Glossary of terms

Aggregate demand refers to the total demand for goods and services in a given economy, sector, or market. It consists of all consumer goods, government spending, capital goods like factories and equipment, exports, and imports. Aggregate demand clarifies the link between current price levels and a country’s GDP (see ‘gross domestic product’).

A measurement that shows how an investment portfolio is performing against a defined benchmark like a stock market index. An alpha of greater than zero means a trade outperformed the benchmark. Alpha is also a measure of risk and makes clear the extent to which a trader has beaten or fallen behind the market over a period of time.

Arbitrage is the practice of buying and selling an asset simultaneously to take advantage of a short-term difference in price. In forex, it is the strategy of exploiting price disparities in currency markets.

The rate at which you can buy the base currency, in our case, the British Pound, and sell the quoted currency, i.e. the Japanese Yen.

This refers to an entire category of financial instrument. An asset class can be physical or financial. They are grouped based on whether they are governed by the same regulations and/or have similar characteristics. Major asset classes include commodities, futures, financial derivatives like CFDs, stocks, bonds, and increasingly— cryptocurrencies.

The Bank of England (BoE) is the United Kingdom’s central bank. Its mission is to ‘promote the good of the UK by maintaining monetary and financial stability.’

In currency trading, the base currency or transaction currency is the first to be listed in a currency pair quotation. The second part is the quote currency or counter currency. For example, in the EUR/USD currency pair, the euro is the base currency, and the dollar is the quote currency.

A basis point (commonly referred to as BPs or bips) is the unit of measurement used to capture the percentage change in the value of financial instruments or the rate change in an index. A basis point equals one-hundredth of one per cent (0.01%).

In financial markets, bearish means you believe that an asset, instrument, or market is set to go down in price, value, or volume. It’s the opposite of being ‘bullish’ when traders believe a market is on an upward trajectory.

A bid is an amount someone is willing to pay in order to buy a financial instrument.

Developed by famed technical trader John Bollinger, Bollinger bands are a price indicator used in technical analysis. They consist of an upper and lower band, appearing adjacent to the sides of a simple moving average (SMA). The bands are plotted two standard deviations away from the market SMA, and as such, they can point to areas of resistance and support.

Brent crude is one of three major oil benchmarks, along with West Texas Intermediate (WTI) and Dubai/Oman. Crude oil benchmarks provide pricing reference for other types of oil and oil-backed securities. They make it easier for traders to establish correct pricing for the many varieties and blends of crude oil.

A broker is a business (like Hantec Markets) that executes financial transactions on behalf of another party. Brokers can act in several different asset classes: currency trading (like Hantec Markets), insurance, or equities (stocks). Brokers often charge a commission on the orders they execute.

In financial markets, bulls are traders who believe that a sector, market, or instrument is heading upward. Bulls are the opposite of bears, who take the negative (bearish) view of a market’s likely direction.

Bullish traders believe that a market will experience upward movement on price and act accordingly – typically buying an underlying market now in order to profit by selling back to the market later when the price has risen.

In currency trading, cable refers to the GBP/USD currency pair. It’s a slang term representing the British pound against the US dollar – one of the most popular currency pairs in forex markets. In trading, the term is used frequently and interchangeably with GBP/USD.

Traders who depend on charts to help them understand a financial instrument’s historical price movements are referred to as chartists. They use the past history of an instrument to try and predict its future performance. Chartists are also known as ‘technical traders’.

A commodity is a physical asset, often sold in mass quantities for use as a raw material in manufacturing. It is interchangeable with other goods of the same type – for example, oil, gas, metals, grains, and other agricultural goods.

Contracts for Difference (CFDs) are a type of financial derivative. They comprise an arrangement where the difference between the open and closing trade prices of an asset are settled without the delivery of physical goods or securities. CFDs can be used to trade in financial markets like forex, commodities, and indices.

This refers to additional costs or fees that might be required to maintain a trading position. Cost of carry can arrive in the form of interest payments on margin accounts, overnight funding charges, or the costs of storing commodities as part of a futures contract.

A key inflation indicator, CPI, is the average price of an indicative group of everyday goods and services. It examines the weighted average of prices in a ‘basket’ that includes transportation, food, and medical care.

Currency appreciation occurs when one currency within a pair increases in value relative to the other. Appreciation means that it would cost more to buy the currency which is rising in value, or that more of another currency could be purchased if the appreciating currency is sold.

Currency depreciation refers to a currency’s declining value relative to another currency. It is usually discussed in the context of a floating exchange rate, where a currency’s value is set by supply and demand on the currency trading market.

A currency future is a contract that details the price at which a currency could be bought or sold on a specific date.

Currency trading options are securities that allow currency traders to achieve gains without having to place an actual trade in the underlying currency pair. They create the opportunity to improve returns while mitigating downside risk.

A currency peg occurs when a government ‘pegs’ the exchange rate of its national currency to that of another. In some cases, the currency is pegged to the price of gold.  A currency peg is sometimes referred to as a fixed exchange rate.

The European Central Bank or ECB is the central bank for the eurozone.

The official currency of the eurozone. The euro is currently used by 19 EU countries: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Italy, Ireland, Latvia, Lithuania, Luxembourg, Malta, Portugal, The Netherlands, Slovakia, Slovenia, and Spain.

Published by the European Central Bank (ECB), ESTR is an interest rate benchmark that reflects the overnight borrowing costs of banks inside the eurozone.

When carried out by a broker, completion of a buy or sell order from a trader is called the execution of the trade.

The Financial Conduct Authority (or FCA) is the United Kingdom’s financial regulatory body. It replaced the Financial Services Authority (or FSA) in 2013. One of its roles is to regulate the conduct of brokers in foreign exchange, CFDs, and commodities to ensure that clients are treated fairly.

The Federal Reserve bank is the American central bank responsible for monetary and financial stability in the US. It is part of the broader Federal Reserve system, which includes regional central banks located in 12 major US cities.

Fiat currency is a currency issued by a national government that isn’t pegged to the price of gold. Its value is largely determined by the market’s faith in the country’s government or central bank.

This key technical analysis tool is used to identify possible areas of support and resistance. Fibonacci retracements take the form of percentages and horizontal lines drawn onto price charts. They can help traders decide when to open or close a position, or when to apply risk mechanisms like stops to their trades.

A fill is the fundamental act within any market transaction, describing the moment when an order to trade a financial asset has been completed or executed.

Financial instruments are monetary contracts between two parties which can be traded. They represent a financial liability to the seller and an asset to the buyer.

A financial market is a place or medium through which assets are traded, and where their value determined by supply and demand.

When a currency’s price is determined by supply and demand relative to other currencies, it has a floating exchange rate. This is different from a pegged or fixed exchange rate, which is determined by ‘pegging’ the currency’s value against gold or another national currency.

The Federal Open Market Committee or FOMC is the decision-making body of the US Federal Reserve responsible for short- and long-term monetary policy.

This method of evaluating the intrinsic value of an asset looks at factors that could influence its price in the future: typically external events, industry trends, and financial statements.

A slang term for the US dollar, making reference to the colour of US paper currency denominations.

GDP is the total value of all goods and services produced in a country over a specified period. It is used to measure the size and health of a national economy.

This is a form of risk mitigation that provides a guarantee that a trade will execute at a specified level.

A hedge is an investment position or activity designed to reduce a trader’s risk exposure. In trading, hedging can reduce the risk of losses if interest rates, or currency exchange rates move against expectation.

Heikin Ashi charts are used in technical analysis. Similar to candlestick charts in appearance, they use average daily prices to display an asset’s median price movement over time.

An index is a collection of financial assets whose aggregate value is used to provide an indicator of performance in a particular sector.

Indices (the plural of an index) trading happens when traders try to profit from the price movements of indices.

A style of chart used in technical analysis. Similar to bar charts in that each ‘candle’ displays the opening, closing, high and low price for a given period. The top of the vertical line represents the highest price traded in an instrument, while the bottom shows the lowest price.

Margin is money borrowed from a brokerage (like Hantec Markets) to trade in forex. Margin trading is the practice of using the funds borrowed from a broker to trade a financial asset, which then becomes the collateral for the margin loan.

The rate at which you can buy the base currency, in our case, the British Pound, and sell the quoted currency, i.e. the Japanese Yen.

An option is the right to buy or sell a specific amount of a given currency, index, or other asset at a specified price. The right to buy is call option, the right to sell is a put option, and the specified price is called the strike price. An option has to be used within a specified period of time; otherwise, it expires.

Resistance is a term used in technical analysis to describe the price level where analysis suggests there will be a predominance of selling – and as such an increased likelihood that the price won’t rise past that level.

A form of trading where a trader will profit if the price falls, and lose if it rises. In currency trading, a short position is typically executed by selling the base currency against the quote currency.

This refers to measurement systems used to anticipate future movements of a currency or commodity, by looking at past price movements and volume levels. Technical analysis uses charts and historical performance to analyse market data, price trends, and averages.

A term used in CFD trading, as well as trading other types of derivatives where the price of the instrument is based on the price of a different asset. The ‘underlying’ asset is what the CFD’s price is based on.

In foreign exchange (currency trading) volatility refers to how quickly the value of a currency or price of a pair rises or falls. Highly volatile markets can be risky for short-term trades as sudden changes can result in a loss.

The base unit of China’s national currency.