The ultimate glossary for trading terminology.
After-hours trading involves buying or selling securities outside of specified trading hours.
However, trading after hours may offer less liquidity, as fewer traders are operating at these times and spread betting firms may offer wider spreads as fluctuations can occur during these times.
Backwardation occurs when a bid price exceeds the ask price.
This usually occurs when stock is suspended or under a share repurchase scheme.
It can also mean that a futures contract will trade at a higher price when it is coming close to expiring.
The opposite of backwardation is known as contango.
A Bear Market occurs when the price of a security is falling, and the negative outlook of the security causes the security’s price to continue to fall, causing a self-sustaining problem.
For a downturn like this to be officially considered a bear market, it must be on-going for longer than two months, otherwise it is known as a correction.
Bears are generally traders with a pessimistic view on markets that look to profit from a decline in prices.
How big companies finance short-term cash flow.
Like bonds but without the coupon, instead, the APR is determined by the discount the agreements are entered into and the length of time to repayment.
For example, a blue chip company might borrow $9.95m dollars today and repay $10m in a month’s time.
A derivative is a security whose price is dependant on or derived from one or more underlying assets. The derivative itself is just a contract between two or more parties that’s value is determined on the fluctuations of the underlying assets. The most common assets include; stocks, interest rates, bonds, currencies, commodities and market indexes.
An index created to see how 30 of the largest publicly owned companies in the U.S. have traded in a single session in the stock market. The ‘Industrial’ part of the average is largely defunct, as many of the companies compared by the index have no involvement in heavy industry.
Being a trader requires staying up-to-date on various market developments, news and macroeconomic releases. However, if we would have to pick only one specific report to follow, that would be a country’s monetary policy. Central banks determine the monetary policy of a country, and the European Central Bank, or ECB, is one of the most important central banks in the world.
Have you ever seen a break between the closing and opening price of a stock, without any trading between the prices? If yes, you probably didn’t know that this market phenomenon has its name – it’s called gapping. In this article, we’ll cover why a stock price gaps, what types of gaps exist and what does “gap up” mean in stock trading.
Similar to a guaranteed order, this is a bet where a spread betting provider will guarantee you will exit a position once a certain price level is reached. This cuts out the risks associated with volatility but there may be a small charge applied to the bet to put a stop order on a bet.
Traders will hedge a bet in order to reduce the risk associated with the initial position they have taken up. This normally means placing a bet in the opposite direction to their original bet, occasionally in the form of a futures contract. A hedge bet won’t necessarily cover the entire cost of a lost bet, however it will cover some of the loss made on a trader’s original position.
Inflation is the rate at which the level of prices for goods and services is increasing. Typically a country’s central bank will aim for inflation to be between 2-3%. When inflation increases too quickly, that country’s currency loses value on a global scale and goods within the country become more expensive for the population.
An interest rate is the amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. Interest rates are typically noted on an annual basis, known as the annual percentage rate (APR). The assets borrowed could include cash, consumer goods, and large assets such as a vehicle or building.
A junk bond is a higher-risk bond that has a speculative appeal as they can offer much higher yields. However, companies that issue junk bonds typically have a poor credit rating, and although the price appreciation of a junk bond is substantial if the company manages to turn itself around, it isn’t always able to do so.
A company’s market capitalisation is the total value of all of its outstanding shares. This can be calculated by multiplying the current number of the company’s shares that are outstanding by the market value of one share; investors then use this figure to determine a company’s size.
The NYSE is the largest equities-based exchange in the world based on market capitalisation. The NYSE became a public entity in 2005, and merged with the Euronext exchange in 2007. For years the NYSE relied solely on only floor trading, however now more than half of the trades placed on the exchange are electronic.
A pip is the smallest price change that an exchange rate can make. Most currency pairs are priced to four decimal points, meaning that the smallest change that can be calculated is one hundredth of a per cent. This is also known as a basis point, hence where the term ‘per point’ comes from. The EUR/USD will trade to four decimal places, however the USD/JPY only trades to three decimal places.
Support and resistance levels are an extremely important concept in technical trading. A large number of market participants continuously follow and monitor major support and resistance levels to identify trade setups and price-levels which could potentially invalidate that setup, i.e. stop-loss levels. In this article, we’ll take a close look at what support and resistance levels are, how they form and how to trade them.
A scalper is a trader who attempts to make profits from small price changes in the market. This means that they tend to place lots of small bets throughout the day and constantly monitoring the price levels of each trade. If a strict exit strategy is implemented, a scalper can be very profitable by taking advantage of small changes in the price of a commodity that may not necessarily reflect the overall movement of the commodity’s price for the day.
The tick size is the smallest measurable amount the price of a financial instrument can move. Different instruments have a different tick size, for example, the tick size of a share is 0.01 because that equals one cent. Some futures contracts have designated tick sizes, which can be up to $10.00.
The Unemployment Rate released by the US Department of Labor is reported as a percentage worked out by dividing the number of unemployed workers by the total civilian labour force in America. The figure is released at 8.30 am eastern standard time, 1.30pm GMT, on the first trading Friday of the month.
Gross Domestic Product is a measure of the total value of all goods and services produced by a particular country or region. In the UK this is release by the Office for National Statistics. In the Eurozone it is released by Eurostat. In the US the figure is released by the US Bureau of Economic Analysis. GDP is considered a broad measure of that country’s or region’s economic activity and health. Usually, a rising trend has a positive effect on currency and equity markets, while a falling trend is seen as negative.
The nonfarm payrolls figure released by the US Department of Labor presents the number of new jobs created during the previous month, in all non-agricultural business, within the States. The figure is released at 8.30 am eastern standard time, 1.30pm GMT, on the first trading Friday of the month.