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CFDs - Glossary

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Base Currency
The currency denomination of the profit and loss of a position.

Basis Point
Typically one hundredth of 1%. e.g. an interest rate cut of 50 basis points is equal to 0.5%.

Bear Market
A market distinguished by declining prices.

A current market 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.

Bull Market
A market distinguished by rising prices.

A term 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.

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.

Central Bank
A government or quasi-governmental organization that manages a country's monetary policy. For example, the US central bank is the Federal Reserve.

The process of ending an existing trade. Closing a trade results in a profit or loss being realized.

Financial instruments relating to the exchange of real physical substances, for example gold, crude oil or cotton.

Contract Size
In the case of share CFDs, the notional number of shares controlled by the CFD position. For index positions the amount of base currency profit or loss per point movement in the market. Similarly for FOREX and Commodity trades.

Controlled Risk
A position which has a strictly limited maximum loss by virtue of a Guaranteed Stop. See also Limited Risk.

Corporate action
A change in the equity structure of a stock. For example rights issues, share consolidations and share splits.

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.

Dealing Spread
Difference between the two ends of our quoted price. You take a long position ('buy') at the higher end of the spread and take a short position ('sell') at the lower end of the spread.

The funds required to initiate and maintain an open position. It is not the total amount that can be lost on the trade.

A fall in the value of an asset.                                                                                                                BACK TO TOP

The part of a company's profits distributed to shareholders, usually on a regular basis. Dividends are reflected for share CFDs as a cash adjustment to the account. Holders of long positions are credited the dividend while holders of short positions are debited the dividend.

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.

A share bought without the right to receive the next dividend which is retained by the seller.

Some CFD markets have a fixed duration. For example forward contracts will expire at a pre-specified date and time in the future. At this point a forward CFD contract is said to have expired and is awaiting settlement. Settlement is when the expired contract is closed at a level normally relating to the market at the time of expiry.

Fair value
The premium (or discount) of a futures contract against its underlying spot/cash instrument that is normally comprised of an interest and dividend component. The fair value represents the rational pricing of a futures contract such that no arbitrage opportunity exists between the futures and the cash.

Foreign Exchange (Forex, FX, currency)
Financial market for trading international currencies, where it is used to speculate on the relative strength of one currency against another.

The execution of an order.

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. A futures or forward CFD will automatically expire at a specified time in the future, whereas a spot or cash CFD has no such expiry time. Often the price of a future or forwards contract will differ from the cash price, see Fair Value. See also Expiration/Expiry.

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 IG Markets, the initial outlay is normally the deposit for the trade.

Good-for-Day (Day Order)
An order type that will expire if not filled at the end of the day. See also Order to Open, Good-till-Cancelled, Fill.

Good-till-Cancelled (GTC)
Unlike Good-for-Day orders, GTC orders remain active on the account waiting for a fill unless cancelled before being filled. See also Order to Open, Good-for-Day, Fill.

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.

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

Cash adjustments made to reflect the economic effect of owing or receiving the notional amount of equity controlled by a CFD position.                                                                                                                                    BACK TO TOP

Illiquid Market
A market with relatively less aggregate volume in the order book. 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.

Last Dealing Day
The last day on which you may trade in a particular market This may or may not coincide with the settlement date for that market.

Last Dealing Time
The last time (on the last dealing day) you may trade in a particular market.

Leverage (also see Gearing)
Leverage or gearing allows traders to gain a large exposure with a relatively small outlay.

Limit Order
An instruction to deal if the price moves to a more favourable level (e.g. to 'buy' if the price goes down to a specified level). A limit order can be attached to an existing position or can be used to initiate a new position (see Order to Open).

Limited Risk
A trade which has a strictly limited maximum loss. See also Controlled Risk.

Liquid Market
A liquid market has sufficient volume of two-way business for a trade to occur without moving prices unduly. Such a market will normally exhibit narrow bid-offer spreads.

Long Position
A position taken in anticipation of a rising market. To go long means to buy.

The amount required from a client – in addition to any deposit due – to cover losses when a price moves adversely. Sometimes called 'variation margin'.

Margin Call
When an account is failing to meet margin requirements. This could require more funds to be deposited into the account or for the margin required in the account to be reduced.

Valuing the profit/loss of an open position to the current market price.

Market capitalization
The market value of a company as determined by the prevailing price of its shares multiplied by the number of shares in issue.

A current market 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.

Orders to Open
An instruction to open a position should a specified price be reached.

Refers to trading outside of the main hours of the market.

Normally used in reference to forex rates, 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.

Abbreviation of profit and loss: how much you have made or lost.                                                          BACK TO TOP

An open trade that you have running.

The two-way market price 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 CFDs
A type of future with periodic expiries spaced three months apart. Prices are normally quoted for the next two or three quarter months. See also Rollover.

Realized Profit/Loss
The amount of money you have made or lost on a position once it has been closed. Realised profit or loss will add to or subtract from your cash balance.

Resistance Level
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.

Rights Issue
A corporate action where each shareholder is allotted, normally pro-rata their existing shareholding, rights to purchase more stock at a pre-specified price. Normally issued by companies in an attempt to raise capital, these rights are on occasion tradable instruments themselves and usually have a fixed expiry. See also Call Option.

The procedure whereby a trade approaching expiry is closed and a position of the same size and direction is opened for the next period, thereby prolonging the exposure to a particular market. See also Quarterly CFDs.

Running Profit/Loss
How your open positions are doing: the unrealised money that you would gain or lose on your open positions if they were closed at prevailing market prices.

A selection of stocks in a market normally associated with a specific industry group. Often, this group of stocks can be tracked by a published index. See also Index.

Settlement (also see Expiry)
The process of a position closing against a specified market level once the position has gone beyond its last dealing time.

Short Position
A position taken in anticipation of a falling market. To go short means to sell.

The difference between the level of a Stop order and the actual price at which it was executed (see also Fill). Slippage can occur during periods of higher volatility when market prices move rapidly or gap.

Spot (also see Cash Price)
The price for a currency, index, commodity or stock for immediate settlement or delivery.

Spread (aka bid/offer spread)
The difference between the buying and selling price for a particular market.                                          BACK TO TOP

Stock Index
Stock indices are 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 favorable. A stop order can be attached to an existing position (known as a Stop Loss) or can be used to initiate a new position (see Order to Open).

Strike Price (Options)
The fixed price at which the holder of an option is entitled to buy or sell.

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 analyzing market data, i.e. historical price trends and averages, volumes, open interest, etc.

Tom-Next charges
In foreign exchange, the cost of holding a position overnight. This normally incorporates the interest considerations in simultaneously holding and owing the notional and base currencies as well as being influenced by the relative availability of the associated currencies.

Trade Size
Governs how much you make or lose on a trade for every point of movement in the price of the market.

Trailing Stops
Trailing stops are a special type of stop order that trails behind the market when the market moves in your favor.

The actual traded market or markets from which the price of a futures or option is derived.

A statistical measure of the variation in a market's price movements over time.

Working an Order
The process of having an order that has not yet been executed

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