Spread The difference between the bid and offer prices. A day trader is more concerned with price action characteristics of a stock itself, unlike investors who use fundamental data to analyze the long-term growth potential of a company to decide whether to buy, sell or hold its stock. In FX trading, the Ask represents the price at which a trader can buy the base currency, shown to the left in a currency pair. Delta The ratio between the change in price of a product and the change in price of its underlying market. On top Attempting to sell at the current market order price. CTAs Refers to commodity trading advisors, speculative traders whose activity can resemble that of short-term hedge funds; frequently refers to the Chicago-based or futures-oriented traders.
Forex trading is a popular type of investing because it provides investors with the ability to make quick profits due to small changes in one country's currency. Due to the time differences around the world, forex trading takes place continuously because as one market closes another one opens.
BREAKING DOWN 'Day Trader'
Bundesbank Germany's central bank. Buy Taking a long position on a product. Cable earned its nickname because the rate was originally transmitted to the US via a transatlantic cable beginning in the mid s when the GBP was the currency of international trade. Call option A currency trade which exploits the interest rate difference between two countries. By selling a currency with a low rate of interest and buying a currency with a high rate of interest, the trader will receive the interest difference between the two countries while this trade is open.
Candlestick chart A chart that indicates the trading range for the day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded.
If the close price is higher than the open price, that area of the chart is not shaded. Capitulation A point at the end of an extreme trend when traders who are holding losing positions exit those positions. This usually signals that the expected reversal is just around the corner. Carry trade A trading strategy that captures the difference in the interest rates earned from being long a currency that pays a relatively high interest rate and short another currency that pays a lower interest rate.
Cash market The market in the actual underlying markets on which a derivatives contract is based. Cash price The price of a product for instant delivery; i. CBs Abbreviation referring to central banks. Central bank A government or quasi-governmental organization that manages a country's monetary policy. It allows traders to leverage their capital by trading notional amounts far higher than the money in their account and provides all the benefits of trading securities, without actually owning the product.
Chartist An individual, also known as a technical trader, who uses charts and graphs and interprets historical data to find trends and predict future movements. Choppy Short-lived price moves with limited follow-through that are not conducive to aggressive trading. Cleared funds Funds that are freely available, sent in to settle a trade. Clearing The process of settling a trade. Closed position Exposure to a financial contract, such as currency, that no longer exists.
A position is closed by placing an equal and opposite deal to offset the open position. Once closed, a position is considered squared. Closing The process of stopping closing a live trade by executing a trade that is the exact opposite of the open trade. Closing price The price at which a product was traded to close a position. It can also refer to the price of the last transaction in a day trading session. Collateral An asset given to secure a loan or as a guarantee of performance.
Commission A fee that is charged for buying or selling a product. Commodity currencies Currencies from economies whose exports are heavily based in natural resources, often specifically referring to Canada, New Zealand, Australia and Russia.
Components The dollar pairs that make up the crosses i. Selling the cross through the components refers to selling the dollar pairs in alternating fashion to create a cross position. Confirmation A document exchanged by counterparts to a transaction that states the terms of said transaction.
Consolidation A period of range-bound activity after an extended price move. Construction spending Measures the amount of spending towards new construction, released monthly by the U.
Department of Commerce's Census Bureau. Contagion The tendency of an economic crisis to spread from one market to another. Contract The standard unit of forex trading. Contract note A confirmation sent that outlines the exact details of the trade. Contract size The notional number of shares one CFD represents. Controlled risk A position which has a limited risk because of a Guaranteed Stop. Corporate action An event that changes the equity structure and usually share price of a stock.
For example, acquisitions, dividends, mergers, splits and spinoffs are all corporate actions. Corporates Refers to corporations in the market for hedging or financial management purposes.
Corporates are not always as price sensitive as speculative funds and their interest can be very long term in nature, making corporate interest less valuable to short-term trading. Counter currency The second listed currency in a currency pair. Counterparty One of the participants in a financial transaction.
Country risk Risk associated with a cross-border transaction, including but not limited to legal and political conditions. Crater The market is ready to sell-off hard.
Cross A pair of currencies that does not include the U. CTAs Refers to commodity trading advisors, speculative traders whose activity can resemble that of short-term hedge funds; frequently refers to the Chicago-based or futures-oriented traders. Currency Any form of money issued by a government or central bank and used as legal tender and a basis for trade. Currency pair The two currencies that make up a foreign exchange rate.
Currency risk The probability of an adverse change in exchange rates. Currency symbols A three-letter symbol that represents a specific currency. For example, USD U. Current account The sum of the balance of trade exports minus imports of goods and services , net factor income such as interest and dividends and net transfer payments such as foreign aid.
The balance of trade is typically the key component to the current account. D Day trader Speculators who take positions in commodities and then liquidate those positions prior to the close of the same trading day.
Day trading Making an open and close trade in the same product in one day. Deal A term that denotes a trade done at the current market price. It is a live trade as opposed to an order. Dealer An individual or firm that acts as a principal or counterpart to a transaction. Principals take one side of a position, hoping to earn a spread profit by closing out the position in a subsequent trade with another party.
In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission. Dealing spread The difference between the buying and selling price of a contract. Defend a level Action taken by a trader, or group of traders, to prevent a product from trading at a certain price or price zone, usually because they hold a vested interest in doing so, such as a barrier option.
Deficit A negative balance of trade or payments. Delivery A trade where both sides make and take actual delivery of the product traded. Delta The ratio between the change in price of a product and the change in price of its underlying market. Depreciation The decrease in value of an asset over time. Derivative A financial contract whose value is based on the value of an underlying asset. Some of the most common underlying assets for derivative contracts are indices, equities, commodities and currencies.
Devaluation When a pegged currency is allowed to weaken or depreciate based on official actions; the opposite of a revaluation. Discount rate Interest rate that an eligible depository institution is charged to borrow short-term funds directly from the Federal Reserve Bank.
Divergence In technical analysis, a situation where price and momentum move in opposite directions, such as prices rising while momentum is falling. Divergence is considered either positive bullish or negative bearish ; both kinds of divergence signal major shifts in price direction.
Divergences frequently occur in extended price moves and frequently resolve with the price reversing direction to follow the momentum indicator. Divergence of MAs A technical observation that describes moving averages of different periods moving away from each other, which generally forecasts a price trend. Dove Dovish refers to data or a policy view that suggests easier monetary policy or lower interest rates.
The opposite of hawkish. Downtrend Price action consisting of lower lows and lower highs. Economic indicator A government-issued statistic that indicates current economic growth and stability. Euro The currency of the Eurozone.
Eurozone labor cost index Measures the annualized rate of inflation in the compensation and benefits paid to civilian workers and is seen as a primary driver of overall inflation. It measures overall economic health by combining ten leading indicators including average weekly hours, new orders, consumer expectations, housing permits, stock prices and interest rate spreads.
EX-dividend A share bought in which the buyer forgoes the right to receive the next dividend and instead it is given to the seller. The two most common option expiries are These time periods frequently see an increase in activity as option hedges unwind in the spot market. Exporters Corporations who sell goods internationally, which in turn makes them sellers of foreign currency and buyers of their domestic currency.
Extended A market that is thought to have traveled too far, too fast. F Factory orders The dollar level of new orders for both durable and nondurable goods. This report is more in depth than the durable goods report which is released earlier in the month. Fill When an order has been fully executed. Fill or kill An order that, if it cannot be filled in its entirety, will be cancelled.
First in first out FIFO All positions opened within a particular currency pair are liquidated in the order in which they were originally opened. Follow-through Fresh buying or selling interest after a directional break of a particular price level. The lack of follow-through usually indicates a directional move will not be sustained and may reverse. The minutes provide more insight into the FOMC's deliberations and can generate significant market reactions.
The global market for such transactions is referred to as the forex or FX market. Forward The pre-specified exchange rate for a foreign exchange contract settling at some agreed future date, based on the interest rate differential between the two currencies involved.
Forward points The pips added to or subtracted from the current exchange rate in order to calculate a forward price. FRA40 A name for the index of the top 40 companies by market capitalization listed on the French stock exchange.
Fundamental analysis The assessment of all information available on a tradable product to determine its future outlook and therefore predict where the price is heading. Often non-measurable and subjective assessments, as well as quantifiable measurements, are made in fundamental analysis.
Funds Refers to hedge fund types active in the market. Future An agreement between two parties to execute a transaction at a specified time in the future when the price is agreed in the present. Futures contract An obligation to exchange a good or instrument at a set price and specified quantity grade at a future date.
G8 Group of 8 - G7 nations plus Russia. Gaps usually follow economic data or news announcements. Gearing also known as leverage Gearing refers to trading a notional value that is greater than the amount of capital a trader is required to hold in his or her trading account.
It is expressed as a percentage or a fraction. Given Refers to a bid being hit or selling interest. Giving it up A technical level succumbs to a hard-fought battle.
Going long The purchase of a stock, commodity or currency for investment or speculation — with the expectation of the price increasing. Going short The selling of a currency or product not owned by the seller — with the expectation of the price decreasing. Gold gold's relationship It is commonly accepted that gold moves in the opposite direction of the US dollar. The long-term correlation coefficient is largely negative, but shorter-term correlations are less reliable. Gold certificate A certificate of ownership that gold investors use to purchase and sell the commodity instead of dealing with transfer and storage of the physical gold itself.
Gold contract The standard unit of trading gold is one contract which is equal to 10 troy ounces. Good for day An order that will expire at the end of the day if it is not filled. Good 'til cancelled order GTC An order to buy or sell at a specified price that remains open until filled or until the client cancels.
Good 'til date An order type that will expire on the date you choose, should it not be filled beforehand. Greenback Nickname for the US dollar. Gross domestic product GDP Total value of a country's output, income or expenditure produced within its physical borders.
Gross national product Gross domestic product plus income earned from investment or work abroad. Guaranteed order An order type that protects a trader against the market gapping. It guarantees to fill your order at the price asked.
Guaranteed stop A stop-loss order guaranteed to close your position at a level you dictate, should the market move to or beyond that point. H Handle Every pips in the FX market starting with Hedge A position or combination of positions that reduces the risk of your primary position. Hit the bid To sell at the current market bid. I Illiquid Little volume being traded in the market; a lack of liquidity often creates choppy market conditions.
Industrial production Measures the total value of output produced by manufacturers, mines and utilities. This data tends to react quickly to the expansions and contractions of the business cycle and can act as a leading indicator of employment and personal income data.
Inflation An economic condition whereby prices for consumer goods rise, eroding purchasing power. Initial margin requirement The initial deposit of collateral required to enter into a position. Interbank rates The foreign exchange rates which large international banks quote to each other. Interest Adjustments in cash to reflect the effect of owing or receiving the notional amount of equity of a CFD position. Intervention Action by a central bank to affect the value of its currency by entering the market.
Concerted intervention refers to action by a number of central banks to control exchange rates. Introducing broker A person or corporate entity which introduces accounts to a broker in return for a fee. Short for initial public offering. ISM manufacturing index An index that assesses the state of the US manufacturing sector by surveying executives on expectations for future production, new orders, inventories, employment and deliveries. Values over 50 generally indicate an expansion, while values below 50 indicate contraction.
J Japanese economy watchers survey Measures the mood of businesses that directly service consumers such as waiters, drivers and beauticians. Readings above 50 generally signal improvements in sentiment. Japanese machine tool orders Measures the total value of new orders placed with machine tool manufacturers.
Machine tool orders are a measure of the demand for companies that make machines, a leading indicator of future industrial production.
Strong data generally signals that manufacturing is improving and that the economy is in an expansion phase. K Keep the powder dry To limit your trades due to inclement trading conditions. In either choppy or extremely narrow markets, it may be better to stay on the sidelines until a clear opportunity arises. Knock-ins Option strategy that requires the underlying product to trade at a certain price before a previously bought option becomes active.
Knock-ins are used to reduce premium costs of the underlying option and can trigger hedging activities once an option is activated. Knock-outs Option that nullifies a previously bought option if the underlying product trades a certain level.
When a knock-out level is traded, the underlying option ceases to exist and any hedging may have to be unwound. L Last dealing day The last day you may trade a particular product. Last dealing time The last time you may trade a particular product. Leading indicators Statistics that are considered to predict future economic activity.
Leverage Also known as margin, this is the percentage or fractional increase you can trade from the amount of capital you have available. It allows traders to trade notional values far higher than the capital they have. For example, leverage of Liability Potential loss, debt or financial obligation. A limit order sets restrictions on the maximum price to be paid or the minimum price to be received. Liquid market A market which has sufficient numbers of buyers and sellers for the price to move in a smooth manner.
Liquidation The closing of an existing position through the execution of an offsetting transaction. Long position A position that appreciates in value if market price increases. When the base currency in the pair is bought, the position is said to be long. This position is taken with the expectation that the market will rise. Longs Traders who have bought a product. Lot A unit to measure the amount of the deal. The value of the deal always corresponds to an integer number of lots.
M Macro The longest-term trader who bases their trade decisions on fundamental analysis. Manufacturing production Measures the total output of the manufacturing aspect of the Industrial Production figures.
This data only measures the 13 sub-sectors that relate directly to manufacturing. Margin call A request from a broker or dealer for additional funds or other collateral on a position that has moved against the customer. Market maker A dealer who regularly quotes both bid and ask prices and is ready to make a two-sided market for any financial product. Market order An order to buy or sell at the current price. Market-to-market Process of re-evaluating all open positions in light of current market prices.
These new values then determine margin requirements. Maturity The date of settlement or expiry of a financial product. Medley report Refers to Medley Global Advisors, a market consultancy that maintains close contacts with central bank and government officials around the world. Their reports can frequently move the currency market as they purport to have inside information from policy makers. The accuracy of the reports has fluctuated over time, but the market still pays attention to them in the short-run.
Models Synonymous with black box. Systems that automatically buy and sell based on technical analysis or other quantitative algorithms. MoM Abbreviation for month-over-month, which is the change in a data series relative to the prior month's level. Momentum A series of technical studies e. Momentum players Traders who align themselves with an intra-day trend that attempts to grab pips.
Net position The amount of currency bought or sold which has not yet been offset by opposite transactions. New York session 8: No touch An option that pays a fixed amount to the holder if the market never touches the predetermined Barrier Level. The Offer price is also known as the Ask. The Ask represents the price at which a trader can buy the base currency, which is shown to the right in a currency pair. Offsetting transaction A trade that cancels or offsets some or all of the market risk of an open position.
On top Attempting to sell at the current market order price. One cancels the other order OCO A designation for two orders whereby if one part of the two orders is executed, then the other is automatically cancelled.
One touch An option that pays a fixed amount to the holder if the market touches the predetermined Barrier Level. Open order An order that will be executed when a market moves to its designated price. Normally associated with good 'til cancelled orders. Option A derivative which gives the right, but not the obligation, to buy or sell a product at a specific price before a specified date.
Order An instruction to execute a trade. Order book A system used to show market depth of traders willing to buy and sell at prices beyond the best available.
Over the counter OTC Used to describe any transaction that is not conducted via an exchange. Most independent day traders have short days, working two to five hours per day. Often they will practice making simulated trades for several months before beginning to make live trades. They track their successes and failures versus the market, aiming to learn by experience. Today's high refers to a security's intraday high trading price Options are often the bread and butter of day traders.
Here are some of the more common types of options. Day trading involves making dozens of trades in a single day, while swing trading involves holding positions over a period of days or weeks. Learn more about the five common mistakes that foreign exchange forex day traders often make in an attempt to boost returns. For traders who want a mix of technical analysis with their own control in decisions, price action trading offers the perfect fit. Here's how it works. Learn four of the most popular active trading strategies — and why active trading isn't limited to professional traders anymore.
Traders generally buy and sell securities more frequently and hold positions for much shorter periods than investors, which can result in costly mistakes.
A new term that they use is Price action refers to the day-to-day fluctuation in the price of an asset. Typically there are different ways to trade in most markets.
Traders have been classified into three groups, primarily based
A day trader often closes all trades before the end of the trading day, so not to hold open positions overnight. Day traders' effectiveness may be limited by the bid-ask spread, trading commissions, as well as expenses for real-time news feeds and analytics software. Forex trading is also referred to as the 'Fx market', 'Currency market', 'Foreign exchange currency market' or 'Foreign currency market', and it is the largest and most liquid market in the world with an average daily turnover of $ trillion. Retracement meaning. Retracement meaning means retracement is a temporary reversal in the direction of a stock’s price that goes against the prevailing trend. A retracement does not signify a .