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Glossary

of trading and economic terms
TopTradeGroup > Glossary

Assets

An asset is an economic resource which can be owned or controlled to return a profit, or a future benefit. In financial trading, the term asset relates to what is being exchanged on markets, such as stocks, bonds, currencies or commodities.

Base rate

A base rate is the interest rate that a central bank – such as the Bank of England or Federal Reserve – will charge commercial banks for loans. The base rate is also known as the bank rate or the base interest rate.

Broker

A broker is an independent person or a company that organizes and executes financial transactions on behalf of another party. They can do this across a number of different asset classes, including stocks, forex, real estate and insurance. A broker will normally charge a commission for the order to be executed.

Call option

A call option is a contract that gives the buyer the right but not the obligation to buy a specific asset at a specific price, on a specific date of expiry. The value of a call option appreciates if the asset's market price increases.

Commission

Commission is the charge levied by an investment broker for making trades on a trader’s behalf.

Contracts for difference

Contracts for difference, or CFDs, are a type of financial derivative used in CFD trading. They can be used to trade a variety of financial markets like shares, forex, commodities, indices or bonds.

Derivative

Derivatives are financial products that derive their value from the price of an underlying asset. Derivatives are often used by traders as a device to speculate on the future price movements of an asset, whether that be up or down, without having to buy the asset itself.

Execution

In trading, execution is the completion of a buy or sell order from a trader. It is carried out by a broker.

Index

In trading, an index is a grouping of financial assets that are used to give a performance indicator of a particular sector. The plural term is indices.

Leverage

Leverage is the foundation of your trading experience with us. It involves borrowing an amount of money to trade. By placing a small percentage of the total market exposure as margin, it opens up a world of opportunity to speculate or even protect portfolios.

Liquidity

Liquidity is used in finance to describe how easily an asset can be bought or sold in the market without affecting its price – it can also be known as market liquidity. When there is a high demand for an asset, there is high liquidity, as it will be easier to find a buyer (or seller) for that asset.

Long and short

These are two of the most commons terms used by traders in all forums and at all levels of ability. These two terms express a directional bias on where an instrument, or market, is expected to head over a set timeframe.<br /> To be long is to buy, or to take a view that the price will appreciate.<br /> To be short is the same as selling short to open a trade and holding a negative bias that the price will decrease.

Margin

Margin, also known as your deposit, is the amount of capital in your account required to be placed to open a position. Margin is a function of the desired notional exposure to a particular market and the leverage ratio.

Order

In trading, an order is a request sent to a broker or trading platform to make a trade on a financial instrument.

Pips and points

These are a measure of the price change that will determine your profit and loss. The number of decimal places you see quoted for an instrument (such as EURUSD) on trading platforms der will determine the movement in pips.

Slippage

A stop-loss is an excellent risk management tool, especially when combined with correct position sizing relative to the size of the account and adjusted for market volatility. It effectively allows you to understand how much risk you’re taking on in any given trade. It’s important to understand that a stop-loss is a market order and a trigger point. If the price trades through the specified stop-loss level, an order is activated to close the position at the prevailing market price at that time. Should the market be trading at a different level from the stop-loss level at that precise moment of execution, then the stop may be filled at a better or worse price. This is known as slippage.

Spread

Spread is the cost or charge to trade, and represents the difference between the buy (bid) and the sell (offer) price. While risk management and correct position sizing are core considerations for any successful trader, the primary objective of trading in the first place is to grow the capital in your account. Your objective should be for the bid price to move higher than where you originally bought (to open) a position.

Stop order definition

Stop orders are types of order that instruct your broker to execute a trade when it reaches a particular level: one which is less favourable than the current market price. They can also be known as stop-loss orders.

Swaps

Traders pay spread when opening and closing a trade, representing the cost to trade or the effective commission. Another important thing to consider when holding a position is the interest adjustment made to the account at the rollover point each day at 5pm EST (New York time) or 00:00 server time.

Volatility

A market’s volatility is its likelihood of making major, unforeseen short-term price movements at any given time.