Traders Glossary

Traders Glossary

Access and utilize our extensive list of financial terms related to trading and markets. Learning is a continuous process and all traders need to learn from the newbies to experts.

Be familiar with the trading terms on an almost daily basis.

Active Management
An approach to asset management, which relies on a fund manager's ability to select and actively traded stocks so that, over time, they will outperform a particular market index or benchmark.
Alpha
A statistical measure of investment manager skill.
Alternative Investments
Investments, which do not fit into the mainstream areas of equities, bonds, cash, currency and property. Examples include venture capital, hedge funds, and commodities.
Analyst
A person with expertise in companies, markets and economies.
Annualize
To take a cumulative return over a certain period and restate it on an annual basis.
Appreciate
To increase in value over a period of time.
Arbitrage
The purchase or sale of an instrument and simultaneous taking of an equal and opposite position in a related market, in order to take advantage of small price differentials between markets.
Ask Rate
Ask Rate - The rate at which a financial instrument is offered for sale (as in bid/ask spread).
Asset
Any item which has a monetary value.
Back Office
Administrative activity related to investment management, for example, settlement, processing, pricing and accounting. Usually referred to as operations.
Base Currency
It is the first currency quoted in a currency pair. Also, it is the currency in which an investor or issuer maintains its book of accounts. In the FX markets, the US Dollar is normally considered the ‘base’ currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair.
Basis Point
One basis point represents one-hundredth of a percentage point or 0.01%.
Bear Market
A market distinguished by declining prices.
Bid Rate
The rate at which a trader is willing to buy a currency.
Bid/Ask Spread
The difference between the bid and offer price.
Bourse
French term for Exchange.
Broker
An individual or firm that acts as an intermediary, putting together buyers and sellers for a fee.
Bull Market
A market distinguished by rising prices.
Call Option
An option which gives the holder the right, but not the obligation, to purchase an asset at a specified price on or before a given date.
Carat
A measurement used to show how pure gold is.
Cash Market
See Spot Market.
CBOT
Chicago Board of Trade
Central Bank
A government or quasi-governmental organization that manages a country's monetary policy. The Central Bank of the U.A.E plays a vital role in the national economy. Its main responsibility is to formulate and implement the banking, credit and monetary policy to ensure price stability, and to support the Dirham and its free convertibility; in addition to acting as “the bank of banks” and the banker and financial advisor to the Government.
Certificate of Deposit (CD )
A certificate from a bank stating that the named party has a specified sum on deposit, usually for a given period of time at a fixed rate of interest.
Churning
Excessive trading of a client's portfolio. Sometimes used to unethically generate extra commissions.
Clearing
The process of settling a trade.
Clearing House
A facility for settling the transfer of funds between banks.
CME
Chicago Mercantile Exchange
Collateral
Something given to secure a loan or as a guarantee of performance.
Commission
A transaction fee charged by a broker. Commissions vary across markets and between, brokers.
Commodity
A raw material, for example oil, natural gas, gold, etc.
Commodity Exchange
An exchange where commodities can be bought or sold. Example, CBOT.
Consumer Price Index (CPI)
A measurement of prices for goods and services used to determine the rate of inflation.
Contagion
The tendency of an economic crisis to spread from one market to another.
Contract (Unit or Lot)
The standard unit of trading.
Contract for Differences (CFD)
A contract between two parties, typically described as “buyer” and “seller”, stipulating that the seller will pay to the buyer the difference between the current value of an asset and its value at contract time.
Counterparty
One of the participants in a financial transaction.
Cross Rate
The exchange rate between two currencies expressed as the ratio of two foreign exchange rates that are both expressed in terms of a third currency.
Currency
Any form of money issued by a government or central bank and used as legal tender.
Currency Hedging
Reduction or elimination of exchange rates risk by buying forward, using financial futures or borrowing in the exposed currency.
Day Trading
Refers to positions which are opened and closed on the same trading day.
Default
Failure to make a payment on schedule.
Delivery
An FX trade where both sides make and take actual delivery of the currencies traded.
Depreciate
To decrease in value.
Devaluation
The deliberate downward adjustment of a currency's price, normally by official announcement.
DGCX
Dubai Gold and Commodities Exchange
Diversification
Spreading investments across a range of assets in order to reduce risk.
DME
Dubai Mercantile Exchange
Economic Indicator
Statistic, which gives an indication of the cyclical position of an economy.
Economist
Person who analyzes trends in economic indicators and attempts to forecast economic growth.
Emerging Market
Financial market in a developing or newly industrializing country. Characterized by high returns due to rapid growth and high risk due to low liquidity and political instability.
Euro
A single currency adopted on January 1, 1999, by 12 of the 15 EU nations, who switched to a single set of euro bills and coins on January 1, 2002.
European Central Bank (ECB)
Independent central bank responsible for setting monetary and exchange rate policy for the members of the European Monetary Union (EMU).
Exchange Rate Risk
The risk caused by varying exchange rates between two currencies.
Economic Indicator
Statistic, which gives an indication of the cyclical position of an economy.
Economist
Person who analyzes trends in economic indicators and attempts to forecast economic growth.
Emerging Market
Financial market in a developing or newly industrializing country. Characterized by high returns due to rapid growth and high risk due to low liquidity and political instability.
Euro
A single currency adopted on January 1, 1999, by 12 of the 15 EU nations, who switched to a single set of euro bills and coins on January 1, 2002.
European Central Bank (ECB)
Independent central bank responsible for setting monetary and exchange rate policy for the members of the European Monetary Union (EMU).
Exchange Rate Risk
The risk caused by varying exchange rates between two currencies.
Exchange Rate Risk
The risk caused by varying exchange rates between two currencies.
Federal Reserve
The central bank of the United States.
Financial Regulator
The regulator of all financial services firms in a country. Example, The Central Bank of the U.A.E. in the U.A.E.
Fixed Exchange Rate
Official rate set by monetary authorities for one or more currencies.
Floating Rate
Refer to the value of a currency as decided by supply and demand.
Foreign Exchange Rate
The value of two currencies with respect to each other.
Forex
Is Foreign Exchange Market. FOREX is a market in which brokers located in various parts of the world trade currencies for many nations. FOREX transactions are not traded in futures markets.
Forward Contract
A forward contract fixes the exchange rate for future delivery at a date to be agreed by both participants.
Forward Exchange Rate
The exchange rate set today for a foreign currency transaction with payment or delivery at some future date.
Forward Premium
Is when a currency trade forward price is higher than its spot price.
Forward Rate (or Swaps)
Refers to a cash price of 2 currencies interest difference for a fixed term.
Front Office
Administration, research and marketing activity of a financial brokerage company.
Fundamental Analysis
Focuses on the economic forces of supply and demand that causes price movement.
Futures Contract
An obligation to exchange a good or instrument at a set price on a future date.
GAAP
Generally Accepted Accounting Principles - A common set of accounting principles.
GBP
Is United Kingdom Pound Sterling.
GTC Order (Good Till Cancelled)
An order to buy or sell at a specified price. This order remains open until filled or until the client cancels.
Hedging
A hedging transaction is a purchase or sale of a financial product, having as its purpose the elimination of loss arising from price fluctuations.
Hurdle Rate
The minimum acceptable rate of return on a project/investment
Inflation
Is an increase in the general price level of goods and services; alternatively, a decrease in the purchasing power of the dollar or other currency
Initial Margin
initial deposit of collateral required to enter into a position as a guarantee on future performance.
Insolvency
Having insufficient assets to meet debt obligations and /or liabilities.
Interbank Rates
The Foreign Exchange rates at which large international banks quote other large international banks.
Jobless
People without a job considered as a group.
Leading Indicators
Statistics that are considered to predict future economic activity.
Liabilities
A financial obligation, debt, claim, etc due to be made.
LIBOR
The London Inter-Bank Offered Rate. Banks use LIBOR when borrowing from another bank.
Limit Order
An order with restrictions on the maximum price to be paid or the minimum price to be received.
Liquid Asset
Asset that can be readily and cheaply turned into cash.
Liquidation
The closing of an existing position through the execution of an offsetting transaction.
Liquidity
The ability of a market to accept large transaction with minimal to no impact on price stability.
Long Position
A position that appreciates in value if market prices increase. When one buys a currency, their position is long.
Margin
The required equity that an investor must deposit to collateralize a position.
Margin Call
A request from a broker or dealer for additional funds or other collateral to guarantee performance on a position that has moved against the client. If the equity balance in your account falls below the margin requirement, a margin call will be generated. In the event that an account exceeds its maximum allowable leverage, ALL open positions are liquidated immediately, regardless of the size or the nature of positions held within the account.
Margin Deposit
The margin deposit is not a down payment on a purchase of equity, as many perceive margins to be in the stock markets. Rather, the margin is a performance bond, or good faith deposit, to ensure against trading losses. The margin requirement allows traders to hold a position much larger than the account value, which allow for this high leverage. In the event that funds in the account fall below margin requirements, brokerage firms will automatically close all open positions.
Marked to Market
When profits and losses are posted to accounts for all positions. This is done at the end of each day.
Market Maker
A dealer who regularly quotes both bid and ask prices and is ready to make a two-sided market for any financial instrument.
Market Risk
Exposure to changes in market prices.
Mark-to-Market (or MTM)
Process of re-evaluating all open positions with the current market prices, in order to determine margin requirements.
Maturity
The date for settlement or expiry of a financial instrument.
Monetary Policy
Government policy concerning money supply and interest rates.
Moving Average
An analysis term used to indicate market trends. Obtained by averaging prices/indices over a specified period of time, for example, the last 30 days.
Natural Gas
Gas used for heating and lighting, obtained from under the earth or under the sea.
NYMEX
New York Mercantile Exchange
OCO (One cancels the other) Order
A designation for two orders whereby one part of the two orders is executed the other is automatically cancelled.
Offer
The rate at which a dealer is willing to sell a currency.
Offsetting Order
A trade that serves to cancel or offset some or all of the market risk of an open position.
Open Order
An order that will be executed when a market moves to its designated price.
Open Position
A deal not yet reversed or settled with a physical payment.
OTC (Over the Counter) Order
Used to describe any transaction that is not conducted over an exchange.
Overnight
Trade that remains open until the next business day.
Position
The netted total holdings of a given currency.
Premium
In the currency markets, describes the amount by which the forward or futures price exceed the spot price.
Quartile
One quarter of a set of things or people, arranged in order of value, amount, wealth etc.
Rate
The price of one currency in terms of another.
Reuters
Reuters supplies the global financial markets with the widest range of information including real time financial data.
Risk Tolerance
An investor's ability to handle volatility and possible declines in the value of his/her portfolio.
Short
A market position where the client has sold a currency with the expectation that the currency will fall, at which time the currency would be bought back in order to make a profit.
Spot Exchange Rate
Current exchange rate.
Spot Market
A market in which commodities such as grain, gold or crude oil, are bought and sold for cash and delivered immediately. It can also be referred to as a cash market.
Swaps
Is when one currency is temporarily exchanged for another, then the currency is held and exchanged later after a fixed period of time.
Technical Analysis
Attempt to predict share price movements on the basis of past patterns.
Tola
Unit of measuring mass used as popular denomination for gold bullion bars in India, Pakistan, Singapore and U.A.E., with a ten tola bar being the most common. Standardized as 180 troy grains or 11.663 ?8038 grams.
Total Return
The return on an investment, including income from dividends and interest, as well as appreciation or depreciation in the price of positions, over a given time period.
Transaction Costs
Costs incurred when buying or selling currencies or commodities, such as commissions and the spread.
Troy Ounce
Units of measuring mass, customarily used for precious metals. One troy ounce (ozt) is equal to 31.1034768 grams.
Yen
Is the currency of Japan.
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