Education Glossary
A
Asset Bubbles
An asset bubble is when assets such as housing, stocks, or gold dramatically rise in price over a short period that is not supported by the value of the product.
Austerity
Austerity measures are reductions in government spending, increases in tax revenues, or both. These harsh steps are taken to lower budget deficits and avoid a debt crisis.
B
Trade Balance
Trade Balance is the value of a country’s exports minus its imports. It’s the biggest component of the balance of payments that measures all international transactions.
Bank for International Settlements
Headquartered in Basel, Switzerland, the Bank for International Settlements (BIS) is a bank for central banks.
Be Liquidated
Closing out a position by taking the opposite position leaving a zero exposure.
Bears
A bear is an investor who thinks the market will go down. A bear market is when a market experiences prolonged price declines.
Best Price Basis
A trade at the best price available.
Black Swan
A black swan is an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences.
Black-Box
A black-box financial model is a term used to describe a computer program designed to transform various data into useful investment strategies. The program logic is undisclosed.
Bollinger Band Squeeze
According to John Bollinger, there’s one pattern he calls ‘the Squeeze’. As he puts it, his bands ‘are driven by volatility, and the Squeeze is a pure reflection of that volatility’. It describes a sudden volatility collapse.
Bretton Woods Agreement
Under the Bretton Woods System, gold was the basis for the U.S. dollar and other currencies were pegged to the U.S. dollar’s value. The system was terminated in 1971.
Brexit
Brexit is a portmanteau of the words ‘British’ and ‘exit’ coined to refer to the UK’s decision in a referendum on 23 June, 2016 to leave the European Union (EU). Brexit took place on 31 January, 2020.
Bulls
A bull is an investor who thinks the market will go up. A bull market is when a market experiences prolonged price advance.
C
Carry Trade
A carry trade is a trading strategy that involves borrowing at a low-interest rate and investing in an asset that provides a higher rate of return. A carry trade is typically based on borrowing in a low-interest rate currency and converting the borrowed amount into another currency.
Continuation Chart Pattern
Continuation chart patterns indicate that a price trend is likely to continue.
Convergence
When an indicator and the price move in the same direction.
Cost Of Carry
Cost of carry refers to costs associated with the carrying value of an investment. These costs can include financial costs, such as the interest costs on bonds, interest expenses on margin accounts, interest on loans used to make an investment, and any storage costs involved in holding a physical asset.
Crosses
Some currency pairs don’t contain USD at all. These are known as cross-currency pairs or ‘crosses’. Some of the most popular crosses are also known as ‘minors’. The most actively traded crosses normally contain EUR, JPY, and GBP (GBPJPY or EURJPY, for example).
D
Day Traders
Traders who go home with squared positions. They do not hold positions overnight.
Deposit
The sum of the funds on your trading account denominated in your account currency.
Diffusion Index
A diffusion index refers to how many Business Cycle Indicators (BCI) are moving together. This is useful for assessing the strength of the economy.
Divergence
When an indicator and the price move in differing directions.
Dovish
The Fed is Dovish when its rhetoric indicates loosening monetary conditions and likely lower interest rates.
E
Equity
A Stock or Share and also the sum of the funds on your trading account, including the floating profit or loss.
Euro Crisis
The European sovereign debt crisis was a period starting on 2008 when several European countries experienced the collapse of financial institutions, high government debt, and rapidly rising bond yield spreads in government securities.
Exotics
These consist of one major currency paired with the currency of an emerging economy, like Brazil, Mexico, Russia, or Turkey (USDRUB or USDTRY, for example). It’s important to remember that trading costs on exotics are generally higher due to wider spreads stemming from low liquidity.
F
Failure Swing
Happens when the price or an indicator rallies and then makes a new low or falls then makes a new high.
Fibonacci Extensions
These are tools that traders can use to establish profit targets or estimate how far a price may travel after a retracement/pullback is finished. Extension levels are also possible areas where the price may reverse.
Fibonacci Retracements
These levels are horizontal lines that indicate where support and resistance are likely to occur. They are based on Fibonacci numbers. Each level is associated with a percentage. The percentage is how much of a prior move the price has retraced. The Fibonacci retracement levels are 23.6%, 38.2%, 61.8%, and 78.6%. While not official, a Fibonacci ratio of 50% is also used.
Filled
A completed order.
Fixed-Income Securities
A fixed-income security is an investment that provides a return in the form of fixed periodic interest payments and the eventual return of principal at maturity.
Flag Pole
These occur in chart patterns such as Flags or Pennants. They are the first part of the pattern; the impulse moves.
Floating Profit Or Loss
Shows your profit or loss for open positions.
Free Margin
Money in your account that is available to finance further positions.
Fundamentals
Fundamentals include the basic qualitative and quantitative information that contributes to the financial or economic well-being of a company, security, or currency, and their subsequent financial valuation.
G
Gapping
This occurs when the price of a security opens above or below the previous day’s close with no trading activity in between. A gap is the area discontinuity in a security’s price chart. Gaps may materialise when headlines cause market fundamentals to change rapidly or during hours when markets are typically closed; for instance, the result of a weekend central bank annoucement
Global Capital Flows
Global Capital Flows is the inflow and outflow of capital from one nation to another nation
Global Financial Crisis (Gfc),
The financial crisis of 2008 was primarily caused by deregulation in the financial industry.
Go Square
Close out a position leaving no market exposure
Gold Standard
The gold standard is a monetary system where a country’s currency or paper money has a value directly linked to gold. Britain stopped using the gold standard in 1931 and the U.S. followed suit in 1933 and abandoned the remnants of the system in 1973
Golden Ratios
When used in technical analysis, the Fibonacci golden ratios are typically three percentages: 38.2%, 50%, and 61.8%
H
Hawkish
The Fed is Hawkish when its rhetoric indicates tightening monetary conditions and likely higher interest rates.
Hedge
A Hedge is a risk-offsetting transaction.
High-Frequency Trading (HFT)
High-frequency trading (HFT) is a method of trading that uses powerful computer programs to transact a large number of orders in fractions of a second.
I
Initial Risk
The difference between the entry price and the first protective Stop.
International Monetary Fund (IMF)
The IMF is an international organisation that promotes global economic growth and financial stability, encourages international trade, and reduces poverty.
L
Leverage
To put in very simple terms, it allows you to open larger trades with less capital. Leverage is a great tool that allows you to earn more, but it comes at a price. The higher the leverage you use, the higher the risk of losing your investment. It can amplify both your earnings and losses. You need to find a balance between your capital and leverage. If you’re new to forex, it’s highly recommended to keep leverage low and not to open too many positions. A small investment + high leverage = likely disaster.
Liquidity
If a currency pair is said to have high liquidity, it means that there is a significant amount of trading activity on the pair. This is good because there is always someone who wants the other side of your trade. Low liquidity means the opposite and pertains typically to Exotics, but some Majors can suffer from it at times, for various reasons. Highly liquid pairs enjoy the narrowest spreads, keeping trading costs low. Pairs with low liquidity are expensive to trade.
Lot
A unit of measurement. Normally equals 100,000 units of the base currency.
M
Majors
These are the four most heavily traded currency pairs in the forex market. The four major pairs at present are the EURUSD, USDJPY, GBPUSD, USDCHF.
Margin
The margin is derived from the amount of leverage you have on your account and works as a deposit to maintain an open order. As we saw in the explanation for leverage, the margin decreased as leverage increased. That’s because higher leverage allows you to open larger trades with less capital.
Margin Call
The signal that your Margin Level is low and you urgently need to decrease your open positions or increase the Equity.
Margin Level
The percentage of Margin to Equity. This information is crucial because a low Margin Level may lead to a Margin Call and a Stop Out. Always monitor the Margin Level and adjust your positions and Equity accordingly.
Market Maker
Makes bids and offers for a security on a continuous basis. In the Equities markets, they are called Specialists. They provide liquidity.
Market Order
An order to be executed immediately at the current market price.
Market Watch
The hub inside MetaTrader where you can see live quotes for currencies, indices and commodities. It is normally positioned on the left-hand side of the screen.
Mean-Reverting Traders
Those who sell market strength and buy weakness.
Momentum
The rate of acceleration of a security’s price.
N
Nominal Interest Rate
The interest rate before taking inflation into account.
Normal Run
A statistical term to describe occurrences of an event in normal times.
O
Over The Counter (OTC)
OTC means not traded on an Exchange.
Overbought
A condition where an asset has traded higher in price and has the potential for a price fall.
Overleveraging
Overleveraging means that a small adverse movement erodes a significant part or all of your capital.
Oversold
A condition where an asset has traded lower in price and has the potential for a price bounce.
Over-Trading
Trading so frequently that the commission and spread significantly and adversely impact profitability.
P
P&L
Profit and Loss.
Paper Trade
Demo trading.
Pending Order
An order to open a trade in the future if the price of the instrument hits a certain level.
Pips
The smallest price movement of a security. Pip is an acronym for ‘percentage in point’. When most currency pairs were priced out to four decimal places, the pip used to be the smallest price move that an exchange rate could make. A pip is thus equivalent to 1/100 of 1% or one basis point. But nowadays most pairs are quoted up to five decimals, so the price may change by less than one pip.
Pivot Points
A turning point in the market price action.
Prop
Proprietary trader.
Pullback
A move against the trend.
Q
Quantitative
Mathematical or statistically based trading.
R
Rate Of Change
RoC is used in technical analysis to express the speed at which a security price changes over a specific period of time. RoC is often used when speaking about momentum.
Real Interest Rates
The interest rate that has been adjusted to remove the effects of inflation to reflect the real cost of funds to the borrower and the real yield to the lender or an investor.
Renminbi
The official currency of China. Also called the Yuan.
Reversal Chart Pattern
Reversal chart patterns indicate that a price trend is likely to reverse direction.
Risk-Off
Preferring less risky assets such as Bonds over Equities.
Risk-On
Preferring riskier assets such as Equities over Bonds.
Risk-Reward Ratio
The amount of money risked divided by the expected reward.
S
Safe-Haven
Assets or securities considered Safe – for example, guaranteed by a government.
Scalpers
Scalpers enter and exit the financial markets quickly, usually within seconds, using higher levels of leverage to place larger sized trades in the hopes of achieving greater profits from relatively small price changes.
Slippage
Difference between order price and execution usually caused by lack of liquidity or a surprise news event.
Snake Oil Salesmen
Marketing fraudster engaged in the illegal practice of making false or misleading promotional claims for financial gain.
Specs
See Speculators.
Speculators
These traders utilise strategies and typically a shorter time frame in an attempt to outperform traditional longer-term investors. Speculators take on risk, especially with respect to anticipating future price movements, in the hope of making gains that are large enough to offset the risk.
Squawk Box
Intercom speaker that an investment bank or brokerage firm’s analysts or traders use on trading floors or desks in OTC markets.
Standard Deviation
A standard deviation is a statistic that measures the dispersion of a dataset relative to its mean and is calculated as the square root of the variance. The standard deviation is calculated as the square root of variance by determining each data point’s deviation relative to the mean.
Stop Hunters
Professional short-term traders who try to profit from setting off Stop Orders.
Stop Loss
An order to close a trade at a specific price to stem losses. This is used to close a trade to stop your account being wiped out.
Stopped Out
Triggered when the trader has failed to meet the Margin Call requirements, leading to the closure of open positions to bring the Margin Level to an acceptable level.
Symbol
Shorthand for a tradable instrument. GBPUSD or .WTICrud – these are symbols.
Systematic
A systematic trader adjusts a portfolio’s long- and short-term positions on a particular security according to tested rules.
T
Take Profit
An order to close a trade at a specific price to lock in profit without you having to physically close the trade yourself.
Tapering
The gradual reversal of a quantitative easing policy implemented by a central bank to stimulate economic growth.
The Sell-Side
The part of the financial industry that is involved in the creation, promotion, market-making, and sale of stocks, bonds, forex, and other financial instruments.
Trade Efficiency
Your profitability over time, your drawdowns, average time per trade.
Trading Edge
A technique, observation or approach that creates a trading advantage over other market participants.
Trading Log
A log maintained by a trader recording trades and order changes.
Trading Plan
A systematic (rule-based) method for identifying and trading securities that takes into consideration a number of variables including time, risk and the investor’s objectives.
Trailing Stop
A Trailing Stop is stop order that can be set at a defined percentage or dollar amount away from the current market price to protect a position and to run a profit until the price reverses.
V
Volume
Turnover of a market. In MetaTrader you define the size of your trade in lots.
W
Whipsaws
Whipsaw describes the movement of a security when, at a particular time, the security’s price is moving in one direction but then quickly pivots to move in the opposite direction and maybe quickly back again.
World Bank
An international organisation dedicated to providing financing, advice, and research to developing nations to aid their economic advancement. Its objective is to fight poverty by offering developmental assistance to poorer nations
Education
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