Trading glossary

Tradefair has provided these definitions for educational purposes only.  If there is any difference between the definition in this glossary and the definition in the trading terms with Tradefair, the trading terms take precedent.

ADR

American Depository Receipt

Arbitrage

The simultaneous buying and selling of a security at two different prices in two different markets, with the aim of creating profits without risk

Ask

The quoted offer at which someone can buy; also called the offer price

At Par

At a price equal to the face value of a security

Auction

Many auctions occur in the financial markets; such as the post market auction on the UK 100. This occurs from 1630 to 1635, after which the official settlement is declared

Authority to deal

Authorising someone to spread bet on your behalf. For this Tradefair would require your written notification and we would perform an identity check

Back-to-back transaction

A pair of linked agreements or transactions in which all liabilities, obligations and rights of one agreement or transaction are mirrored in the second.

Back to Base

Any realised profits or losses, adjustments, fees or charges - that are denominated in a currency not of your Base Currency - will be automatically converted back to your Base Currency.

Backwardation

This occurs when the bid price exceeds the offer price for a stock. This is a market distortion usually when stock is suspended or under a share repurchase scheme

Base

A technical analysis tool. A chart pattern depicting the period when the supply and demand of a certain stock are in relative equilibrium, resulting in a narrow trading range. The merging of the support level and resistance level

Base Rate

The official lending rate at which the Bank of England offers to the market

Basis Point

Basis point is a way of expressing variations in bond yields. One basis point is 0.01 percentage point. Basis points also are used for interest rates

Bear

Someone who believes that prices in the stock market are going to decline. Opposite of a bull

Beta

The measure of an asset's risk in relation to the market

Bet Per

Same as tick size. The minimum point movement in each market, for example the UK 100 has moved 10 ticks this equates to a 10 index point move in the UK 100

Bid

The quoted price at which someone can sell

Bid-Ask Spread

The difference between what buyers are willing to pay and what sellers are asking for in terms of price

Black-Scholes option pricing model

A model for pricing call options based on arbitrage arguments. Uses the stock price, the exercise price, the risk-free interest rate, the time to expiration, and the expected standard deviation of the stock return

Bollinger Bands

Plus or minus two standard deviations where the standard deviations are calculated historically in a moving window estimation. Hence, the bands will widen if the most recent data is more volatile. If the prices break out of the band, this is considered a significant move

Bond

Bonds are debt and are issued for a certain period of time

Bull

Someone who believes that prices in the stock market are going to rise. Opposite of a bear

Buy

Same as taking a long position

Buy Order

An instruction to buy at a different price to where the market is currently trading

Cable

A commonly used term to describe the exchange rate between British pound sterling and the U.S. dollar

Call option

An option that gives the holder the right to buy the underlying asset. Opposite of a put

Capital Gains Tax

Under current UK legislation, profits made via financial spread betting are free of CGT. However, tax laws are subject to change and depend on individual circumstances.

Central Counterparty Clearing

Central counterparty clearing (or "clearing") is a way of reducing a client’s credit exposure. For example, when a client enters into a trade with us in a centrally cleared market, we’ll enter into a back-to-back transaction with the clearing house. This mirrors the terms of our trade with the client and in line with this, we use part or all of the client’s margin requirement to post margin to the clearing house.

Centrally Cleared Markets

This means that when you enter into a trade in respect of that market, that trade will be "cleared" through a clearing house.

Centrally Cleared Trades

These are trades that are sent through to a clearing house, which acts as a central counterparty, and assumes the counterparty risk to trades which are registered with it. By doing this, it underpins many important financial markets.

Client Money Pool

A general pool of client money held for all the firm’s clients for whom we receive or hold client money. (This is in accordance with CASS 7.1.1.A R)

CFD

Contract for Difference

Chartist

Person who analyses markets with the use of charts

Clearing House

A clearing house is an organisation that takes on the counterparty risk to trades that are registered with it and therefore underpins many important financial markets.

Closing Price

The price at which a product was traded to close the open position. Also refers to the price of the last transaction in a days trading session

Contingent if done order

Instructions you give us to attach a stop loss and/or limit order to your opening order if it is triggered and filled

Contract Note

The confirmation of your trade describing the market, the unit of trading, the action (buy or sell), the price and the expiry date

Cost of Carry

The interest intrinsic in our share futures prices, excluding any dividends payable during the contract period

CPI

Consumer Price Index, used as a measure of inflation

Cross Rates

Foreign exchange rate between two currencies other than the US dollar

Currency future

A financial future contract for the delivery of a specified foreign currency

Daily Funded Trade (DFT)

A Daily Funded Trade (DFT) is typically a short term spread bet with some of the tightest spreads on offer. Daily Financing and dividends are not included in the calculation of Our Price but appear as separate charges or credits to your account. Each DFT has a long term settlement date. As with all spread bets, profits and losses are crystallised only when you close or partially close the trade.

Day Trading

Opening and closing of a position in the same contract in one day

Delist

To remove a stock's listing on an exchange

Deliver

The sale of a futures contract may require the seller to deliver the commodity during the delivery month, if the short position is not offset prior to that time

Delivery Date

Date by which a seller must fulfil the obligations of a forward or futures contract

Delta

The ratio of the change in price of an option to the change in price of the underlying asset

Derivative

A financial contract whose value is based on or derived from, a traditional security (such as a stock or bond), an asset or a market index

Dividend

Portion of a company's earnings paid to stockholders. Tradefair clients who have buy positions in share contracts are not entitled to dividend payments

Double Witching Day

The last trading day before expiry of options and futures on the same underlying asset

ECB

European Central Bank

EDSP

Exchange Delivery Settlement Price. Used by many markets to arrive at the Expiry Price

Expiry Date

Date at which a contract will be expired. Not to be confused with Last Day of Trading

Expiry Price

Price at which contracts are settled if they are left to expiry

Fair Value

Price at which theoretical future contracts should be trading above or below the leading future contract. Fair values for stock indices are determined by differentials in interest rates and dividend payments

Fast Market

Excessively rapid trading in a specific security that causes a delay in its electronic updating

Fill

Execution of an opening or closing order

Fundamental Analysis

Examination of a company's financials, assets, management, market niche, and products to determine value

Futures Contract

Trading contract that specifies a future date for delivery of an object

Gamma

The ratio of a change in the option delta to a change in the price of the asset on which the option is written

Gap

Where the market trades through a level specified by the client in an order. Market gaps are common during times of volatility. Guaranteed orders protect against gapping

Gearing

The use of debt to increase exposure to high risk/reward. Gearing is also known as leverage

Guaranteed order

For a small fee you can protect an order against the risk of any market gaps

Hedge

A transaction that reduces risk

IMM

International Monetary Market

Index Futures

A futures contract on an index in the futures market

Indicators

Indices, either positive or negative, which indicate the strength and significant trends in our nation's economy. Inflation, interest rates and employment figures are examples

Individual Segregated Clearing Account ("ISCA")

This is a client account into which we only book trades for that client. If the client elects to use an ISCA, we will open a separate ISCA at the clearing house for trades of that client.

Inflation

The rate at which the general level of prices for goods and services is rising

Initial Margin Requirement

Amount needed as available trading resources in your account in order to open a position. This may be reduced by placing a stop loss on a market, where Orders Aware is available and this amount may increase depending on the size of your spread bet or CFD trade. See Step Margin.

IPO

Initial Public Offering. Private company's first offer of stock to the public

In-the-money Option

A put option that has a strike price higher than the underlying future price, or a call option with a strike price lower than the underlying futures price

Intrinsic Value

The value of an option if it were to expire immediately with the underlying stock at its current price

Issued Share Capital

Total amount of shares that have been issued

Lagging Indicators

Economic indicators that follow rather than precede a country's overall pace of economic activity.

Last Day of Trading

The last day on which you can open or close a trade in a particular market. Not to be confused with Expiry Date.

LCH.Clearnet

A clearing house that is majority owned by the London Stock Exchange Group. It was formed by a merger between The London Clearing House Limited and Clearnet.

Leading Indicators

Economic indicators that change before the economy changes.

Level Two

Live pricing system that provides market depth.

Leverage

Leverage is also known as gearing. Where a position can be taken in product with only a fraction of its value.

Liability

Debt, financial obligation, or potential loss.

Limit order

Minimum selling or maximum buying price as instructed by the client. A limit order is an order to buy or sell at a better price to where the market is currently trading.

Limit up, limit down

Price change, up or down, a product is allowed to make during one day of trading.

Liquidity

A market characterized by the ability to buy and sell with relative ease.

Long

Opening a buy position in expectation that the market price will rise.

Margin

The deposit or available credit needed on your account in order to have your positions open

Margin Call

A call from the credit department for further funds to be deposited in the account to support additional exposure from running losses

Market Capitalisation

The number of shares of a company in issue, multiplied by its share price

Normal Market Size (NMS)

A system that categorizes the size of transactions that are normal for a particular security and forces market makers to deal within these sizes

Offer

The price offered at which someone can buy; also called the ask

Omnibus Segregated Clearing Account ("OSCA")

This is a client account into which we will book trades for multiple clients. We may open more than one OSCA, but we will not open a separate OSCA for each client.

One Cancels the Other (OCO)

OCO orders you can leave two separate opening orders in the same market so that if one of them is triggered and filled, the other is cancelled. This leaves you with just the one open position.

Open position

A long or short position whose value will change with a change in prices

Option

A financial derivative instrument that gives the right to purchase (call) or sell (put) a fixed amount of stock at a specified price and within a certain time limit.

Option writer

Also called the option seller; the party who grants a right to trade a security at a given price in the future

Order

Buy or sell instruction given by a client to a dealer

Order Book

A term used for the SETS system employed in London. Orders to buy and sell are allowed to collect on an order book where they can match and execute against one another

Our Quote

The Tradefair dealing quote. Orders can be left based on our quote, meaning they will not be triggered or filled until the Tradefair buy or sell price hits the specific level

Out-of-the-money Option

A call option is out of the money if the strike price is greater than the market price of the underlying security. That is, you have the right to purchase a security at a price higher than the market price, which is not valuable

Partial Fill

Where the client has specified that they wish only part of their stake filled on a closing order

Par Value

Face value of a security

Portfolio

A collection of investments, real and/or financial

Power of Attorney

Authorising someone to spread bet on your behalf. For this Tradefair would require your written notification and we would perform an identity check. Same as Authority to deal

Price Tolerance

Price Tolerance is the amount of slippage you are prepared to accept in order for your trade to be executed, even if at the time of execution, the price has moved away from that selected by you. This is commonly referred to as slippage, though the benefit of Price Tolerance is that you can control the amount of slippage you are prepared to accept.

Put Option

A financial derivative instrument used in options trading. A put would give an investor the right, but not the obligation, to sell the underlying instrument at a fixed price up to a predetermined date. The opposite of a put is a call

Quote

A Tradefair quote will incorporate our spread which is the difference between the buying and selling price. Also see Our Quote

Real Time

A real-time stock or bond quote is one that states a security's most recent price as opposed to a delayed quote. Tradefair dealing prices update in real-time

Resistance Level

A price level above which it is supposedly difficult for a security or market to rise

Retail Investor

Small individual investors who commit capital for their personal account rather than on behalf of another

Rights Issue

A privilege allowing existing shareholders to buy shares shortly before they are offered to the public at a specified and usually discounted price and usually in proportion to the number of shares already owned. Such corporate actions mean that Tradefair will adjust any position accordingly

Risk Free Rate (RFR)

An interest rate usually created or monitored by the central bank behind a national currency. It defines a daily benchmark for borrowing and lending for lending over various time periods. For our financing we utilise the overnight (ON) rate for borrowing from one day to the next.

ROCE

Return On Capital Employed

Rollover

Transferring a trade that is near expiry into the next contract period

SEC

Securities and Exchange Commission

Sector

Used to characterize a group of securities that are similar with respect to industry

Sell

Same as taking a short position

Settlement Price

A figure determined by the closing price

Short

Opening a sell position in expectation that the market price in that underlying product will fall

Slippage

See Gap

Spot market

Market in which commodities are bought and sold for cash and immediate delivery

Spread

The difference between the buy and sell price

Step Margin

Step Margin is the process by which the amount of initial margin charged per trade may increase depending on the size of your spread bet or CFD trade. The amount of initial margin charged for any additional trades [within the same market], occur at specified step margin levels.

Stop Loss Order

An order to close a position at a particular level when the price moves against you

Stop Order

An opening or closing order to buy or sell at a worse price to where the market is currently trading

Straddle

Purchase or sale of an equal number of puts and calls with the same terms at the same time

Strangle

Buying or selling an out-of-the-money put option and call option on the same underlying instrument, with the same expiration. Profits are made only if there is a drastic change in the underlying instrument's price

Strike Price

The stated price per share for which underlying stock may be purchased or sold by the option holder upon exercise of the option contract

Support Level

A price level below which it is supposedly difficult for a security or market to fall. That is, the price level at which a market tends to stop falling because there is more demand than supply; can be identified on a technical basis by seeing where the market has stopped falling in the past

Suspended Trading

Temporary halt in trading in a particular security, in advance of a major news announcement or to correct an imbalance of orders to buy and sell

Swing Trading

Refers to a type of short term (one day to a couple of weeks) trading, triggered by technical analysis, for example, momentum

Takeover

Acquiring control of a corporation by stock purchase or exchange

Technical Analysis

Analysis of a financial market by charting its performance, using historical patterns, and focusing on trends

Tick Size

The minimum point movement in each market

Time to Maturity

The time remaining until a financial contract expires

Time Value

Portion of an option price that is in excess of the intrinsic value, due to the amount of volatility in the stock; sometime referred to as premium.Time value is positively related to the length of time remaining until expiration

Trading Range

Range between the highest and lowest prices at which a stock is traded

Underlying Asset

The security or market that Tradefair prices are based on (derived from)

Variation Margin

Same as open P + L e.g. any running profit from an open position can be used as additional margin. Conversely, any running loss will need to be funded, especially if there is no stop loss in place

Volatile

Situation that changes rapidly or suffers from extreme fluctuations

Warrant

A derivative product that is a certificate giving authority to the holder to buy securities at a certain price. Warrants are like call options, but with longer time spans - sometimes years

Working Order

An order that remains working until it is filled or cancelled