CFD Glossary
Learn about the most common terminology associated with CFD trading available at 24ForexMarket.
Account
Recording of all transactions.
Account balance
Amount of money in an account.
Appreciation
A currency is said to appreciate when its price increases in response to market demand; it is the increase in the value of an asset.
Arbitration
Take advantage of offsetting prices in different markets by making a purchase or sale of an instrument, and simultaneously taking an equal and opposite position in a related market to take advantage of small price differences.
Request/offer
The price, or rate, at which a willing seller is willing to sell.
Australia
The Australian dollar.
Back Office
Services and processes related to the settlement of financial transactions (i.e. written confirmation and settlement of transactions, record keeping).
Balance of payments
A record of all economic transactions between a country’s residents and the rest of the world during a given period of time. The balance of payments tracks international transactions, which include goods, services and capital flows.
Trade balance
The value of a country’s exports minus its imports.
Bar chart
A technical analysis tool. The chart represents four significant points: the high and low prices of a financial instrument, which form the vertical bar, the opening price, which is marked with a small horizontal line to the left of the bar, and the closing price , which is marked with a small horizontal line to the right of the bar.
Base currency
The currency in which an investor or issuer maintains its books of accounts; the currency against which other currencies are quoted. In the foreign exchange market, the US dollar is normally considered the base currency for quotes, meaning that quotes are expressed in units of 1 USD for the other currency quoted in the pair.
Basic point
One hundredth of a percent.
Bear
An investor who believes that prices and/or the market will decline.
Bear market
A market characterized by a prolonged period of falling prices accompanied by widespread pessimism.
BID
The price at which a buyer is willing to buy; the price offered for a currency.
Obligations
Bonds are tradable instruments (debt securities) issued by a borrower to raise capital. they pay a fixed or variable interest, called a coupon. When interest rates fall, bond prices rise and vice versa.
Broker
An individual, or company, that acts as an intermediary, connecting buyers and sellers, usually for a fee or commission. Conversely, a “broker” commits capital and takes a position, hoping to earn a spread (profit) by closing the position in a subsequent transaction with another party.
Buba
The Deutsche Bundesbank is the central bank of the Federal Republic of Germany.
Bull
An investor who believes that prices and/or the market will increase.
Bull market
A market which is distinguished by a prolonged period of rising prices (opposite of bear market).
Candlestick chart
A chart that shows the trading range for the day as well as the opening and closing price. If the opening price is higher than the closing price, the rectangle between the opening price and the closing price is shaded. If the closing price is higher than the opening price, this area of the chart is not shaded.
central bank
A governmental or quasi-governmental organization that manages a country’s monetary policy and prints a nation’s currency. For example, the central bank of the United States is the Federal Reserve, the others are the ECB, the BOe and the BOJ.
Chartist
A person who analyzes charts, graphs, and historical data to identify trends and predict future movements. We also speak of a technical trader.
Cleaning
The process of settling a transaction.
Closed position
Foreign currency exposures that no longer exist. The process of closing a position involves selling or buying a certain amount of currency to offset an equal amount of the open position. in other words, it is about “balancing” the position.
Commission
Transaction fees charged by a broker.
Confirmation
A document exchanged by the counterparties to a transaction that confirms the terms of the transaction.
CONTRACT
The standard trading unit.
Counterpart
The participant, either a bank or a customer, with whom the financial transaction is carried out.
Cross rate
An exchange rate between two currencies. The cross rate is said to be non-standard in the country where the currency pair is listed. For example: in the US, a GBP/CHF quote would be considered a cross rate, whereas in the UK or Switzerland it would be one of the main currency pairs traded.
Cash
Any form of currency issued by a government or central bank.
Currency pair
The two currencies that make up an exchange rate. For example: EUR/USD, GBP/JPY, etc.
Risk of change
The risk of suffering losses resulting from an adverse change in exchange rates.
Day Trading
Open and close the same position(s) during the same trading session.
Dealer
An individual or company that acts as the principal or counterparty to a transaction. Counterparties take a position, hoping to earn a spread (profit) by closing out the position in a subsequent transaction with another party. In contrast, a broker is an individual or company that acts as an intermediary, connecting buyers and sellers for a fee or commission.
Deficit
A negative balance of trade or payments.
Delivery
A transaction where both parties transfer possession of the currencies being exchanged.
Deposit
Borrowing and lending money. The rate at which money is borrowed or lent is called the deposit rate (or deposit rate). Certificates of deposit (CDs) are also negotiable instruments.
Amortization
A decline in the value of a currency due to market forces.
Derivative products
A contract that changes in value based on changes in the price of a related or underlying security, futures contract, or other physical instrument. An option is the most common derivative instrument.
Devaluation
The deliberate downward adjustment of the price of a currency, normally by official announcement.
ECB – European Central Bank
The Central Bank of the European Monetary Union.
End of day (Mark-to-Market)
Traders account for their positions in two ways: on an accrual basis or on a mark-to-market basis. An accrual accounting system only recognizes cash flows when they occur, and therefore only shows a profit or loss when it is realized. The mark-to-market method values the trader’s portfolio at the end of each business day using market closing rates or remarking rates. Any profit or loss is accounted for and the trader starts the next day with a net position.
euro
The currency of the European Monetary Union (EMU) which replaced the European Monetary Unit (ECU).
execution date
The date a transaction takes place.
Fed – Federal Reserve
The Central Bank of the United States.
Fixed exchange rate (representative rate)
An official exchange rate set by monetary authorities for one or more currencies. In practice, even fixed exchange rates fluctuate between defined upper and lower bands, leading to interventions.
Flat (square, balanced)
Being neither long nor short is the same as being flat or square. A book would be flat if it has no positions or if all positions cancel out.
FOMC – Federal Open Market Committee
The Federal Reserve Monetary Committee.
Forex – Foreign Exchange
The simultaneous purchase of one currency and sale of another in an over-the-counter market. Most major currencies are quoted against the US dollar.
Before
The pre-specified exchange rate for a foreign exchange contract settling on an agreed future date, based on the interest rate differential between the two currencies involved.
Points ahead
Pips added or subtracted from the current exchange rate to calculate a futures price.
FRA – Forward Rate Agreements
FRAs are transactions that allow you to borrow or lend at a specified interest rate over a specific period of time in the future.
recce and verso
The entrance usually includes the trading floor and other main business activities.
Fundamental Analysis
Analysis of economic and political information with the aim of determining future movements of a financial market.
Forward contract
An obligation to exchange an asset or instrument at a specified price at a future date. The main difference between a “future” and a “forward” is that futures are generally traded on an exchange (exchange-Traded Contacts – etC), while forwards are considered Over The Counter (OTC) contracts. An OTC is a contract that is NOT traded on an exchange.
G5
The five major industrial countries, namely the United States, Germany, Japan, France and the United Kingdom.
G7
The five major industrial countries, namely the United States, Germany, Japan, France and the United Kingdom.
GDP – Gross domestic product
The total value of a country’s output, income, or expenditure, produced within the country’s physical borders.
GNP – Gross National Product
Gross domestic product to which is added income from investments or work abroad.
GTC – Good-to-print-cancelled
An order left with a broker to buy or sell at a fixed price. The T&Cs remain in place until they are executed or canceled.
Hedge
Take a position or combination of positions to reduce the risk of the trader’s primary position.
Up down
This is generally the highest and lowest prices of the underlying instrument during a trading day.
Inflation
An economic condition where there is an increase in the price of consumer goods, thereby eroding purchasing power.
Initial margin
The initial deposit of collateral required to enter a position as a guarantee of future performance.
Interbank rates
The exchange rates at which major international banks quote other major international banks.
Intervention
Action by a central bank aimed at influencing the value of its currency by entering the market. Concerted intervention refers to the action of a number of central banks to control exchange rates.
IRS – Interest Rate Swaps
An exchange of two debt securities when each has different payment streams. The transaction typically exchanges two parallel loans, one fixed and the other floating.
Kiwi
The New Zealand dollar.
Leading indicators
Economic variables considered predictive of future economic activity (unemployment, consumer price index, producer price index, retail sales, personal income, prime rate, discount rate, and federal funds rate).
Leverage
Also called margin. The ratio of the amount used in a transaction to the required security deposit.
Libor – London Interbank Offered Rate
The London interbank offered rate. Large international banks use LIBOR when borrowing from another bank.
Liquidation
Closing an existing position by executing an offsetting transaction.
Liquidity
The ability of a market to accept large transactions with minimal or no impact on price stability.
Long
A position allowing more of an instrument to be purchased than is sold, resulting in an appreciation in value if market prices rise.
Long position
A position that appreciates in value if market prices increase. When the base currency of the pair is purchased, the position is said to be long.
Loonie
The Canadian dollar.
Batch
A unit to measure the transaction amount. The transaction value is always an integer.
Margin
The required equity that an investor must deposit to secure a position.
Market maker
A broker who regularly quotes bid and ask prices, and is willing to make a two-way market in any financial instrument.
Market order
A buy/sell order at the best available price when the order hits the market.
OCO – One cancels the other
A contingent order where the execution of one part of the order automatically cancels the other part.
Open order
An order that will be executed when a market moves toward its designated price. Normally associated with GTC orders.
Open position
An active transaction with a corresponding unrealized profit or loss that has not been offset by an equal and opposite transaction.
Options
An agreement that allows the holder to have the option to buy/sell a specific security at a certain price within a certain time frame. There are two types of options: call options and put options. A call option is the right to buy, while a put option is the right to sell.
Order
An order is an instruction, given by a client to a broker, to trade. An order can be placed at a specific price or at the market price. It may also be valid until executed or until close of business.
Night shift
A transaction that remains open until the next business day.
Points, Pips
Term used in the currency market to represent the smallest incremental change that an exchange rate can experience. Depending on context, normally one basis point (0.0001 in the case of EUR/USD, GBD/USD, USD/CHF and 0.01 in the case of USD/JPY).
Position
A position is a trading point of view expressed through buying or selling. it can refer to the amount of a currency owed by an investor.
Premium
In the currency market, it is the number of points added to the spot price to determine a futures price.
Profit and Loss (P&L)
The actual “realized” gain or loss resulting from trading activities on closed positions, plus the theoretical “unrealized” gain or loss on open positions that have been priced at walk.
Quote
An indicative market price; indicates the highest buy price and/or lowest sell price available for a security at any given time.
Rally
A recovery in prices after a period of decline.
Range
The difference between the highest price and the lowest price of a future recorded during a given trading session.
Rate
The price of one currency relative to another.
repo – re-purchase
This type of transaction involves the sale and subsequent repurchase of an instrument, on a specific date and time. It occurs in the short-term money market.
Resistance
A term used in technical analysis indicating a specific price level at which a currency will be unable to move above. The recurring inability of price to rise above this point produces a pattern that can generally be formed by a straight line.
Risk management
To protect themselves against risk, they will use financial analysis and trading techniques.
Rollover
A process in which settlement of a transaction is postponed to another value date. The cost of this process is based on the interest rate differential of the two currencies.
Regulations
The process by which a transaction is recorded in the books and records of the counterparties to a transaction. Settlement of foreign exchange transactions may or may not involve the actual physical exchange of one currency for another.
Short
Short selling involves selling an instrument without owning it and remaining short in the hope that the price will fall so that you can buy it back in the future at a profit.
Short position
An investment position that benefits from a decline in market price. When the base currency of the pair is sold, the position is called short.
Spot
A transaction that occurs immediately, but funds typically change hands within two business days of the deal being made.
Spot price
The current market price. Settlement of cash transactions generally occurs within two business days.
Spacing
The difference between the bid price and the ask price (ask); used to measure market liquidity. Narrower spreads generally mean higher liquidity.
Stop loss order
A buy/sell order at an agreed price. One can also have a pre-established stop order, whereby an open position is automatically liquidated when a specified price is reached or exceeded.
Support Levels
A technique used in technical analysis that indicates a specific price ceiling and floor to which a given exchange rate will automatically correct.
To exchange
A currency swap is the simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate.
Technical analysis
An effort to predict prices by analyzing market data, i.e. historical price trends, averages, volumes, open interest, etc.
Tick-tock
A minimal variation in price, upwards or downwards.
Tomorrow Next (Tom/Next)
Simultaneous buying and selling of a currency for next day delivery.
Prices for both routes
Both the bid and ask prices are quoted for a Forex transaction.
US prime rate
The interest rate at which U.S. banks lend to their prime corporate clients.
Value date
The date on which the counterparties to a financial transaction agree to settle their respective obligations, that is, to exchange payments. For spot foreign exchange transactions, the value date is normally advanced by two business days. Also called due date.
Volatility
A statistical measure of the price movements of a market or security over time. it is calculated using the standard deviation. High volatility is associated with a high degree of risk.
Volume
The number, or value, of securities traded during a given period.