Forex and stock market terms
This section contains basic terms related to trading on the Forex currency exchange; they will help a novice trader quickly understand the essence of the work.
Forex terms characterize the main points of the foreign exchange market; there are not many of them, so before starting work it is advisable to read their description, after which the trading process will become clearer and simpler for you. Each term given is described in as much detail as possible with examples of its use in practice.
What is exchange clearing and why is it needed?
Sometimes, when looking at the licenses of a brokerage company, you notice that in addition to the license for trading currencies and securities, there is also a license for clearing.
Clearing is a system of mutual settlements between participants in exchange trading, which ensures guaranteed execution of transactions.
There are two main types of clearing:
Centralized Clearing : In this case, all trade settlements go through a centralized clearing house.
The clearing house acts as a buyer to every seller and as a seller to every buyer. This provides a guarantee that transactions will be executed even if one of the trading participants defaults.
Direct and reverse currency quotes, explanation using simple examples
A currency quote is the price of one currency in units of another currency. It reflects the relationship between two currencies and is used for currency exchange.
In this case, the first entry in the entry is the currency that is being bought or sold, and the second entry is the monetary unit in which the price is indicated.
For example, the standard entry looks like this: EURUSD 1.25, the cost of the euro is currently 1.25 US dollars per 1 euro.
The price of a currency is set during trading on the Forex currency exchange or at a fixed rate by the national banks of the countries.
The hardest currency, its main characteristics
We often hear the phrase “Keep your money in hard currency, this will help protect your savings from exchange rate risks.”
And this is not in vain; over 20 years, the exchange rate of the Ukrainian hryvnia has fallen, in relation to the main world currencies, eight times; a similar picture is observed for other weak currencies.
Even high interest rates on deposits cannot compensate for exchange rate losses; there is only one way out - to use hard currency to store savings.
But which monetary unit is the most stable? It turns out that this is for the most popular American dollar and not the euro.
What is a sideways trend in the stock or foreign exchange market?
In stock trading, a trend is usually called the movement of the price of an asset; depending on whether the price is rising or falling, the trend can be upward or downward .
But sometimes traders are faced with such a concept as a sideways trend, which is not always clear to newcomers to the stock exchange.
A sideways trend is a situation where asset prices fluctuate in a small range without a clear direction down or up.
On the chart, the situation looks like a horizontal or slightly inclined price movement corridor.
At the same time, the price does not move up or down, but only sideways, which was the reason for the name of this term.
FTSE 100 stock index and features of trading using it
The FTSE 100 stock index, also known as the "Footsie", is one of the most recognized and widely used financial indicators in the world.
The index was created in 1984 by the joint efforts of the London Stock Exchange and the Financial Times as a barometer for the British economy.
It is a market capitalization weighted index of the 100 largest public companies traded on the London Stock Exchange.
Since its inception, the FTSE 100 has become a significant and influential indicator that reflects the health of not only the UK, but also the global economy.
Position trading in stock trading
Position trading in stock trading is a specific strategy that differs from other types of trading.
It is based on long-term investment and requires careful market analysis and patience on the part of the trader.
Position trading, by definition, is a strategy in which traders hold positions for an extended period of time, sometimes months or even years.
At the same time, thanks to modern technologies, in this strategy, along with purchase transactions, sales transactions without delivery of an asset can also be used.
What is a recession and what are its consequences for the stock and foreign exchange markets?
Lately, we have increasingly heard and read about the impending recession in the US economy and other countries.
But what is this market condition, and what consequences can it have for the value of securities or the national currency?
A recession is a period of economic downturn characterized by two consecutive quarters of negative growth in real gross domestic product (GDP).
Recessions are typically accompanied by rising unemployment, falling asset prices, and contraction in economic activity.
What are fractional shares, their advantages and disadvantages
Today, there are quite a few companies whose stock prices exceed $1,000, for example, one share of Pendrell Corp costs $150,000, and Mechanics Bank costs $23,000.
This significantly increases the required investment amount, especially if you want to diversify your investments and buy securities of several companies at once.
But thanks to the recently appeared opportunity, it is not at all necessary to buy the entire security; you can buy part of it.
Fractional shares are shares of a company's shares that can be purchased for any amount, even if it is less than the full value of the share.
Thanks to this, people with small capital can invest in shares of their favorite companies.
Arbitration and assets on which it can be applied
Most stock exchange strategies are based on fundamental or technical analysis , but there are also those that do not involve the use of these market research methods.
One such strategy is arbitrage - a trading strategy that is based on using the difference in prices of the same asset in different financial markets.
This trading option allows traders to profit from arbitrage opportunities that arise as a result of temporary or structural imbalances in the market.
Essentially, arbitrage trading is a form of profiting from the difference, when you see that the price of product A is lower in that market, you buy it and sell it (product A) in another market at a higher price.
Growth stocks - what this type of securities is and how to identify the most promising companies
In the investment environment, growth stocks are commonly referred to as securities with a high potential for price appreciation in the long term.
For the most part, these are fairly young companies that show good financial results and use all their net profits for development.
Often these companies belong to promising sectors of the economy, so it can be assumed that as the market grows, the value of companies in this sector will also increase.
As a rule, growth stocks are not expensive and can increase significantly in price in a short period of time; sometimes the increase in the value of such securities exceeds 100% per annum, and in exceptional cases, 1000%.
What is a Forex tick and how ticks differ from points, trading using ticks
The price of a currency pair on Forex moves in a rather peculiar way, the trend line is never straight, and there is almost always a different distance between two neighboring quotes.
You probably know that the smallest value of a Forex price change is a point or, as it is also called, a pip.
A point is the minimum change of the last character in the quote, for example, in the quote 3.2578 7 it will be 0.0000 1 ,
In practice, a change by one point looks like this: 3.2578 7 + 0.00001 = 3.2578 8 , similarly in three-digit quotes this is the third decimal place, and in two-digit quotes the second.
But if a pip is a minimum price change, then what is a “Forex tick”? We can say that a Forex tick is a real change in the Forex price. That is, the distance between neighboring quotes.
Auto trading on Forex
The concept of auto trading begins to interest most novice traders after several unsuccessful attempts at independent trading.
Automatic forex trading is trading using mechanical systems, special programs or trader terminals that completely automate the process of opening transactions, from technical analysis to opening and closing transactions.
At the moment, this type of trading is carried out using two options - advisors for automatic trading or special terminals in which it is possible to configure the receipt of signals to open transactions.
Ask (price)
The quote of a currency pair has two indicators - the purchase price and the sale price of the currency by the trader; ask is the second indicator of the price of the currency pair; by its value, you can find out the cost of purchasing the currency for the trader.
When considering Forex terms, one cannot ignore this seemingly quite simple term, but sometimes causing confusion among novice traders.
Ask (price) - in other words, this is the price at which the broker sells currency to its clients; it is at this price that purchase transactions are made in the trader’s trading terminal.
This price is always higher than the value of the second indicator Bid for the difference in the commission of the brokerage company, which is expressed as a spread.
Forex bar.
A bar chart is one of the options for displaying price movement and is used in
technical analysis. The chart is formed on the basis of Forex bars, which characterize a particular time frame.
A Forex bar is a certain time period, expressed in the form of a graphical plot, which allows you to find out the main price indicators on the selected time frame.
The main time frames of bars are 1, 5, 15 and 30 minutes, 1 and 4 hours, day, week, month. By selecting the appropriate interval, you observe from 20 to 100 bars, depending on the display scale.
High Frequency Trading
Very often, a complex name hides a simple truth.
Many people, having heard about high-frequency trading, begin to complicate things and invent all sorts of theories.
In fact, high-frequency trading is nothing more than pips , and the speed of opening and closing is so high that you, as an ordinary person, may not notice how the order was closed or opened, since in high-frequency trading the speed of opening and closing a transaction is calculated in milliseconds.
All this became possible thanks to the development of robotic trading and software, since only a machine, but not a person, can make decisions and open transactions at such a speed. However, opening and closing speed is not the whole point of high frequency trading.
By deciphering such Forex terms, you can understand the very essence of their practical application as a strategy.
Buy limit.
Working with pending orders has always brought good profits, but in order to correctly use this trading tool, you should know the types of pending orders. One of these types is a buy limit order.
Buy limit – represents an order to buy below the current price level. That is, you give an order to buy a currency after the price drops to a certain value.
Buy stop
Very often when trading Forex, it seems to you that if the rate reaches a certain point, then after that its growth will certainly continue. Placing a pending buy stop order will help you catch this moment.
Buy stop is one of the pending orders, which allows you to open a buy position at a price higher than the existing one.
Forex terms such as buy stop relate directly to trading techniques, as they help organize the process of exchange trading.
Bid exchange (price) sale price
Operations on the stock exchange have two directions - buying and selling, each of the operations is carried out at its own price.
Bid (price) is the price at which you sell a currency or other asset on the exchange; this indicator is always less than the Ask selling price and comes first in the currency quote.
In other words, bid is the price of purchasing a previously purchased asset from you or the price at which you open a short position to sell.
Sometimes it is also called the demand price, because it is the bid that more fully characterizes the level of demand for a certain financial instrument.
What is a basis point and what will 25, 50 or 100 basis points be equal to?
There are a lot of Forex terms that we have to deal with even in real life.
The term basis point also applies to such concepts; almost every day we hear it mentioned in financial news when it comes to changes in interest rates.
Basis point – represents one hundredth of a percentage point, so 100 basis points would equal 1%.
It characterizes the change in the new interest rate in relation to the previous one, that is, it is not the value of the rate itself, but its change.
For example, if you heard that the US Federal Reserve's interest rate on the dollar changed by 0.5% and was now 2.5%.
Binary option
When trading on the stock exchange, a lot of different tools and methods of concluding transactions are used; a binary option is just one of the options for performing transactions on the stock exchange. And although options trading cannot be classified in Forex terms, we still decided to briefly consider the meaning of this concept.
A binary option is a transaction with a pre-fixed rate of profit or loss, depending on the financial result of the transaction. It has several main indicators - remuneration, instrument, amount, size, forecast direction, validity period and compensation or insurance.
Transaction amount - the amount of money with which you buy this option, usually the minimum transaction is 5 US dollars, the minimum size of this indicator is set by the broker.
What does “Close Only” mean in stock trading?
The ongoing crisis has become an excellent opportunity for many traders to show their professional skills and make good money.
But not everything always goes according to plan; you can often find messages from a broker in your email stating that trading on a certain asset has been switched to “Close Only” mode.
Close Only – translated from English means “Closing Only”, that is, you can no longer open new transactions for a certain asset.
For example, due to increased volatility and a strong widening of spreads, trading on the XAU asset has been switched to Close Only mode.
After you receive such a message, you cannot open a new gold transaction, but only close existing ones. Surprisingly, this is not such a bad option compared to when trading stops completely.
What is an ETF and how to trade it?
The number of assets used in stock trading is growing every day; currently there are several tens of thousands of them.
What is not traded on exchange platforms - metals, currencies, cryptocurrencies, futures, securities and indices for these securities.
But still, new trading objects appear every year, for example, if earlier there were stock indices, then ETFs appeared not so long ago.
ETF - Exchange Traded Fund or translated, exchange-traded investment fund.
At its core, this is a kind of index that reflects the value of an investment portfolio created by a certain company and put up for trading in the form of one share.
Base currency
When describing Forex terms, you cannot miss this concept. It is used when using currency pairs in trading, each pair consists of two currencies, the first of which is precisely the base currency of the currency pair.
For example, in the USDCHF pair, the US dollar is the base currency, and the Swiss franc is already quoted.
Base currency – shows in relation to which monetary unit the purchase or sale operation is carried out; this indicator is the most important in characterizing all Forex transactions.
This concept is quite relative, because there is absolutely no difference between selling dollars for euros or buying euros for dollars, because in both the first and second cases you will become the owner of the euro.
But for stock trading, the correctness of the recording is important, since certain types of commissions are associated with this point, so it is customary to record the base currency in various types of quotes.
Currency Pair
It is customary to record all transactions on the Forex market using currency pairs; this approach can significantly simplify external perception and at the same time shorten the recording itself.
Currency Pair is an abbreviated record of the relationship between the exchange rates of two currencies; the record uses a special ISO alphabetic code consisting of three letters.
Typically this entry is made in the following form: AUDCAD or AUD/CAD, both options are correct.
This approach shortens the recording of quotes and is easier for a trader or bank employee to quickly understand.
A pair consists of two currencies, one of which is the base currency, and the second plays the role of the quoted one, for example, in the USD/JPY pair the American dollar/Japanese yen, the US dollar is the base currency and the Yen is the quoted currency.
Typically, stock trading uses a lot of different indicators that characterize a given entry.
What is a currency basket?
A currency basket is a method of comparing the average exchange rate against other world currencies. We have included its description in the “Forex Terms” section, as this is important for assessing the real value of the selected monetary unit. 
A currency basket is a list of currencies, which is fundamental for the bodies determining the movement of the national currency in relation to other exchange rates.
It is necessary to use a currency basket due to the instability of exchange rates of various monetary units.
When determining the currency basket, information about the country’s part in the joint total national product, foreign trade circulation of a certain group of countries is used as a balance.
The currency basket is in constant motion, it is always adjusted in response to shifts in the relations of the external economy and changes in relations in the monetary and financial sphere.
Currency arbitrage.
A broader, in an economic sense, concept of the term Arbitrage involves making a profit from trading one product. In fact, this is nothing more than mere speculation.
Currency arbitrage is making a profit due to the difference in exchange rates, and for its implementation there does not necessarily have to be an exchange change in the value of the monetary unit selected for the operation.
Bear market
Very often when trading on Forex or the stock exchange, you come across the concept of “Bear Market” or hear the statement - today the Bears dominated the market.
The question arises - what kind of market is this and what kind of animals live in it?
A bear market is a situation when the majority of traders are working to lower the rate, usually actions are carried out only on one or several trading instruments.
The initiators of this trend are “Bears” - traders who are interested in reducing the price of a certain currency pair or other financial asset.
When the number of such trading participants begins to play a decisive role, the market becomes “Bearish”.
As a rule, at such a moment a stable downward trend is formed on the exchange, the number of sales transactions is steadily growing, which further contributes to the decline in the price of the asset.
Bull market (bull market), trading features
Bull market - this concept suggests that traders who play for an increase in the exchange rate occupy a dominant position in the financial market.
Such traders are usually called bulls, in a figurative sense it is meant that the bulls seem to raise the price with their horns, stimulating growth with all their might.
This behavior is due to the fact that this category of traders has opened purchase transactions and in order to make money, a price increase is necessary.
At the same time, a bull market is characterized not only by an upward trend, but also by a general atmosphere indicating that the exchange rate should continue to rise.
Positive news is published on Internet sites, and the bulls themselves are actively spreading rumors that the price should rise even more.
Soft currency.
Almost all reserves of national banks are in hard world currencies, but along with this term, the opposite meaning is often found - soft currency.
Deciphering this concept will help you better understand other Forex terms. A soft currency is a weak monetary unit, usually having low liquidity and practically zero collateral.
These currencies are poorly quoted on the world foreign exchange market and are circulated only within their own country.
Currency Risk.
When dealing with currencies, the main reason why losses occur is currency risks, sometimes their value can reach several tens of percent. And with speculative trading on Forex and 100% of the trader’s deposit amount.
Currency risk is the risk of losing a certain amount as a result of unfavorable changes in exchange rates or the price of banking metals.
This term refers to such areas of activity as import-export operations, banking and trading on the forex market.
Forex volatility
Any trader who chooses the most profitable trading instrument encounters the concept of “Forex volatility”. It is by this indicator that one can assess the prospects for making a profit over a certain period for a currency pair or other trading instrument.
Forex volatility is an indicator of price (rate) changes over a certain time period (trading session, day, week, month).
Bollinger Bands.
All work on Forex is built on the basis of just a few fundamental tactics, one of which is Bollinger Bands.
Bollinger Bands are a tool for conducting technical analysis of the situation on the foreign exchange or stock market. Allows you to evaluate how different the current situation is compared to historical data.
Dealing center.
Dealing is one of the types of speculative trading, the main goal of which is to obtain excess profits from trading on currency, stock or commodity exchanges.
A dealing center is a specially created company for dealing, providing its clients with the opportunity to carry out transactions with various types of assets, while trading can be carried out both on one of the exchanges and on the internal platform of the dealing center.
Day trading.
In most textbooks, trading on the stock exchange is divided into several main periods - short-term, medium-term and long-term; day
trading or trading within one day is a separate category.
Day trading implies that the open transaction will be completed on the same date, the reason for this approach is some technical and strategic issues that we will talk about later.
Intraday trading is rightfully one of the most popular and profitable trading options, the reasons for this phenomenon are as follows.
Forex range (Range market).
Any market has a certain range of price movements; this concept is not spared by the Forex currency market.
Forex range is a corridor in which the price of a currency pair moved over a certain time period (day, week or month). Usually, the minimum and maximum prices for a specific time are taken as the basis for constructing a corridor.
What is a Forex gap and its positive and negative sides
The currency exchange does not work all the time, its activities stop on weekends and holidays, but at the same time, exchange rates still move, as a result of which such a phenomenon as a gap in Forex arises.
Forex gap is the occurrence of a gap in currency quotes, in which the previous time frame closes at one price, and the next one opens with a completely different value.
Is the occurrence of a price gap easily determined by looking at a currency chart? Upon closer examination, you can immediately see that the new candle opened at a price different from the previous one.
As a rule, this phenomenon occurs during breaks in the operation of the foreign exchange market, but sometimes it can also occur in the middle of a Forex working session .
The reason for this phenomenon is strong news that causes strong volatility and rapid trend movement in the market.
Diversification (diversification) of capital.
When managing capital, there are many ways to protect it from possible risks; one of the most effective options is to diversify the distribution of funds.
Capital diversification is the rational distribution of the entire amount of available funds between different investment options. This takes into account not only the profitability of investment objects, but also the level of risk of such investments.
Dealing Desk stock trading
There are several options for organizing currency trading, one of these options is the Dealing Desk, it is used mainly by young brokerage companies or when working with small volumes of transactions.
Dealing Desk – trading on the broker’s internal platform, without transmitting orders to external markets.
All transactions are concluded between clients of this broker or directly with the participation of the company itself that organized the trade.
No Dealing Desk (NDD).
The very name of this term perfectly characterizes the concept of No Dealing Desk - trading without creating an internal platform.
No Dealing Desk (NDD) is a method of trading in the forex market that provides trading participants with direct access to the interbank foreign exchange market. In this case, the broker does not have the opportunity to interfere in the trading process.
Derivatives.
When trading on the stock exchange, there are many options to protect yourself from price risks; one of the most common options for fixing prices is such an instrument as a derivative.
Derivatives - an agreement that fixes the price of one or more specified goods in transactions on an exchange. Its use allows you to fix the price of an asset at a certain level and avoid losses as a result of its fluctuations.
Instant Execution (Instant execution of orders).
With a fast-moving trend, it is quite important how quickly your order is opened; sometimes a delay of just a couple of seconds can cost quite a significant part of the profit. It is for this reason that it is so important that orders in the trading terminal are executed as quickly as possible. In practice, there are two options for executing orders: Instant Execution and Market Execution.
Instant Execution – also called instant or precise execution of orders; the second definition of this term is more correct.
Equity.
This concept is directly related to your funds in the trader’s trading terminal; it is thanks to it that you can find out how much is currently available to you to open a new position.
Equity is the balance of available funds in the trader’s account; the value of this indicator constantly changes depending on the financial result of open positions, with an increase in profits in a positive direction, and with losses in a negative direction.
Hard currency.
Based on the properties of a monetary unit, one can always determine how well things are going in the state that issued it. One of these indicators is how hard the currency is.
Hard currency - or as it is also called “Strong Currency”, in this context they are talking about world currencies that can serve as a reliable and stable means of storing capital. Monetary units with similar characteristics have a stable exchange rate and purchasing power, and are in constant demand in almost every country in the world.
Cross Rate.
The basis for the appearance of this term was the quotation of foreign currencies among themselves, after which the American dollar began to act as the basis for direct quotation.
Cross Rate – the exchange rate of one currency for another, while both of the currencies in the quote are not US dollars. In this case, it is absolutely no longer important in which country the exchange operation takes place.
Counter Currency.
A currency pair is the main instrument with which trading occurs on the Forex exchange.
As is already clear from the name itself, it is formed from two currencies - base and quoted. Counter Currency (quoted currency) is the second currency in a currency pair, with the help of which the value of the base monetary unit is determined. Sometimes it is also called a counter currency to the main quote currency.
Why do you need an ECN account for Forex, brokers and trading features
ECN account is one of the most comfortable options for trading, since trading in this
case is carried out using the Non Dealing Desk system.
That is, all transactions are entered into the interbank market, where currency trading itself occurs.
This approach allows you to achieve the greatest liquidity, which means reducing the spread to almost zero values.
The opportunity to open this type of account is provided to the ECN company by brokers , of whom there are more and more people on the Forex market every day.
Consumer Price Index.
Inflation has always been one of the most significant indicators of assessing the stability of the national currency; the level of inflation can be assessed through analysis of the consumer price index.
Consumer Price Index , abbreviated as CPI, is a measure of the cost of a basket of consumer goods and essential services. CPI is calculated based on price changes for each of the components of the basket, and the importance of a particular product in the consumer basket is also taken into account.
Carry trade (carry trade).
You can make money on Forex not only by guessing the direction of exchange rates, but also simply by using the difference in the discount rates of the currencies included in the currency pair.
Carry trade is a trading strategy in which the main profit-generating factor is the difference between deposit and loan rates in different countries. Depending on the direction of the transaction, this trading option can bring good profits.
Hedging in Forex.
One of the most well-known options for reducing risks is Forex hedging. Moreover, this is not only the most famous option, but also the most controversial: some traders refuse it on principle, while others make money only with its help.
Hedging is a method of reducing financial risks, in which two transactions are made in different directions, but in the same volume and for a similar group of assets.
What is a Forex correction and how to determine its size
As has been noted more than once, the main thing when trading forex is to determine the existing trend direction.
It should be noted that this movement does not always occur in the direction of the existing trend; in addition to the main direction, there is also a correction.
Forex correction – price rollbacks against the main direction of the trend, over a certain time period.
Such movements occur both with arbitrary regularity and relatively regularly, and their size depends primarily on the size of the timeframe. Also, correction in Forex depends on how sharp and strong the movement towards the trend was.
In practical trading, this phenomenon cannot be ignored, since it is this phenomenon that often causes premature stop loss triggering.
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