Basic trading vocabulary
This is the 11th and final lesson in our basic trading series. So far, we covered what trading is, stocks, forex, commodities, cryptocurrencies, CFDs and ETFs at an entry level. We also discussed a few basic terms like margin and leverage, pip and indexes.
Before we conclude, we’d like to share some additional popular terms that you may come across when you start your trading journey. Once you’re confident that you mastered the basics, you can explore more advanced trading which can be riskier but also more profitable.
Basic trading terms to remember
- Day trading: Buying and selling on the same day.
- Dividend: A sum of money paid to a company’s shareholders, which is effectively a cut off its profits. Not all companies pay dividends.
- Fundamental analysis: Study of social, political and economic factors that may affect an asset’s price movement.
- Initial margin: The amount of capital you need to pay in order to open a leveraged position.
- Investment: When you buy and hold positions for years with long-term profit in mind.
- Leverage: When a broker lends you money to give you access to a larger trading position than you might otherwise be able to afford.
- Limit order: When you instruct the broker on the max price you’re willing to pay or the min price you’re willing to receive for your instrument.
- Maintenance margin:The account balance (or equity) you need to maintain to keep your leveraged position open. It’s usually 50% of the initial margin.
- Margin call: When your account value drops below the maintenance margin and your broker asks you to make a deposit.
- Option: Contract that gives you the opportunity to buy or sell an asset at a predetermined price up to a specific date in the future.
- Overnight premium (swap): Interest paid when you hold a position overnight and roll it over to the next day. In most cases, you will be paying an overnight premium to the broker but there are instances when it works the other way.
- Pip: Stands for “percentage in point” and it is the smallest possible change in the exchange rate of a currency pair.
- Position trading: Buying assets with a view to retaining them for longer, e.g. months or years, in order to profit from longer-term price changes while ignoring short-term fluctuation.
- Rollover: When your CFD position reaches its end date and your broker moves you automatically to the next available contract.
- Slippage: When you buy or sell at a different price to the one requested, either because the price changed from the moment you clicked the order button to the moment it went through or because the requested price isn’t available.
- Spread betting: When you bet per pip or point, i.e. you speculate on the price movement of an underlying asset. Spread betting is tax-free in some countries but in others it’s downright banned.
- Stop loss order: When you instruct the broker to execute a trade as soon as your asset reaches a certain price point, in order to cut your losses.
- Swing trading: Buying or selling when you expect an imminent price change.
- Take profit: When you instruct the broker to execute a trade as soon as your asset reaches a certain price with a view to securing earnings in case the market starts moving against you.
- Technical analysis: When traders look into charts and past market movement to forecast the future.
- Tick: The smallest possible change in an index’s value, which is unique to each index.
- Trading: The frequent buying and selling of financial instruments, with a view to making a profit from short-term price fluctuations.
- Trading alert: Many online brokers notify you when an instrument reaches a specific price, when its price changes by a certain percentage or when a predetermined number of sellers or buyers is exceeded.
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