Trader Glossary

Trader Glossary




We’ve put together a Trader Glossary as a valuable resource to newbie Traders of typical words they’re likely to hear on the trading journey, now they’ve taken the plunge into the world of finance. (We’ll continue to update).

A

AIM – Alternative Investment Market, setup in 1995 by London Stock Exchange as a means for new companies to get access to available public funds.

Alpha – is a way for a fund manager to track an analyse his/her fund by trying to continually improve in performance against the Benchmark

Annuity – is the product exchanged for savings, by which is provided to you as a lifetime income when you usually on retirement

Arbitrage – is the use of taking advantage of differences in the price of identical assets throughout the market

Australian Dollar – (AUD) is the monetary unit of Australia

 

B

Balance of Payment- this refers to the accounts of a country’s financial position to that of other countries, against goods imported and exported

Bank of England – the Central Bank of the UK, it was founded in 1694 as a private bank for merchants to lend money to the government

Beta – is the way of measuring a relative risk of a share, a company with a low beta are usually seen as a lower risk as they can be less volatile

Bid Offer – is the difference between a price of which you can buy a share to the price you will be able to sell it back

Binary Option – An option which the payout is either a given value or nothing – see our Binary Options page

Bollinger Band – a very popular technical analysis indicator, and created by John Bollinger in the early 1980’s – see our Bollinger Band page

Bond – is an IOU from a government or company that needs to raise funds for investment or operating costs

Bond Auction – if a government needs to raise money (apart from raising taxes) they can do it by issuing a bond (known as Treasury Bills in the US and Gilts in the UK), the bond will have a maturity of anything from 5 years to 30 years and in some cases even 50 years

Bond Rating – the bonds are given ratings which varies depending on the government/company issuing them, the credit agencies (S&P, Moodys and Fitch) give the bonds a rating to give investors a measure of risk on the bond, and of the likely hood of a country/company being able to repay the bond, or default

Bond Yield – is the expected return of the bond an investor is likely to receive

Book Value – is the total value of the assets of a company owned by it’s shareholders

Break Even – is the price of a security in which has hit so the investor/trader can enable the security buyer to recover the premium

Buyouts/Buyins – happens when the owners/management of a company buys up outstanding shares so the management will then no longer be answerable to any outside shareholders

 

C

CAC 40 – is the benchmark index for the stock market in France

Capital Adequacy – capital adequacy are ratios set by Central Banks, stipulating to a bank how much of it’s own money the particular needs to set aside relative to it’s loan portfolio

Capital Asset Pricing Model – CAPSM is used by global financial service so that it can try and predict returns an investor could make from stocks

Capital Ratio – regulators set a minimum capital requirement on banks to stop them failing and going bust

Canadian Dollar – (CAD) is the monetary unit of Canada

Carry Trade – is the process of making money from interest rates that vary from around the world

Cash Flow – companies will publish the cash they have available in a statement

Clearing House – business between financial markets needs a process by which share deals can be arranged anonymously, so the clearing house can guarantee a Seller that the Buyer will be able to purchase his/her shares, a sort of middle man

Compound Interest – is when you’ve put money in to an investment and you earn interest on the investment, then the next year you’ll earn interest on the investment and the interest from the previous year

Contracts for Difference – CFD is making a bet on share price movements, it’s essentially an agreement between two parties to exchange, then at the close of a contract, any difference between the opening and closing price of a particular share, multiplied by the number of shares the contract specifies. You can lose more than your investment if the price of a share falls when you expect a gain

Consumer Price Index – CPI is a price measure level to enable comparisons, it gives the cost of living for consumer items and also a base for inflation targets

Convertible Bonds – is when a bond issues by a company, that can also be converted into an ordinary share at a time the bond matures and for a specific price

 

D

Daily Trading Limit – Intraday Trading Limit

DAX – Deutshce Aktien Index the benchmark index for the stock market in Germany

Day to Day Money – is money lent from a bank to another bank and usually repayable after 24 hours

Dealer –  is someone who is dealing as a principal on the financial market rather than as a broker

Directional Movement Indicator – (DMI) is three separate indicators combined into one and is made up of the Average Directional Index (ADX), minus Directional Indicator (-DI) and the plus Directional Indicator (+DI), by combining all three, it has a way of determining and measuring a trend’s strength as well as its direction. – see our Directional Movement page

Dividend – is the distribution of the profits from a company to the shareholders, amounts can vary each year depending on the amount of profit the company has made

Dollar – is the monetary unit of many nations including Australia, Canada, New Zealand and the United States

Double Bottom – in technical analysis, producing a W pattern on a graph is thought to indicate that the asset a lot of support at the price at the bottom of the W

Dow Jones Industrial Average – (DJIA) is the index of prices used on the New York stock exchange

 

E

Earnings Per Share –  is the profit in pence to each ordinary company share based on the consolidated profit for a period, deducting interest and preference share dividends

ECB – European Central Bank

Equities – is the ordinary share of a company, investment in equities on the stock market is an opportunity for an investor to invest in capital growth of the particular company

Equity Swap – is a type of interest rate swap with one persons payment is related to a stock index while another persons is a fixed or at a floating rate

ERM – Exchange Rate Mechanism

Euro –  (EUR) is the monetary unit of the European Union’s eurozone, adopted in January 1999, 1 Euro is divided into 100 cents

Euro Inter Bank Offered Rate – is the interest rate charged on interbank lending within the eurozone

Eurozone – is the 17 member countries of the European Union who have adopted the Euro as their currency: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, The Netherlands, Portugal, Slovakia, Slovenia and Spain

 

 

F

Federal Funds Rate – is the highly volatile and sensitive interest rate that is charged on the overnight rate paid on Federal Funds between it’s member banks of the Federal Reserve System

Federal Reserve Bank –  is the Central Bank of America, it’s made up of 12 banks that become part of the Federal Reserve System: Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St Louis, Minneapolis, Kansas City, Delaware and San Fransisco

Federal Reserve System – is the system which controls the monetary policy, regulates the money supply and the cost of the money supply to high street banks

Foreign Exchange – otherwise known as FOREX is the currencies of foreign countries, foreign exchange is the buying and selling of currency between nations, a company requiring goods from abroad will need to exchange it’s currency for that of the seller and vice versa – see our Forex page

Forex – Foreign Exchange – see our Forex page

Fundamental Analysis – is the analysis of the financial markets using the instruments based on the economic results and/or company news and valuation

 

 

G

Gann Analysis – is the technical analysis method of predicting price cycles in the financial markets

GDP – Gross Domestic Product, the monetary value of all goods and services produced by a country’s economy over a specified period

GNP – Gross National Product

Gold – is a precious metal most commonly used in jewellery, and is also a store of value which has in the past been used as a currency value

Great British Pound – (GBP) Pound Sterling is the monetary unit of the United Kingdom

 

H

Hang Seng Index – is the index of valued stocks on the Hong Kong stock exchange

Hedge – is the taking of a position to mitigate the risk of exposure by trading long term one asset while trading short on another

Hedge Fund – is a typically a partnership or mutual fund who’s aim is to achieve large gains by the market anomalies, they are often high return and will tend to only accept investors og high net worth, a typical investment being £250,000 plus, the investors pay the manager a performance fee

Hong Kong Dollar – (HKD) is the monetary unit of Hong Kong

Hungarian Forint – (HUF) is the monetary unit of Hungary

 

 

I

IFA – Independent Financial Advisor

Immediate Annuity – is a annuity contract that starts to make payments as soon as a contract has started

IMF – International Monetary Fund

Index Arbitrage – is simultaneously buying an index futures while at the same time selling the stocks within the index so to exploit any anomalies in price

Indian Rupee – (INR) is the monetary unit of India

Inflation – is a measure of prices within the economy and is a consequence of the fall in the purchasing power of a nations money, with higher inflation, money is worth less and products cost more to purchse

Initial Margin – is the payment that is required by a broker for the initial purchase or sale of an option or future

 

J

Joint Bond – is a bond that has more than one person/party who can be liable for the cash flows

JSE – is the Johannesburg Stock Exchange in South Africa

Junk Bond – is a bond that offers a high rate of interest because it’s considered to carry a higher level of risk  that it may default

 

K

KRX – is the Korea Exchange located in Seoul

Koruna – (CZK) is the monetary unit of the Czech Republic

Krona – (SEK) is the monetary unit of Sweden

Krone – (DKK) is the monetary unit of Denmark

Krone – (NOK) is the monetary unit of Norway

Krugerrand – is a South African coin containing 1 troy ounce of gold and minted since 1967 for the purpose of investments

 

L

LBO – Leverage Buy Out

Leverage – is a loan that is provided by a broker to a trader.  The broker will provide leverage of an amount which can vary between brokers but can usually be about 100:1 or 200:1, sometimes even as much as 500:1 again depending on the broker. A leverage of 100:1 ratio means that the trader is only required to have at least 1% of the total value of the trade available in the trading account, so to trade £100,000 position the 1% will only be £1,000 – see our Margin and Leverage page

LIBOR – London Inter Bank Offered Rate

London Stock Exchange – is the Stock Exchange based in London, UK

 

M

MACD Indicator – is one of the popular indicators used in technical analysis, it’s full name is the Moving Average Convergence Divergence or (MACD) for short. The indicator is used by a trader to look at momentum and trend direction – see our MACD page

Margin – is the initially deposit you put into your broker account, and is used as collateral to enable you to borrow (leverage) when trading the markets – see our Margin and Leverage page

Margin Call – is a call from a broker to it’s client to increase the funds in his/her account, this can happen if the broker’s client has an open position and the price moves in the opposite direction

Mexican Peso – (MXN) is the monetary unit of Mexico

Microhedge – is a hedge designed to cover the overall risks of whole portfolio

Moving Average – is the technical indicator used for trading, it’s a series of mathematical means calculating the date in a time series – see our Moving Average page

 

N

NASDAQ – National Association of Securities Dealers Automated Quotation System, it has no market floor and all trading is done screen based, it lists more than 3,000 companies in America making it the largest stock market in America

Net Dividend – is the dividend paid to shareholders by a company after excluding the tax credit received by the shareholders

New Zealand Dollar – (NZD) is the monetary unit of New Zealand

NDP – Net Domestic Product, the gross domestic product of a country minus the capital consumption

NNP –  Net National Product, the gross domestic product of a country minus the capital consumption. It is the amount of money available in an economy for expenditure on goods and services

Non Farm Payroll –  is the term for the number of service, construction and manufacturing jobs in the US excluding farm employees.

NYMEX – New York Mercantile Exchange

NYSE – New York Stock Exchange

 

O

OECD – is the Organisation for Economic Cooperation and Development

Offshore Fund – is a fund that is based at an offshore centre being outside of the UK in order to avoid UK tax

OPEC – is the Organisation of Petroleum Exporting Countries

OTC – Over The Counter, this when financial obligation are bought and sold outside the jurisdiction of the recognized financial market, the largest OTC is the NASDAQ




P

Passive Income – is a way of receiving income from not doing much work to make it, almost like an investment which pays a return, money making more money

Penny Shares –  are securities with a low market value traded on the stock exchange, they are very popular with small investors, however they can usually be shares in companies that have fallen on hard times and can sometimes be close to bankruptcy

Permission To Deal – is the permission the London Stock Exchange to deal the shares of a newly floated company

Polish Zloty – (PLN) is the monetary unit of Poland

 

Q

QE – Known as Quantitative Easing is the form of monetary policy which can be used to stimulate an economy when it’s interest rates are low or at zero, it can be high risk strategy that can cause hyperinflation. The central bank creates new money electronically by expanding it’s own balance sheet and uses this to purchase government bonds from financial institutions

Quantitative Trading – is a trading strategy based on trends and patterns identified by analysing the large quantities of very complex data on variables such as price and volume

 

R

Rand – (ZAR) is the monetary unit of South Africa

Real Exchange Rate – is the rate of an exchange which has been adjusted for the effects of inflation

Real Interest Rate –  is the actual interest rate less the current rate of inflation

Real-Yield Security – is a security whose yield has been adjusted to take into account of the rate of inflation

Relative Strength Index – (RSI) is a momentum based oscillator used to measure directional price movements, it provides a visual way monitor both the current, historical, strength and weakness of a particular – see our Relative Strength Index page

Ruble – (RUB) is the monetary unit of Russia

 

 

S

Samurai Bond – is a bond issued by a foreign institution in Japan

S&P 500 – is the Standard & Poor’s 500 stock index

Scalpers – is the term to describe a traders who deals very frequently for tiny small gains and will only hold a position for a few minutes or less

SEC – is the Securities and Exchange Commission, the US government agency that’s responsible for monitoring financial reporting and auditing practices

Secured Loan – is when a lender has an asset he can sell should the borrower defaults on the repayments

SEHK – Stock Exchange of Hong Kong

SGX – is the Singapore Stock Exchange

Share Certificate – is a document to show proof of ownership of a share in a company. It is stamped by a common seal of the company and signed by a director

Singapore Dollar – (SGD) is the monetary unit of Singapore

Swiss Franc – (CHF) is the monetary unit of Switzerland

 

 

T

Takeover Bid – is an offer made to the shareholders of a company by an institution or organisation to buy their shares at certain price so as to gain control of that particular company

TARP – is the Troubled Asset Relief Program, is enabled the us government to buy up $700 Billion of the troubled/toxic assets held by banks

TABOR – is the Tokyo Inter Bank Offered Rate

Turkish Lira – (TRY) is the monetary unit of Turkey

 

U

ULS – is the Unsecured Loan Stock

Umbrella Fund – is an offshore fund that consists of a fund of funds that invest in other funds who are also offshore

UNCTAD – is the United Nations Conference on Trade and Development, it was established in 1964 to encourage international trade and to help developing nations to finance their exports

Unsecured Debt – is a debt that isn’t covered by any kind of collateral

Upside – is an upward price movement or gain

 

 

V

Valuation Risk – is the risk that arises from problems of valuations, this can be because a company value during an acquisition can difficult to ascertain

Vulture Fund – is an investment fund that buys distressed debts of sovereign nations or companies, and then tries to profit by suing or pressuring the debtor nation/company for the repayment

VWAP – is the Volume Weighted Average Price algorithm, this is used in trading to seek trades at a price as close as is possible to the ratio of the total value of share traded over a period of time

 

W

Wall Street – is the financial district in New York, the location of the NYSE, banks and money markets

Wealth Management – is the practice of offering high net worth individuals an investment management, financial advice and other financial services

Won – (KRD) is the monetary unit of South Korea

World Bank – is the name of the International Bank for Reconstruction and Development

 

 

X

XD –  is the term for Ex Dividend

XU –  is the monetary unit of Vietnam

 

Y

Yen – (JPY) is the monetary unit of Japan

Yield – is the income from a particular investment that is expressed in various ways

Yuan – is the monetary unit of China

 

Z

Zloty – is the monetary unit of Poland

Zombie Fund – this is a closed fund, in particular a life assurance fund that will no longer accept new policies and only continues to collect premiums from existing policy holders and does not market for new business

Zimbabwean Dollar – (ZWD) is the monetary unit of Zimbabwe

 

*Please Note, Binary Options and Forex trading can carry a high level of risk to your capital as you could lose all of your investment. These products may not be suitable for every investor, therefore ensure you understand the risks and seek independent advice. Invest only what you can afford to lose




 

 

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