What do the CFD
Terms Mean?
Master the market terminology and gain a better
understanding of the market.
AFO - Austrian Futures and Options Exchange.
Ask price - The higher price of a quoted spread.
The level at which a customer would buy or "go long" of a
market.
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Backwardation - When the price for immediate delivery
of a commodity is higher than the price of delivery for a
future date.
Base Rate (UK) - The official rate at which the Bank
of England (BoE) will lend to the retail banks.
Bear - Used to describe someone who expects a
market to decline, commonly referred to as being
"bearish."
Bear market - Used to describe a market that is
either expected to decline or is already in the process of
declining.
Bid price - The lower price of a quoted spread. The
level at which a client would sell or "go short" of a
market.
Blue-chip company - A term derived from the most
valuable chip used in poker; it implies a large,
long-established (and almost certainly profitable) company
considered to be conservatively managed.
Bull - Used to describe somebody who expects a
market to rise, commonly referred to as being "bullish."
Bull market - A market that is either expected to
rise or is already in the process of rising.
Buy - To place an opening trade at the offer price
of a spread in anticipation of the underlying market
rising, commonly referred to as an "up trade," "taking a
long position," or "going long." You can also buy at the
offer price to close an existing short position.
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Call option - The right, but not the obligation, to
buy at a fixed price on or before a predetermined date.
Cash market - The market in the underlying financial
instrument (shares, indices, commodities, etc.) on which a
futures or options contract is based. Also known as a spot
market.
CBOT - Chicago Board of Trade.
Charting - A visual method of trading, or analysis
of the markets using price information to form a picture
of previous price movements.
Closed position - A long or short position that has
been liquidated.
Commissions - Fees that brokers charge a client for
buying/selling of a financial product. Commissions range
from broker to broker, and can be charged as a percentage
or as a flat rate.
Contango - When the price for immediate delivery of
a commodity is lower than the price of delivery for a
future date.
Contract month - The specified month to which a
futures or options contract refers. This is the month when
the specified instrument is delivered in exchange for cash
settlement.
Cover - To sell a long position, or buy back a
short position.
CME - Chicago Mercantile Exchange.
COMEX - Commodity Exchange Inc. (New York).
CSCE - Coffee, Sugar & Cocoa Exchange. (New York).
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DAX 30 - The German stock market index of the 30 most
liquid German stocks.
Discount - When a derivative is trading below the
current market price it is said to be trading "at a
discount." A futures market that is trading below the level
of the spot market is said to be trading at a discount.
Dividend - A cash bonus or other distribution made
by a company to its shareholders and applicable to every
share that they hold in relation to that company. Spread
bets in relation to individual equities do not qualify for
dividends.
Down trade - See "sell."
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Equity - Also commonly referred to as holdings,
securities, shares or stocks, they represent the right to
ownership of a proportion of the company by whom they are
issued.
EUREX - European Exchange, Frankfurt.
Expiry date - The date on which a contract will
expire, and after which can no longer be traded.
Expiry price - The official price at which the
trade expires on the expiry date, commonly referred to as
the "make-up" or "settlement price."
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Fair value - The theoretical price at which a futures
contract would be expected to trade.
Fill - Used to describe when a market order is
completed or executed, commonly expressed as having been
"filled."
FINEX - Financial Instrument Exchange, New York.
Float / flotation - The first public offering of a
company's shares or securities on a regulated exchange.
FSA - The Financial Services Authority. The
government-appointed body responsible for regulating
spread betting, FX and CFDs within the U.K.
FTSE - Financial Times Stock Exchange, London.
FTSE 100 - The index of the UK's top 100 public
quoted companies as rated by market capitalization.
FTSE Mid 250 - The index of the next 250 companies
rated below the top 100.
FTSE 350 - The UK's top 350 public quoted companies
by market capitalization; a combination of the FTSE 100
and the FTSE Mid 250.
Fundamental analysis - Looking at revenues,
earning, management and prospects for successful products
in order to evaluate a company's stock. When applied to a
market or industry, it takes economic conditions and
statistics such as unemployment and interest rates into
account.
Futures trade - Buying or selling a contract at an
agreed opening price and for a set expiry date and time in
the future.
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Gap through - When a market opens or trades through
the specified level of a market order without actually
trading at the price of the market order.
Gearing - Also known as leverage. To use borrowed
funds (trading "on margin") to purchases a financial
instrument, which increases your exposure to the market with
a lower capital requirement. Results in magnified profits
and losses.
GTC (Good 'til cancelled) - Applicable to market
orders, it signifies that the order will be open and
carried forward indefinitely until it is either filled or
cancelled by the client.
Gray market - Quotes that are offered where there
is no underlying market, for example an Initial Public
Offering.
Guaranteed order - An order that, for a small
premium, is guaranteed to limit a client's losses, both
during and outside of market hours, to the amount
specified.
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Hedge / hedging - The act of employing another
related derivative in order to protect an existing open
position. Minimizes risk by simultaneously holding short and
long positions.
HKFE - Hong Kong Futures Exchange.
Hostile takeover - One company bidding to buy
another against the wishes of the latter.
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Illiquid - A market that doesn't have much volume.
Can be moved disproportionately by a small amount of
business and often result in wide bid/offer spreads.
Initial margin - The size of the cash deposit that is
required to trade a specified position. By multiplying your
proposed stake by the initial margin multiplier, you can
calculate the amount of initial margin (or waived initial
margin) that is required before you can place the trade.
IPE - International Petroleum Exchange, London.
Insider dealing - Refers to any use, for purposes
of financial gain, of any price sensitive information that
is not already public knowledge. Insider dealing, if
proven, is punishable by unlimited fines and a possible
term of imprisonment.
Interim dividends - When a company distributes
profits to shareholders at stages during the financial
year.
Interim report - The requirement for each stock
exchange quoted company to release interim reports
periodically during their financial year.
Initial Placement Offer (IPO) - The offering of a
company's shares prior to its market debut.
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Last day of dealing - The last day on which you can
either open or close a trade in respect of a relevant
contract and which can differ from the expiry date.
Leverage - The ability to establish a large exposure
from a relatively small outlay. Also known as "gearing."
There are inherent risks attached to such a practice.
LIBOR - London Inter Bank Offer Rate. Published at
www.bba.org.uk.
LIFFE - London International Financial Futures
Exchange.
Limit order - An instruction to either buy or sell
at a level that is more favorable than the current price
of the specified financial instrument. The possibility
exists that the order will never be filled.
Limit up / limit down - When an exchange enforces a
temporary price ceiling or floor, suspends, restricts or
closes the stock index for a set period of time in order
to maintain a fair and orderly market and reduce the risk
of large and sudden price movements.
Liquid market - A market with sufficient volume so
as to avoid wide bid/offer spreads and volatile price
movements.
LME - London Metal Exchange.
Long position/go long - Holding or opening a "buy"
position in anticipation of the underlying market rising.
See "buy."
Lot - The minimum amount that can be traded in the
underlying futures or options exchange. Commonly referred
to as the "lot size" or "contract size."
LSE - London Stock Exchange.
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Make-up - See "expiry price."
Margin call - When variation margin is immediately
due and payable by you in order to return your account
position to a positive figure.
Market capitalization - Calculated by multiplying
the number of shares issued in respect of the company by
the current share price.
Market maker - Exchange registered companies that
quote a two-way spread in relation to securities.
Market order - An order to buy or sell at the
current bid or offer price.
Market quote - Commonly used to describe market
orders that are based on the price of the underlying
market actually trading at the market level as opposed to
the level quoted. Also commonly
stated as being left "basis screen" or simply "basis
market."
Merger - When two companies combine in order to
form one entity in all respects.
MSE - Milan Stock Exchange.
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Net change - The difference between the closing price
of an instrument on the day's trading and the previous day's
closing price. Net change can be positive or negative, and
is quoted in terms of currency.
Normal Market Size - As defined by the London Stock
Exchange, the percentage of an individual company's stock
for which a market maker is obliged to provide a quote. NMS
is normally 2.5 percent of the total volume of shares for
the company in question and market makers are not obliged to
provide a quote for any transaction of a size in excess of
the NMS.
NYCE - New York Cotton Exchange.
NYFE - New York Futures Exchange.
NYMEX - New York Mercantile Exchange.
Noise - Normal everyday market movement, up and
down without really going anywhere. The ebb and flow of
everyday market movement.
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Offer price - The "ask" or the higher price of a
quoted spread. The level at which a client would buy or "go
long" of a market.
OCO (Order cancels order or one cancels the other) -
Two orders that are specified for the same market and when
either is executed, it cancels the other.
OMLX - London Securities & Derivatives Exchange.
Open position - Any unexpired position that you
hold on your account.
OSE - Osaka Securities Exchange.
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Premium - When a derivative is trading above the
current market price it is said to be trading at a premium.
A futures market that is trading above the level of the spot
market is said to be trading at a premium.
Profits warning - Normally an unexpected announcement
of negative news in relation to a company's performance.
Put option - The right, but not the obligation, to
sell at a fixed price on or before a predetermined date.
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Resistance - A price point or points that the
financial instrument is expected to have difficulty rising
above. Used in technical analysis.
Rights issue - When a company invites existing
shareholders to buy additional shares prior to their public
offering. The invitation is normally in proportion to the
existing shareholding and usually at a discounted price.
Rollover - Transferring a trade that is near expiry
into the next contract period.
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SAF - South African Futures Exchange.
Screen - See "market."
Securities - See "equity."
Sell - To place an opening trade at the bid price
of a spread in anticipation of the underlying market
falling, commonly referred to as a "down trade," "taking a
short position," or "going short." You can also sell at
the bid price to close an existing long position.
Settlement Price - See "expiry price."
SETS (Stock Exchange Electronic Trading System) -
The electronic order driven trading system employed to
deal in the FTSE 100, ex FTSE 100 and reserve UK equities.
SFE - Sydney Futures Exchange.
SGX - Singapore Exchange.
Shares - See "equity."
Short / go short - Holding or opening a "sell"
position in anticipation of the underlying market falling.
See "sell."
Slippage - The price difference between where an
order is placed, and where it is actually filled. Can
occur in extremely volatile markets.
SOFFEX - Swiss Options & Financial Futures
Exchange.
Spot - The actual price of a financial instrument
for immediate settlement or delivery.
Spot market - The market in the underlying
financial instrument (shares, indices, commodities, etc.)
on which a futures or options contract is based. Also
known as a cash market.
Spread - The difference between the sell (bid) and
buy (offer) prices.
Stake - The amount of money that you specify and
which you wish to risk per "tick" movement on your chosen
financial market.
Stamp Duty - U.K. government tax of 0.5 percent
paid by the buyer on share transactions. There is no Stamp
Duty on CFDs, spread bets or forex transactions.
Stocks - See "equity."
Stop loss - A market order that can be employed in
an attempt to limit potential losses, but is not
guaranteed either during or outside of market hours.
Stop order - An instruction to either buy or sell
at a level that is less favorable than the current price
of the financial instrument in question.
Support - The price point that prices will have
difficulty moving below. Used in technical analysis.
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Technical analysis - A method of forecasting market
movements that analyzes price movement, trading volume, and
numerical and chart-based data.
Tick - The minimum movement of the market in
question, also commonly referred to as a "point." The value
of a tick can vary by type or size of bet or trade.
TSE - Tokyo Stock Exchange.
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Valuation price - The price used for the revaluation
of open positions.
Variation Margin Credit Allocation - A risk
allocation figure granted to credit account holders.
Variation margin - The amount of money that is
immediately due from you in the event that when holding
open positions, your overall account position is a
negative figure.
Volatility - A measure of the amount by which the
price of an instrument is expected to fluctuate over a
given period.
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Frannor Trading 102 (Pty) Ltd 2002 |
