Trading glossary

Arbitrage happens when traders can take advantage of price difference - buy an asset at one place and immediately sell it in another market with profit.

The ask price is the minimum price a seller is willing to accept for an asset. In forex trading, this is critical for currency pairs such as EURUSD, where the ask price indicates how much of the quote currency is needed to buy one unit of the base currency.

forex, EURUSD

Asset is a resource that can be possessed and exchanged between parties. Currencies, equities, commodities, or cryptocurrencies are some examples of assets.

currency, equity, commodity, cryptocurrency

Traders can teach computer programs to make trade orders for them. The practice is called algorithmic trading. The orders can be executed by simple rules, ie. decision tree, or by deep learning algorithms.

Base rate is the rate set by central banks such as the Fed, Bank of England or European Central Bank. Higher base interest rates slow inflation, raise income from bank deposits, but also raise the cost of borrowing.

Bear and bull are symbols of uptrend and downtrend. Bears are skeptical, they expect the prices of an asset to go down, or even collapse. On the other hand, bulls are optimistic about the future price.

CPI is one of the most popular tools to measure inflation. It tracks the change of the prices customers pay for goods and services. It’s given in percentages. Traders often analyze the American market with CPI and other indicators, including FOMC and NFP.

FOMC, NFP

Usually currencies used in different countries can be freely exchanged between buyer and sellers. It is less common that they are pegged, tied to the price of another currency, usually at the 1:1 ratio. Cryptos can be pegged as well. The most popular are stablecoins tied to the U.S. dollar, such as Tether, USD Coin, or Binance Coin.

stablecoin, Tether, USD Coin, Binance Coin

Fundamental analysis is one of the most popular approaches to assessing the value of an asset. For companies it takes into account their cash flow, reserves, financial and market results, as well as future potential.

Buyers and sellers agree to a transaction at a specific price at a specific time in the future. Future contracts are also often more volatile than the spot market, as futures prices sometimes can drop to negative.

Gross Domestic Product is the sum of the value of the goods and services produced in a country (or region). Usually economists measure annual GDP to check if the economy is growing or shrinking, and to compare the economic power of a territory.

In trading, hedging means taking an offsetting position. The main objective of hedging is the reduction of a potential price risk of a current position.

The use of computers introduced algorithmic trading and high frequency trading. Automatic algorithms can perform trades faster than humans, and find a better price, buy and sell faster than a trader acting manually. HFT strategies can lead to “flash crashes”, when algorithms make the same mistake at the same time.

The shortest definition of IPO is the stock exchange debut - the first sale of the equity in the public market. On the day a company goes public, traders can notice significant price movements. For instance, 1999 was the year for the IPO of NVIDIA, and Tesla debuted in the stock exchange in 2010.

NVIDIA, Tesla

The price of the credit, usually expressed by annual percentage rate (APR). A second meaning of interest is the stake a stockholder has in a company, also expressed as a percentage.

In finance intrinsic value is used to describe the true value of an asset, which usually is different from the market price. Companies, commodities, or currencies are undervalued or overvalued as it is difficult to assess the intrinsic value. Traders try to do it using fundamental analysis.

Traders can open orders at a more attractive price than the current one. Those eager to buy an asset can place a limit order at a lower price. The limit order will be completed only when the market reaches a certain level.

By using leverage, traders can open a position using margin, which can be just a fraction of the value of an order.

Depending on the popularity of the asset, trades can be conducted faster or slower. It is caused by the liquidity. The most popular financial assets such as Bitcoin, EURUSD or NVIDIA will be traded much faster than less familiar exotic currency pairs or equities.

Bitcoin, EURUSD, NVIDIA

Margin Call is an alert to the trader when the account equity falls below 80% Margin Level. It means that the account is left with only the supplied margin and should be funded with more money in order to prevent it from facing a Stop Out or a forced closure.

When placing a stop order, traders want to execute a trade when the price is less attractive for you than the current one.

If you are buying a currency pair, you are opening a 'long' position, if selling - a 'short' one. For example, if you buy 1 lot of EUR/USD, it means that you open a long position for 100,000 units of EUR. And if you sell 10 lots of AUD/CAD, it means that you open a short position for 1,000,000 units of USD.

In forex trading, FIFO (First In, First Out) is a rule requiring that you exit your first (or oldest) open trade if you have multiple trades of the same pair and size open. This can impact hedging strategies where you aim to open opposite positions (BUY and SELL) on the same instrument for risk management. If FIFO is enabled on your platform, opening a new position in the opposite direction will close the oldest position of the same size, preventing simultaneous BUY and SELL positions. To maintain both positions,, you need to disable the FIFO option, available in the Symbols panel next to the trade calculator.

A Forex broker is an intermediary between you and the interbank desk, networks of banks that trade with each other. Typically, a Forex broker will offer you a price from the banks, acting as their liquidity provider. SimpleFX uses multiple banks for pricing and we offer you the best price quotes with fast execution.

Bitcoin is a digital currency created in 2009, based mainly on a self-published paper by Satoshi Nakamoto. Bitcoin enables rapid payments (and micropayments) at a very low cost, while avoiding the need for central authorities and issuers.

Rollover is an automated process engineered to transfer your position to the next available contract on futures-based CFDs, such as BUND or TNOTE. It's free of charge and enables you to hold your position open past its expiration date without the need to close and reopen it at a new rate manually. More details, examples and upcoming rollover dates can be found here.

Slippage occurs when the market gaps over prices or because available liquidity at a given price has been exhausted. Market gaps normally occur in fast-moving markets when the price can jump several pips without trading at prices in between. Similarly, each price has a certain amount of available liquidity. For instance, if the price is 50 and there is 1 million available at 50, then a 3 million order will get slipped, since 3 million is more than the 1 million available at the price of 50.

Spot markets refer to the markets that deal with the current price of financial instruments.

Spread is the difference between the bid and the ask price. The bid price is the rate at which you can sell a currency pair, and the ask price is the rate at which you can buy a currency pair. With us, you can trade a large range of instruments with flexible spreads. This gives you a greater degree of price transparency on your trades.

Stop loss is an order for closing a previously opened position at a price less profitable for the client than the price at the time of placing the order. Stop loss is a limit point that you set to your order. Once this limit point is reached, your order will be closed. It is useful if you want to minimize your losses when the market goes against you. Stop loss points are always set below the current ASK price on buy or above the current BID price on sell.

Trailing stop is a type of stop loss order. It is set at a percentage level either below the market price (for long positions), or above the market price (for short positions).

Margin Call is an alert to the trader when the account equity falls below 80% Margin Level. This means,that the account is left with only the supplied margin and should be funded with more money in order to prevent it from facing a Stop Out or a forced closure. Trading platform will start closing trading positions at Stop Out level, which is set to be 30% of Margin Level.

Margin is a percentage amount of the total trade size which a broker requires as a good faith deposit in order to allow a trader to open that position. This amount is not a fee or transaction cost; it is simply a portion of your account equity set aside within your account as a deposit towards the trade. Margin requirements are calculated by taking a percentage of the notional trade size and are determined by the broker in advance in the trading conditions.

Take profit is an order to close a previously opened position at a price more profitable for the client than the price at the time of placing the order. When the take profit is reached, the order will be closed.

Trade size refers to the size of the position that you would like to open, NOT the amount of your funds that you would like to use. It depends on the instrument.

The term “trade size” refers to the number of standard lots you want to trade. 1.00 refers to 1 standard lot or 100,000 units of the base currency, so 0.10 refers to 1 mini lot or 10,000 units of the base currency. 0.01 refers to 1 micro lot or 1,000 units of the base currency.