor short.
What is Foreign exchange?
Foreign exchange, otherwise known as forex, or FX, refers to the exchange – or purchase – of one currency for another. Rates of exchange are constantly fluctuating, sometimes greatly, other times only slightly. Exchange rates are always presented in pairs, known as currency pairs. The first currency in the pair is known as the base currency and is always equal to 1. The second currency is the quote currency, and is the equivalent of one unit of the base currency. For example, if the EUR/USD is trading at 1.1150, that means that one euro is the equivalent of 1.1150 U.S. dollars. If the rate of exchange goes up, that indicates that the euro has grown stronger against the dollar, because one euro will be able to buy more dollars than previously. If the rate drops, then the U.S. dollar has grown stronger against the euro. Three types of currency pairs are traded on forex markets:
- Majors pair the U.S. dollar with each of the six major currencies – the euro, Japanese yen, British pound, Swiss franc, Canadian dollar, Australian dollar, and New Zealand dollar.
- Minors/Cross currencies pair the euro, Japanese yen or British pound with other majors, except the U.S. dollar.
- Exotics pair one of the seven Majors with a currency not on that list, generally with a lower trading volume.
How do forex traders use Foreign exchange?
Forex traders buy and sell foreign currencies, speculating what the price movement will be in either the short- or long-term future. When a trader takes what is known as a long position, he purchases a currency, with the expectation that the price will rise and he can sell it back at the higher price for a profit. Alternately, a trader who sells a currency, or takes a short position, believes that the price of that currency will drop and he can buy back the units at a later date, paying less for them than he received to sell them.
Traders can also trade on currency CFDs, in which they do not actually take ownership of the currency, but they invest on the price movement of the currency pair.
Links related to Foreign exchange
A global decentralized market for the trading of foreign currencies. In terms of trading volume, the FX market is the largest financial market in the world, with a daily turnover of more than 5 trillion dollars.
A forward contract, colloquially known as a forward, is an agreement to buy or sell a commodity, security or financial instrument at a specified future date at a specified price. It is a completed contract and the commodity or financial asset will be delivered, unlike an option which offers a choice of whether or not to complete the trade. Unlike futures contracts forwards are not contracts with standard terms. They are tailor-made between the buyer and seller for each trade and are bought and sold over the counter (OTC) and not on an exchange.
What is Forward Contract?
A forward contract is an agreement between a buyer and seller to trade an asset, usually a currency, at a mutually agreed upon fixed price and set date. Unlike futures contracts, forward contracts are private arrangements between the buyer and seller, and, as such, they are not traded on the centralized exchange, but rather are considered part of the OTC market. This makes forward contracts a riskier venture than futures contracts. The primary factors in determining the price of a forward contract are the market value of the asset and the time at which point the contract will be fulfilled, which is influenced by the swap rates.
How does one use Forward Contract?
Forward contracts are purchased in a manner similar to that of futures contracts. The buyer and seller agree on the asset to be sold, on the price, and on the date that the exchange will take place. The forward contract is settled only when the contract term expires, unlike futures contracts, which settle on a daily basis. Forward contracts are primarily used as a tool to hedge the volatility in the asset being traded. That forward contracts can be more highly customized than futures contracts provides both more flexibility, but also a higher risk.
Refers to the available margin a trader has in order to open a trading position in a security or financial instrument. Free margin is therefore equivalent to the trader’s ‘Equity’ – ‘Used Margin’. Free margin increases or decreases according to the trader’s total profits earned or losses realized.
What is a front fee?
A front fee is the initial payment made by an investor when he purchases a compound option. Compound option is the term given to what is essentially an option on an option. That is to say, the trader may wish to buy or sell an option at a future date, and the front fee is what he must pay in order to have that opportunity. The four types of compound options are:
- Call on a call option
- Put on a put option
- Call on a put option
- Put on a call option
For example, an investor sees a company stock valued at $24 per share, and he believes the price will rise dramatically, but is not certain. He decides that if the price reaches $30 per share, then his prediction is probably correct, and the price is likely to continue rising well beyond $30. In this case, he can decide to purchase a compound option – a call on a call, which will give him the right to purchase, say, 100 shares, if the stock reaches $30 by a particular date. December 31. He would then pay a front fee, for example, $500, thus giving him the right to make that purchase if the stocks hit $30. If he chooses to exercise his option and buy 100 shares when the price reaches $30, he would pay the full $3,000 (100 shares x $30/share). The $3,000 is called the back fee. The front fee does not obligate the trader to exercise the compound option, but it does allow him to do so.
How does front fee affect forex traders?
The ability to place a compound option gives traders leeway in future decisions. The advantage to compound options is that if a trader believes prices will rise (or fall, as the case may be), but is not certain, he has the opportunity to trade if he proves to be correct. He will pay more on the compound option than he would have in a single option (front fee – $500 + back fee – $3,000), but if his projection is correct, then his profits should outweigh that additional cost. Without paying the front fee, he may not even have the ability to purchase the shares. The disadvantage is that if he chooses not to exercise the option, he has paid the front fee with no return.
*Please note: Fortrade does not offer options.
A stock market index consisting of the top 100 companies (by market capitalization) trading on the London Stock Exchange. Also called UK100. For more details on the index click here.
An agreement to purchase or sell a financial instrument or security (e.g. a commodity, stock, index), at a future date and at a fixed price. Futures contracts are traded on a futures exchange or futures market according to standardised terms (i.e. predetermined quantities for each specific type).
A market for purchasing and selling futures contracts of a financial instrument or security at a future date and at a fixed price.
An abbreviation for Frankfurt Stock Exchange (also referred to as Börse Frankfurt).
The official currency code for the British pound sterling.
An abbreviation for gross domestic profit, one of the primary indicators used to measure the health of a country’s economy.
Greenwich mean time, the most commonly referred time zone in the forex market. Often interchangeable with coordinated universal time (UTC).
One of the most actively-traded commodities on the market. The standard trading unit for one contract is 10 troy ounces. For more information on this commodity click here.
A debt security issued by a national government, generally with a promise to pay periodic interest payments at the security’s maturity or end date. In most cases, a government bond is issued in the country’s own currency. Also called “sovereign bond”.
An individual person, business or company’s taxable income before deducting expenditures (credits and taxes).
The official currency code for Hong Kong dollar.
The official currency code for the Croatian kuna.
An abbreviation for Hong Kong’s Hang Seng index. Also called the HK40. For more details on the index click here.
The official currency code for the Hungarian forint.
Introducing broker. A person, company or corporation that introduces traders to a broker in return for a certain payment fee. Please see our Partnerships page for more specific details.
The principal stock market index of the Iberian Exchange (Bolsa de Madrid). For more details on the index click here.
Securities and other financial instruments are considered illiquid if there are few traders buying and selling them. An illiquid market is one with few participants and a low-volume trading activity. The opposite of liquidity.
An abbreviation for International Monetary Fund. The IMF promotes global monetary cooperation and provides policy advice, financing and technical assistance to help countries build and maintain macroeconomic stability. It consists of over 180 member countries.
A statistical measure of the change in value of an economy or a securities market. The US’s S&P500, the UK’s FTSE100 and Germany’s DAX30 are just a few examples of indices. You can find a list of some of the most popular indices we offer here.
The percentage of the purchase price of securities that the trader can purchase for (either in cash or in marginable securities).
The money periodically paid by a lender to a creditor in return for use of money lent or for postponing the payment of a debt. It is usually predetermined according to the size of the loan/debt, duration and interest rate.
What is an Interest rate?
Interest rates reflect the amount that a creditor charges for borrowing money, or other tradeable assets. The size of an interest rate is generally expressed in terms of a percentage of the amount being borrowed, and the size of the interest rate may vary depending on how high- or low-risk the borrowing party is considered to be. Interest rates are most commonly given on an annual basis, known as the annual percentage rate. Interest rates take into account the projected inflation rate for the lending period. That is to say. If the creditor believes the inflation rate over the coming year will be 3%, he may charge an interest rate of 5% (also known as the nominal rate), so that if the inflation rate causes the value of the amount lent by 3%, the creditor will still see a 2% return on his investment, also known as the expected real interest rate.
Simple interest rate charges a base percentage per year on the amount of money borrowed. A compound interest rate is higher, and is accrued on a monthly basis and factors in not only the principal amount borrowed, but also charges interest for the amount of interest added to the total due at that point. Factors that can affect interest rates include geopolitical events, such as military conflicts, or gas shortages, federal government decisions, such as adjusting the prime lending rate of the federal banks, and supply and demand of a national currency.
How do Interest rates affect forex traders?
Very often. The most successful investors are those who are able to follow closely the interest rates and are aware of how the changes in rates will affect their fixed-income and equity markets. A prime example is when investing in bonds. The bond, or currency pair may yield what seems like a high interest rate, but if the projected inflation rate is also high, an investor may choose not to invest in that bond at the time, or to negotiate different, more favorable terms.
A trading activity in which traders frequently buy and sell securities, foreign currencies or derivatives throughout the day in the hope of making a substantial profit in a short period of time. Intraday trading can be highly speculative in nature and carry substantial risk of loss. If you are a day trader or are thinking about intraday trading, please read our complete Risk Disclosure Statement beforehand. Click here to open a 100% free intraday trading account today.
The official currency code for the Japanese yen.
An industry that is essential to a country’s economy.
A common name for the New Zealand dollar.
The last day (during the month) in which a trader can deal in a particular product. May differ from the contract’s expiry date.
The last time (during the day) in which a trader can deal in a particular product. May differ from the contract’s expiry date.
The use of borrowed capital for an investment in order to significantly increase the profits that can be made from it. For example, with a leverage ratio of 1:200, a trader can trade a notional amount 200 times greater than his/her available capital (i.e. $200 for each $1).
The ability of a security or financial instrument to be bought or sold with ease, or (in relation to a financial market), the ability to carry out large volumes of trades. The opposite of illiquid.
What is Litecoin?
Litecoin is the world’s second largest cryptocurrency and digital payment system, after Bitcoin. It operates using blockchain technology, which is a public ledger recording all transactions. While Litecoin is completely unregulated, which might give some investors pause, it has also proven to be extremely secure, as no hackers have succeeded in compromising the blockchain technology.
How does one use Litecoin?
Using a hashing algorithm, “miners” can discover Litecoins, and while there is a limited number of Litecoins that will ever be mineable, that limit is 84 million, or four times the number of Bitcoins. The Litecoins already on the market and in circulation can be traded like any other asset, and many forex brokers – including Fortrade.com – do enable traders to trade Litecoin CFDs on their platforms.
Links related to Litecoin
An abbreviation for London Stock Exchange.
The currency code for Litecoin.
What are major currency pairs?
Foreign currencies are always traded in pairs – the value of one currency compared to a counterpart. Major currency pairs match up the U.S. dollar with each of the other six major currencies – the euro, Japanese yen, British pound, Swiss franc, Canadian dollar, Australian dollar. And New Zealand dollar. The following seven currency pairs are the most commonly traded, and the most active on global forex markets:
Of these pairs, the EUR/USD is by far the most commonly traded pair, reaching a full one-third of the global forex market.
How does one use major currency pairs?
Traders follow the various factors that affect currency prices, including economic announcements, geopolitical events, and even global weather, in order to determine which currencies they wish to buy or sell at any given time. The major currency pairs tend to be the most volatile, and therefore the most commonly traded upon. The Fortrade website offers all of the major pairs from which traders can choose.
In financial markets, margin refers to the required collateral an investor must deposit to hold a trading position in a security or financial instrument.
What is a Margin call?
If a trader or investor has an account that has fallen below the brokerage’s minimum margin requirement, then the brokerage can place a margin call on the account, in which case the investor would have to either deposit additional funds into his account, or sell off some of the shares he is holding for which he took a loan in order to invest to begin with. Barring that, the brokerage has the authority to sell some of the investor’s shares, even without his permission, to make up the difference.
For example, if a trader wishes to purchase 500 shares of a stock that costs $50 per share. If the trader does not have the $25,000 necessary to purchase those shares, he may put up half of the amount from his own equity, and borrow the other half from the brokerage. Most brokerages require a maintenance margin of 25%, which is to say that the equity value – the amount that the trader put up for the shares, must be at least 25% of the total value of the shares. If the stock proves to be a wise investment, and increases in value, the investor can earn a tidy sum, and repay his loan to the brokerage. However, imagine the value of the stock falls to $30 – the initial investment of $25,000 is now worth only $15,000. The amount loaned by the brokerage remains the same, but the equity invested by the trader is now worth only $2,500, which is below the maintenance margin of $3,750 (25% of the current $15,000 value).
Now, the brokerage can ( and likely will) make a margin call, requiring the trader to either deposit additional funds into the account, or sell off whatever percentage of the shares would be needed to bring the account to within the range of the maintenance margin.
How do margin calls affect forex traders?
Forex and CFD traders often invest on margin, or leverage, thus enabling them to see higher earnings on their initial investments. However, when their investments fall short of expectations, they need to be aware of the maintenance margins, and the potential consequences on their holdings.
What is market capitalization?
Market capitalization is the monetary amount that a publicly traded company is worth, as determined by the value of the company’s outstanding shares. The market capitalization is calculated by the value of one company share times the number of outstanding shares (shares held by stockholders). For example, a company that has 3 million outstanding shares that are valued at $45 per share, will have a market capitalization of $105 million dollars.
How does market capitalization affect forex traders?
|Company ranking||Market capitalization||Risk vs. Potential returns|
|Large capitalization companies||$10 billion or more||Lower risk, lower potential returns|
|Mid-capitalization companies||$2 billion – $10 billion||Moderate risk, moderate potential returns|
|Small capitalization companies||$300 million – $2 billion||Higher risk, higher potential returns|
An investment company or broker who maintains firm bid and ask prices in a given security or financial instrument by continuously standing ready to buy or sell that same security at its publicly-quoted price.
An order to buy or sell at the current market price.
The possibly that the value of a security of financial instrument will experience losses due to performance factors such as adverse price movements, national or global macroeconomic changes. Also called “systematic risk”.
The maximum amount of funds that can be allocated for a long or short position according to the specific trading requirements of a security or financial instrument a trader wishes to trade on.
What is MetaTrader 4?
MetaTrader 4 (MT4) is a popular forex trading platform used by many leading online brokers use the technology, including Fortrade.com. The MT4 can be downloaded for free and provides an effective tool for trading forex, futures markets and CFDs online, both from a PC as well as from tablets and smartphones. The platform offers trading signals and expert analytics, which enable users to develop effective trading strategies. The platform can be accessed from anywhere that there is an internet connection.
How does one use MetaTrader 4?
Once the MT4 has been downloaded and customized to the trader’s preferences, trading forex is with MT4 is fairly straightforward. Under the “Market Watch” column, choose the currency that you wish to trade (the Buy and Sell prices are clearly marked). A separate window will open enabling you to choose the volume that you wish you buy or sell. Fill out the details of the transaction that you wish to make, and click on either the buy or sell button. The MT4 will keep track of all executed transactions for you. When buying and selling, the MT4 also enables you to place Stop Loss and Take Profit orders. On Fortrade.com, the MT4 can be downloaded here.
Mini Contracts For Difference (CFDs) provide a lower lot size than their base indices. This allows traders to buy and sell popular index CFDs with less capital investment.
Fortrade offers “mini” CFDs on the following indices:
|Index||Symbol||Lot Size||Mini Contract||Symbol||Lot Size|
|CAC 40||CAC40||100||CAC 40 mini||CAC40-m||10|
|Germany 30||GER30||100||Germany 30 mini||GER30-m||10|
|FTSE 100||FTSE 100||100||FTSE 100 mini||FTSE 100-m||10|
|Dow 30||DJ30||100||Dow 30 mini||DJ30-m||10|
|NASDAQ 100||NASDAQ100||100||NASDAQ 100 mini||NASDAQ100-m||10|
|S&P 500||S&P500||100||S&P 500 mini||S&P500-m||10|
The minimum amount of funds that can be allocated for a long or short position according to the trading requirements of a certain security or financial instrument. May also vary according to a trader’s specific account balance.
What are minor currency pairs?
Foreign currencies are always traded in pairs – the value of one currency compared to a counterpart. Minor currency pairs, also known as cross 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. Minor 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 minor currency pairs?
Depending on how volatile and liquid a market a trader wishes to invest, he might find that the minor 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 minor pairs from which traders can choose.
A downloadable mobile application through which traders can access financial markets, open, edit and close online trading positions and receive live streaming of quotes, graphs and other technical indicators.
An indicator frequently used in technical analysis to identify and demonstrate the average value of a security or financial instrument’s price over a specific period of time. The MA is used to smooth out price data and to help confirm price trends and directions. Also referred to as a simple moving average or SMA. There are three main types of moving averages used in the field of forex trading: simple, weighted and exponential.
The official currency code for the Mexican peso.
An abbreviation for National Association of Securities Dealers Automated Quotations. It is the second-largest stock market both in the US and worldwide.
A stock market index consisting of the 100 largest non-financial companies listed on the NASDAQ stock market. Also abbreviated as NAS100. Its ticker symbol is NDX. Click here for more details on the index.
An individual person, business or company’s taxable income after detecting expenditures (credits and taxes). The formula for calculating net earnings is: total revenue – total expenses = net earnings.
The difference better a trader’s long (buy) and short (sell) positions at any given time. For example, if he/she has 4 long positions and 2 short positions, his/her net position would be: 4 – 2 = 2.
A stock market index consisting of the top 225 companies (by market capitalization) trading on the Tokyo Stock Exchange. Also called Nikkei Stock Average, Nikkei 225 or JPN 225. Click here for more details about the index.
The official currency code for the Norwegian krone.
Starts at 12:00-13:00 GMT and lasts to 21:00-22:00 GMT. Also known as the New York trading session.
An abbreviation for New York Stock Exchange.
The official currency code for the New Zealand dollar.
An abbreviation for Organization for Economic Co-operation and Development.
A weighted average of oil prices collected from the Organization of Petroleum Exporting Countries (a group of 13 major oil producing countries). OPEC Basket’s average oil price is based on the production and exports of each country. The two other leading benchmarks are the Brent and West Texas Intermediate (WTI) Crude.
What is an Open P&L?
An Open P&L (Profit & Loss) is a financial statement that forex traders receive summarizing all open positions that he has in terms of profits earned and losses incurred.
How does one use Open P&L?
Knowing when to open and close a position is the key to successful forex trading. By carefully examining the Open P&L, a trader can determine which markets are behaving in a bullish manner, and which are more bearish. In doing so, traders are better equipped to make informed decisions concerning short- and long-term trading strategies.
Any trade that has been entered and has not yet been closed with an opposite trade. An open position can exist following a long position (also referred to as simply “buy”) or short position (also referred to as simply “sell”).
What is the Open price??
The Open price, also known as the Opening quote, or Opening price, is the price of an asset on the trading market at the outset of the trading day. It is important to note that the opening price of one day is not necessarily the same as the closing price of the same asset from the previous day. Fluctuations in the asset value can, and often do, continue even when the markets are closed and the asset is not being traded.
How does one use the Open price?
The Open 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 open 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.
Any and all open buy (long) and/or sell (short) positions in a trader’s online trading account.
What is an OTC Market?
An OTC (over the counter) Market, is a decentralized market where assets, including some currencies, that are not traded on centralized stock markets can be traded. Because OTC markets are not centralized, and not regulated by any governmental authority, they will often be less transparent than centralized markets, and therefore riskier.
How does one use an OTC Market?
Trading on an OTC market is similar to trading on a centralized market. Traders find a broker, who serves as the middleman between them and fellow dealers, as well as with corporations and businesses that are not being traded on centralized stock exchanges. One of the primary differences between an OTC market and an exchange market is that on an OTC market, the brokers have more flexibility on the buy and sell prices that they set. As a result, a broker may quote one price to one client, and a different price to another, and there may be differences in the Bid-Ask spread.
A situation in which a security or financial instrument is believed to be more profitable than the overall market. Also known as “market outperform”. Opposite of underperform.
A trade that remains open overnight from one business day to another.
A financial statement that summarizes the trader’s total profits earned or losses realized from his/her current trading positions. Also known as a “statement of profit and loss”.
Payment Card Industry Data Security Standard (PCI DSS). A proprietary information security standard for financial institutions and organizations that make online transactions using major credit card and debit card providers (Visa, MasterCard, American Express, etc.). Administered and managed by the international Payment Card Industry Security Standards Council, PCI DSS is designed to increase data protection of card holders and reduce the risk of credit card fraud. Brokerage firms such as Fortrade must comply with this standard in order to maintain accreditation.
The highest point (i.e. price, rate, value) of a specified security or financial instrument at a specified time.
An order that has not yet been executed and therefore has not yet become an actual trade. It can, for example, be an order that a trader states his/her intention of ‘buying’ or ‘selling’ a financial instrument only when it reaches (touches) above or below a certain price level.
What are penny stocks?
Penny stocks are essentially stocks that trade for very small sums, generally defined by under $5.00, and by and large are traded over-the- counter (OTC). In the United Kingdom, a penny stock is defined as any stock with a share price below 1 GBP.
How does one use penny stocks?
Trading on penny stocks is much more risky than other stocks and CFDs. For one thing, penny stocks are much more speculative than traditional stocks, which makes accurate assessments of how the stock price will move and when much trickier. Second, because penny stocks are traded OTC rather than on any of the major exchanges, they are not closely regulated, which can – and on occasion does – result in scams and fraud. Finally, because the price action on penny stocks is extremely volatile, the bid-ask spread tends to be much wider than on traditional stocks, thus cutting even more deeply into an already risky profit margin.
This is not to say that there is nothing to gain from trading on penny stocks, only that it really should only be done by very seasoned traders who are not averse to taking more extreme risks.
The central bank for the People’s Republic of China, and the second largest national monetary authority after the Federal Reserve Bank of the United States.
A numeral point a security or financial instrument’s price which denotes the smallest amount by which it can change. In forex, most currencies have four decimal places, and a pip is therefore one unit of the fourth decimal point (i.e. 0.0001 of the currency’s value). In some currencies, such as the Japanese yen, a pip may at the second decimal point – making it worth 0.01 of the currency.
What is a Pip-Squeak pop?
When a stock price shows a moderate, but not extreme increase, in a relatively short period of time, this is known as a Pip-Squeak pop. Not to be confused with a Champagne stock, which is a stock whose value has shown an extremely dramatic increase, a Pip-Squeak pop is generally considered to be an increase of 25-50% over a period of days or weeks.
How does Pip-Squeak pop affect forex traders?
Pip-Squeak pop recognizes an uptrend in a stock price, but should not be seen as a “sure-fire” investment. While the price is certainly worth a close watch, and may continue to rise, it could also peak, or even reverse direction, thus disappointing investors who saw it as the next potential Champagne stock. A solid fundamental and technical analysis can be very helpful in determining whether a Pip-Squeak pop stock is a wise investment or a bubble ready to burst.
What is a pivot point?
Pivot points are technical analysis indicators that reflect upward and downward trends, as well as predicting when a price can be expected to change direction. Pivot points are determined by accounting the averages of an asset’s high, low, opening and closing prices, as well as support and resistance levels for the previous trading period.
How does the pivot point affect forex traders?
While pivot points can be used to help traders make longer-term decisions (weekly, even monthly), most commonly they are used for intraday trading to determine how a market price is most likely to move in the coming hours for short-term trades. If the pivot point is lower than the current price of an asset, then it is a price support, and it is seen as a resistance if the asset is trading lower than the pivot point.
Pivot points are especially useful in enabling traders to recognize the best times to open and close positions on assets, as well as whether the market is bearish or bullish at any given time.
Two things about pivot points are very important for traders to bear in mind. First, a pivot point is only one of several technical analysis indicators, and is most effective when used in conjunction with other technical and fundamental analysis tools. Second, like all analysis indicators, pivot points are predictive, which means that the market will not always behave in the way that the indicators, such as pivot points, could lead us to believe they will.
The official currency code for the Polish zloty.
A collection of investments held by an individual trader or financial entity.
The net balance of trades held by a trader in his/her account at any given time. There are three types of positions a trader can hold: flat (i.e., no security bought or sold), long (i.e., more security bought then sold) or short (more security sold then bought).
The amount of a security or financial instrument a trader buys (a long position) or sells (a short position).
What is a practice account?
A practice account, also referred to as a demo account, is just like a regular forex trading account in every way except for one – the trader does not invest, earn, or lose any real money. It provides traders with the opportunity to learn forex trading and develop effective trading strategies through experience, without the risk inherent in actual trading.
How does one use a practice account?
Many online brokers, including Fortrade, provide a practice account free of charge when traders register on the site, and “fund” the account with a sum of money (Fortrade, for example, starts traders off with $10,000 of imaginary money). Once the practice account is set up, you can start trading as though you were investing actual funds. It is a good idea to trade conservatively, at least at the beginning. A trader who “invests” unrealistic sums of the imaginary funds in the practice account simply because he has nothing to lose in real life, is not able to benefit from the purpose of having the practice account, which is to develop effective trading skills for when actual funds are being invested. Most experts and experienced traders recommend trading on a practice account for several months before investing real money. Click here to create a Fortrade account, and you can start with the practice account today.
With regard to currency and foreign exchange markets, a premium rate is the interest rate a broker or brokerage firm quotes to a certain security or financial instrument in order to compensate for the difference in national interest rates.
A security or financial instrument’s closing rate on the previous day of trading.
A financial gain, especially the difference between the amount earned and the amount spent in security or financial instrument trading.
A reduction in price or demand of a certain security or financial instrument (from its peak). Also referred to as a price reversal.
The number of puts (options to sell traded assets) in relation to the number of calls (options to buy traded assets). Acts as an important indicator for determining the general market trend.
Denoting or relating to something measured by quantifiable data (i.e. objective properties such as amount, percentage or ratio).
Occurring every three months.
What is a quote/price quotation?
The quote, also referred to as the price quotation, is the indicative cost upon which the buyer and seller agree for a financial instrument. When trading forex and CFDs, there are two quotes – Buy (Ask) and Sell (Bid).
The Bid/Sell quote is the highest price that the broker is willing to sell an asset or security to the trader (or the trader to the broker), and the Buy/Ask quote is the lowest price that the trader is willing to buy it from the broker (or the broker from the trader). The Buy/Ask quote is higher than the Bid/Sell quote, and the difference between them is known as the spread.
How does quote/price quotation affect forex traders?
The quote, or price quotation is one of the foundations of a forex and CFD trader’s decisions as to when to open or close his positions. Because of the spread, traders understand that when opening a long position (buying) on an asset, the price must go up simply in order for them to break even. Alternately, opening a short (sell) position, means that before the trader breaks even, or – ideally – sees a profit, the asset price must drop to a certain level. As a result, knowing both the Bid and the Ask prices of an asset are a key part to investing wisely.
A sustained increase in the price of a security or financial instrument. Typically refers to a recovery from a period of decline.
The difference between the highest and lowest price of a security or financial instrument during a given trading session.
The value of one currency for the purpose of conversion to another currency unit. For example, the exchange rate of the euro (EUR) against the US dollar (USD).
Reserve Bank of Australia, the central bank of Australia.
Reserve Bank of New Zealand, the central bank of New Zealand.
The amount of money gained liquidating a position.
The amount of money lost from liquidating a position.
Resistance or resistance level is a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at that specific price level. This means people may sell at this level and stop any further upward trend developments.
A price “ceiling” above which it is supposedly difficult for a market, security or financial instrument to rise. The opposite of support level.
An official change in the price of a security or financial instrument, especially in regards to a currency (where it means an increase in the value of its exchange rate). The opposite of devaluation.
A particular predetermined date at which a trading contract is rolled-over, hence automatically renewed by the broker or brokerage firm.
The official currency code for Russian ruble.
An American stock index comprising 500 of the leading blue-chip companies in the country (also called SPX500). Widely regarded the leading indicator of the US stock market. Click here for more details.
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.
Symbol for the EURO STOXX 50 index, Europe’s leading stock index for the Eurozone.
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.
A situation in which a security or financial instrument is believed to be less profitable than the overall market. Also known as “market underperformer”. Opposite of outperform.
A situation in which each successive peak or trough on a security’s price chart is higher than the ones preceding it. The opposite situation is a downtrend.
An upward trend opportunity refers to events in which our research department believes the technical analysis of an underlying product indicates that it may increase in price. It is your decision to trade if you feel you agree, we always recommend you to consider other external sources and only open a trade if it is appropriate for you. Visit our research analysis page for more information.
Interest-bearing debt-instruments issued by the United States Department of the Treasury to finance the federal debt of the United States. In CFD trading, the three most actively-traded treasury securities are: the US 5 year treasury note (often symbolised as US5Y), the US 10 year treasury note (often symbolised as US10Y) and the US 30 year treasury bond (often symbolized as US30Y).
The official currency code for the United States dollar.
Coordinated universal time. Often interchangeable with Greenwich mean time (GMT).
A tendency in a market, security or financial instrument to fluctuate sharply on a regular basis.
What is a web trader?
A web trader is a platform through which forex traders can open and close positions online, without downloading any software. Using a web browser, traders can follow Bid-Ask spreads, place Stop Loss and Take Profit orders, and track all positions executed, past and current.
How does one use a web trader?
Once a trader has opened an account with a broker, such as Fortrade, he will see links to the trader’s web trading platform. By clicking on the link, and confirming that he is in fact the trader with the account, he can access his entire trading history through the web trader, as well as all potential forex trades that he can buy or sell, complete with Bid-Ask spreads. The Fortrade web trader can be found here.
A type of moving average that gives even more weight to recent price changes than an exponential moving average (EMA), meaning it reacts very quickly to potential market trends.
What is WTI crude oil?
WTI (West Texas Intermediate) crude is crude oil that is drilled from wells in the United States. It is one of the two major benchmark oils in the world, the other being Brent crude. Crude oil is defined as natural, unrefined petroleum that can be refined into thousands of products, known as petrochemicals. The most common uses of refined crude oil include gasoline, diesel fuel, kerosene, and heating oil.
Because crude oil is a nonrenewable source, and poses many dangers to the environment and world eco-system, in recent years, much progress has been made in finding alternative energy sources – including solar and wind – which are safer and will never run 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.
Like most commodities, the price of WTI and Brent 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 WTI and Brent 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 WTI crude oil?
While some traders purchase spot contracts on WTI crude (in which ownership of the oil changes hands at the moment of purchase, and the price reflects the cost of crude at that moment), it is far more common for traders to purchase futures contracts. With futures contracts, the price agreed upon reflects what both the buyer and seller believe will be the price of WTI crude 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.
The official standard code for 1 troy ounce of silver (considered as a currency). Click here for more details.
The exchange rate for silver to US dollar.
The official standard code for one troy ounce of gold (considered as a currency). Click here for more details.
The exchange rate for Gold to US dollar.
Currency market slang for one billion units of a currency. Derives from the French milliard.
What is a yield?
The amount of money that a trader earns on an asset or security, as measured by a percentage rate of annual dividends, is the yield. As a general rule, the lower the risk, the lower the yield potential, and stocks are seen as higher risk investments (with correspondingly higher yield potential) than bonds. In most cases, a potential yield does not guarantee a return on the investment, but rather reflects the prediction of the future performance of the asset.
How does the yield affect forex traders?
Forex and CFD traders are able to use potential yields as one of the indicators regarding the projected performance of an asset. Depending on the asset, some traders reinvest the annual yield into additional assets, while keeping the principal in the original, thus enabling themselves to earn additional yields rather than use the dividends at that time.