Tag Archives: Financial Glossary

Financial Glossary

Financial Glossary

AFO
Austrian Futures and Options Exchange

Bear market
A market distinguished by declining prices.

Bet size
Governs how much you make or lose on a spread bet for every point of movement in the price of the market.

Bid
A spread betting price is made up of a level at which you can ‘sell’ and a level at which you can ‘buy’. The level at which you can ‘sell’ is always the lower of the two prices and is called the bid.

Binary bet
A special form of spread bet with only two outcomes at expiry – if a specific result is achieved (for example, the FTSE® to finish up at the end of the trading day) the bet is closed at a level of 100. If the result is not achieved, the bet closes at 0. Binary bets therefore have something in common with a traditional fixed-odds bet, except that we make a continuous price for the binary, between 0 and 100, allowing you to close your bet out before the final settlement to cut your losses or take your profit early.

Bonds (or government bonds)
Essentially an IOU issued by a borrower to a lender. Bonds are usually fixed-interest securities issued by governments, but can come in a variety of different forms. With a fixed-interest bond, the borrower normally makes interest payments on specified dates, often twice-yearly.

Break even
The break-even is the value on expiry at which no profit is realised on an option position. A 5300 FTSE® call bought at 14 means you will have a break even of 5314 (5300 + 14).

Similarly, a 5300 FTSE® put bought at 16 has a break even at 5284 (5300 – 16), as the market has to fall for the put to make money.

Broker ratings
‘Buy’, ‘sell’, or hold recommendations or ratings given to individual company stocks by securities analysts, depending on how they think the stock will perform in the short- or long-term.

Bull market
A market distinguished by rising prices.

Buy (also see up bet)
You ‘buy’ a market if you think it will rise (if you are opening a new bet). You also ‘buy’ to close out an existing ‘sell’ bet.

Cable
Trader jargon referring to the sterling/US dollar exchange rate. So called because the rate was originally transmitted between the London and New York exchanges via the transatlantic telegraph cable beginning in the
mid 1800s.

Call
A call is a type of option granting the right to ‘buy’ at a fixed price, known as the strike.

Carry trade
An investor ‘sells’ a certain currency with a low interest rate and uses the funds to purchase a different currency at a higher interest rate, thus capturing the difference – or profit – between the two rates

Cash price (also see spot rate)
The price of an asset for immediate delivery. In other words, the actual price of an instrument right now; this term is often used for stock indices, whereas the synonymous term of spot is more often applied to forex and
commodity prices.

CBOT
Chicago Board of Trade

Central bank
A government or quasi-governmental organisation that manages a country’s monetary policy. For example, the US central bank is the Federal Reserve, and the German central bank is the Bundesbank.

Charts
Visual representations of raw data. Investors can learn to spot recurring patterns in financial charts to help them make informed decisions on a market or a company.

Closing
The process of ending an existing bet. Closing a bet results in a profit or loss being realised.

Commodity
A basic good used in commerce which is usually uniform across producers and can be traded on an exchange. Soft commodities are goods that are grown, such as coffee and sugar, while hard commodities are extracted through mining, such as gold and coal.

CME
Chicago Mercantile Exchange

COMEX
Commodity Exchange Inc, New York

Controlled risk bet
A bet which has a strictly limited maximum loss by virtue of a
guaranteed stop.

Crude oil (and/or WTI)
The unrefined state of petroleum, crude oil is one of the world’s most important and well-traded markets. WTI or West Texas Intermediate is a type of low sulphur crude oil or sweet crude, used as an oil benchmark
or marker.

CSCE
Coffee, Sugar and Cocoa Exchange

Currency Pair
The two currencies that comprise a forex rate. A forex rate is the amount that the first currency in the pair is worth expressed in terms of the
second currency.

 

Daily Funded Bet (DFB)
A long-term bet on the cash price of an underlying instrument. Each day your bet remains open, we make a cash adjustment to your account to reflect the funding costs of your bet. We will also make dividend adjustments when applicable.

Dealing spread
Difference between the two ends of our quoted price. You make an up bet (‘buy’) at the higher end of the spread and make a down bet (‘sell’) at the lower end of the spread.
Deposit
The funds required as an initial outlay for a bet. It is not the total amount that can be lost on the bet.
Depreciation
A fall in the value of an asset.
Derivative
A financial instrument, the value of which is derived from an underlying commodity, currency, economic variable or other financial instrument.
Discount
The amount by which a price for one instrument is less than that of another instrument. The term is also used in forex markets to describe the amount by which forward currency rates are less than spot rates.
Dividend
The part of a company’s profits distributed to shareholders, usually on a regular basis. An interim dividend is paid at the half-year stage and a final dividend at the end of the full year.
Down bet (also see ‘sell’)
A bet backing a particular price to fall.
Downtrend
A price trend characterised by a series of lower highs and lower lows.
Economic indicator
A government issued statistic that indicates current economic growth and stability. Common indicators include employment rates, gross domestic product (GDP), inflation, retail sales, etc.
EUREX
European Exchange, Frankfurt
European Central Bank (ECB)
The central bank for the new European Monetary Union.
Ex-dividend
A share bought without the right to receive the next dividend which is retained by the seller.
Expiration/expiry
The date and time at which a bet will automatically close against some predefined market value should the bet remain open beyond its last
dealing time.
Federal Reserve (FED)
The central banking system for the United States.
Fill
The execution of an order.
Financial spread betting
Betting on the price movement of a financial instrument, such as shares, currencies and indices. Two prices are quoted – the bid and offer price – the difference between which is the spread. The bet is on whether the future price of the instrument will be higher than the offer price or lower than the bid price.
FINEX
Financial Instrument Exchange, New York
Fiscal policy
The use of government spending and taxation to influence
macroeconomic conditions.
Fixed income
When an investment yields a regular or fixed return.
Foreign exchange (forex, FX, currency)
The simultaneous ‘buying’ of one currency and ‘selling’ of another.
FTSE®
The FTSE® 100, 250 and 350 are the best-known stock indices in the UK and are used primarily to bench mark the performance of UK companies by market capitalisation. The constituent companies within each index are calculated quarterly. Informally known as the ‘footsie’, the indices are maintained by FTSE® Group, which is jointly owned by the Financial Times and the London Stock Exchange.
Fundamental research
Can be the analysis of companies or the economy. With the former such factors taken into account are sales, earnings, products or services, markets and management. With the latter fundamental research considers such things like GDP, interest rates and unemployment. In financial trading, this differs from technical research, which uses past prices and trading to predict future prices.
Future or forwards
A future or forwards rate is notionally an agreement to conduct a transaction at some specified time in the future where the price is agreed now. For a spread bet it means that the expiry date is at some point in the future (cf. daily funded bets). Often the price of a future or forwards bet will differ from the cash price.
Gap
The phenomenon of a market trading at a price away from the previous traded price without trades occurring at intervening prices: more usually, but not necessarily, relates to when a market resumes trading after a period
of closure.
Gearing (also see leverage)
The relationship between potential profit or loss and the initial outlay. A position with high gearing or leverage stands to make or lose a large amount from a small initial outlay. With us, the initial outlay is normally the deposit for the bet.
Gold
A sought-after precious metal which has universal price in the global market place. A procedure known as gold fixing in London provides a daily benchmark to the industry.
Gross domestic product (GDP)
One of the measures of national income and output for a country’s economy; the total value of all final goods and services produced by
the economy.
Guaranteed stop
A stop-loss order that puts an absolute limit on your liability, eliminating the chance of slippage and guaranteeing an exit price for your trade.

Hedge
A trade or position that reduces or eliminates the risk of loss from an adverse price movement in a position already held.

HKFE
Hong Kong Futures Exchange
Illiquid market
In an illiquid market, a small amount of business often moves prices by a disproportionate amount, and bid and offer prices can be far apart.
Interbank rates
Foreign exchange rates at which large international banks quote other large international banks.
Interest rate futures
Interest rate futures allow you to take a view on all the main interest rate contracts, including short sterling, gilt, bund, eurodollar, JGB and t-bond. With short-term interest rate contracts, you can bet on the direction of a country’s three-month interest rates. This means that if you think short-term interest rates will fall, you ‘buy’. You ‘sell’ if you think rates will rise.
IPE
International Petroleum Exchange, London
Last dealing day
The last day on which you may deal in a particular market, for opening or closing trades. This may or may not coincide with the settlement date
for a bet.
Last dealing time
The last time (on the last dealing day) you may bet on a particular market.
Leverage (also see gearing)
Leverage or gearing allows traders to gain a large exposure with a relatively small outlay.
LIFFE
London International Financial Futures Exchange
Limit order
An instruction to deal if the price moves to a more favourable level (eg to ‘buy’ if the price goes down to a specified level).
Limited risk
A bet which has a strictly limited maximum loss.
Liquid market
A liquid market has a sufficient volume of two-way business for a trade to occur without moving prices unduly. The market will normally exhibit narrow bid-offer spreads.
LME
London Metal Exchange
Long position
A position taken in anticipation of a rising market. To go long means to ‘buy’.
LSE
London Stock Exchange
Margin
The amount required from a client – in addition to any deposit due – to cover losses when a price moves adversely. Sometimes called
‘variation margin’.
Market order
An order that you use to specify the direction and size of a bet, but not the price. This ensures we will fill your order as quickly as possible, even if the price indicated on the deal ticket is not available for your requested order size.

Monetary policy

The procedures by which a government or central bank seeks to affect macroeconomic conditions by influencing the supply and availability
of money.
MSE
Milan Stock Exchange
NYCE
New York Cotton Exchange
NYFE
New York Futures Exchange
NYMEX
New York Mercantile Exchange

Offer
A spread betting price is made up of a level at which you can ‘sell’ and a level at which you can ‘buy’. The level at which you can ‘buy’ is always the higher of the two prices and is called the offer.

OMLX
London Securities and Derivatives Exchange
Option
A type of derivative which confers the right but not the obligation to ‘buy’ or ‘sell’ some underlying asset at a specified price before a specified date. We offer bets on options and we also provide a detailed introduction to options in the client area of our website.
Orders to open
An instruction to open a new bet should a specified price be reached.
OSE
Osaka Securities Exchange
Pip
A ‘percentage in point’ is generally, though not always, the fourth decimal place, i.e. 0.0001. Traditionally, a pip was the smallest point by which a forex rate could move; with modern advances in precision this is no longer the case, though.
Point
The increment in price movement that results in you making or losing your bet size.
P&L
Abbreviation of profit and loss: how much you have made or lost.
Position
A bet that you have running.
Precious metals
Naturally occurring metallic elements of high economic value. These include gold, silver and palladium.
Premium
The term ‘premium’ refers simply to the price of an option or the net cost of a particular options strategy such as a Straddle or Strangle.
Put
A put is a type of option, granting the right to ‘sell’ at a fixed price
(the strike).
Quote
The two-way market price that we are making for a given instrument; because it is two-way, you can ‘buy’ or ‘sell’, according to whether you think the price will rise or fall.
Quarterly bets
A type of future with periodic expiries spaced three months apart. Prices are normally quoted for the next two or three quarter months.
Realised profit/loss
The amount of money you have made or lost on a bet once the bet has been closed. Realised profit or loss will add or subtract from your
cash balance.
Resistance
A term used in technical analysis indicating a price level at which analysis suggests a predominance of selling – and hence a greater likelihood that the price will fail to break through the level.
Risk
Exposure to uncertain change, most often used with a negative connotation of adverse change.
Risk management
If you are new to spread betting it is possible to make substantial losses as well as substantial profits. With us, you can manage your risks via controlled risk bets, making it possible to put an absolute limit on potential losses. We also offer non-guaranteed stops and limit orders to open and close
betting positions.
Rollover
The procedure whereby a bet approaching expiry is closed and a bet of the same size and direction is opened for the next period, thereby prolonging the exposure to a particular market.
Running profit/loss
How your open bets are doing: the unrealised money that you would gain or lose on your open bets if they were closed at prevailing market prices.

SAF
South African Futures Exchange

Sector
The name for a group of securities or companies in the same market
or industry.
Sell
You ‘sell’ a market if you think it will fall (if you are opening a new bet). You also ‘sell’ to close out an existing ‘buy’ bet.
Settlement (also see expiry)
The process of a bet closing against a specified market level once the bet has gone beyond its last dealing time.
SFE
Sydney Futures Exchange
Shares
A unit of ownership, usually in a corporation, that entitles the owner to a share of profits in the form of a dividend.
Short position
A position taken in anticipation of a falling market. To go short means
to ‘sell’.
SGX
Singapore Exchange
Slippage
The difference between the level of a stop order and the actual price at which it was executed. Can occur during periods of higher volatility when market prices move rapidly or gap.
SOFFEX
Swiss Options and Financial Futures Exchange
Spot (also see cash price)
The price for a currency, index, commodity or share for immediate settlement or delivery.
Spread (aka bid/offer spread)
The difference between the ‘buying’ and ‘selling’ price for a particular bet.
Spread bet
A bet on whether a financial market (the underlying market) will rise or fall. We offer two prices on every market; the difference is known as the bid/offer spread. If you think a market is set to rise you ‘buy’ at the higher (or offer) price, and if you think it will fall you ‘sell’ at the lower (bid) price. Whether you gain or lose money on the bet – and how much – depends on the size/direction of any movement in the underlying market.
Standard order type
For a standard order with us, you select the direction, size and quoted price you want the order to be filled at. Standard orders are rejected unless they can be executed at the price you asked for or better.
Stock index
A compilation of a number of stocks into one total price, expressed against some base value from a specific date, thus allowing investors to easily follow the performance of certain groups of stocks.
Stop order
An instruction to deal if the price becomes less favourable; normally placed to prevent a loss of more than a certain amount of money.
Straddle
In options betting, a straddle is a combination of a call and put of the same strike price. Someone who has bought a straddle has bought ‘volatility’ and so is backing a relatively significant move in the underlying asset. Conversely, someone who sells a straddle is betting that a significant move in the value of the underlying will not happen.
Strangle
A strangle is a strategy in options betting, where you hold a position in both a call and put with the same expiry but different strike prices.
Strike price
All options have a strike. The strike is the price at which the holder of the option can ‘buy’ or ‘sell’ the underlying. Calls allow the holder to effectively go long, or at which puts allow their holder to go short.
Support level
A technique used in technical analysis to indicate a price floor at which you would expect the price to ‘bounce’ off. Opposite of this is resistance.
Technical analysis
An effort to forecast prices by analysing market data, ie historical price trends and averages, volumes, open interest, etc.
Trailing stops
Special types of stop orders that move automatically when the market moves in your favour, helping you lock in gains while your position is open.
TradeSense
Our six-week comprehensive free course to help you learn spread betting; members can avail of special minimum bet sizes starting at just 10 pence per point.
TSE
Tokyo Stock Exchange
Underlying
The actual traded market or markets from which the price of a spread bet
is derived.
Up bet (also see ‘buy’)
A bet backing a particular price to rise.
Volatility
A statistical measure of a market’s price movements over time.
Working an order
The process of having an order that has not yet been executed.