Alpha: Often considered the active return on an investment, it gauges the performance of an investment against a market index used as a benchmark. The excess returns of a fund relative to the return of a benchmark index is the fund’s alpha.
Averaging Down: This is when one buys more of a product as the price goes down. This makes it so that the average purchase price decreases.
Bear Market: This is trading talk for the stock market being in a down trend, or a period of falling stock prices. This is the opposite of a bull market.
Beta: A measurement of the relationship between the price of a stock and the movement of the whole market. If stock XYZ has a beta of 1.5, that means that for every 1 point move in the market, stock XYZ moves 1.5 points and vice versa.
Blue Chip Stocks: These are the large, industry leading companies. They offer a stable record of significant dividend payments and have a reputation of sound fiscal management. The expression is thought to have been derived from blue gambling chips, which is the highest denomination of chips used in casinos.
Bull Market: This is when the stock market as a whole is in a prolonged period of increasing stock prices. Opposite of a bear market.
Broker: A person who buys or sells an investment for you in exchange for a fee (a commission). The company is called the brokerage firm.
Day Trading: The practice of buying and selling within the same trading day, before the close of the markets on that day. Traders that participate in day trading are often called “active traders” or “day traders.”
Dividend: This is a portion of a company’s earnings that is paid to shareholders, or people that own hat company’s stock, on a quarterly or annual basis. Not all company’s do this.
Dividend Yield: This usually refers to the measure of the return on an investment that is received from the payment of a dividend. This is determined by dividing the annual dividend amount by the price paid for the stock. If you bought stock XYZ for $40-a-share and it pays a $1.00-per-year dividend, you have a “yield” of 2.5%.
Expert Advisor (EA): EA’s are algorithmic programs that have been developed to open trades on behalf of investors on the MetaTrader 4 platform. Expert Advisors are based on signals generated by various technical indicators and may be acquired online.
Hedging: Hedging refers to the opening of a new position in the opposite direction of an existing position on the same instrument. For example: To hedge a 0.1 lot Buy position on AUD/USD, you would open a 0.1 lot Sell position on AUD/USD.
Index: An index is usually a compilation of prices from different instruments from a particular market, making it a good benchmark of that market, hence it is often used as a reference marker for traders and portfolio managers to measure their performance against. Examples are the Straits Times Index (Singapore), Hang Seng Index (Hong Kong) and Standard & Poor’s 500 (USA).
Leverage: Leverage is the ability to control a large amount of money in the forex markets. For example: If a broker offers up to 500:1 leverage, which means for every $1 that you have in your trading account; you can trade $500 on the forex market. The same principal applies to all base currencies and leverage amounts. Leverage gives the trader the ability to make meaningful profits on the normally miniscule daily currency movements, and, at the same time, risk only minimal capital on a given position. Leverage can exponentially increase your profits as well as your losses so it is crucial that traders take care when using leverage. The larger your position size, the larger your pip value will be and therefore, the greater the impact on your profit/loss (P/L).
Liquidity: Liquidity refers to the ease with which an asset, or security, can be converted into ready cash without affecting its market price. A liquid market refers to one which has a large number of participants and high volume, making it easy for market participants to transact in the market. If the market is illiquid, then you might have trouble finding a buyer/seller when you want to sell/buy.
Long: Going long or having a long position means that you buy a product with the expectation of prices heading up. Opposite of short.
MAM/PAMM Accounts: Multi Account Manager account types on the Meta-Trader 4 platform are designed for Money Managers who trade on behalf of other investors and manage multiple accounts from a single interface. Money Managers can also manage multiple accounts by utilising Expert Advisors (EAs).
Margin: A margin account lets a person borrow money (take out a loan essentially) from a broker to purchase an investment. The difference between the amount of the loan, and the price of the products, is called the margin. Margin is also the term given to the amount of money required in your account in order to open a trade.
Margin Call: A margin call is a warning message that occurs when a trader’s account is running out of sufficient funds to sustain their current open positions on the market. If the market moves against a trader’s position/s, additional funds will be requested through a “margin call”. If there are insufficient available funds, the trader’s open positions will be closed out.
One-Click-Trading: Allows you to open a new position with just one click.
Pips and Pipettes: Most brokers quotes currency pairs by “5, 3 and 2” decimal places – these are known as fractional pips or pipettes. On a 5 decimal place currency pair a pip is 0.00010. On a 3 decimal place currency pair a pip is 0.010. On a 2 decimal place currency pair a pip is 0.10. For example: If GBP/USD moves from 1.51542 to 1.51552, that .00010 USD move higher is one pip.
Portfolio: A collection of investments owned by an investor. You can have as little as one product in a portfolio to an infinite amount of products.
Quote: Information on a product’s latest trading price. This is sometimes delayed by 20 minutes (on free platforms) unless you are using an actual broker trading platform.
Rally: A rapid increase in the general price level of the market or of the price of a product.
Rollovers/Swaps: Forex trading may also generate interest income as well as capital gains. Since forex is traded in pairs, every trade involves not only two different currencies, but their two different interest rates. If the interest rate of the currency a trader bought is higher than the interest rate of the currency a trader sold, then the trader will earn interest or “rollover” (positive roll). If the interest rate on the currency the trader bought is lower than the interest rate on the currency you sold, then the trader will pay rollover (negative roll). Rollovers/swaps can add a significant extra cost or profit to a trade. The rollover amount increases/decreases as the position size increases/decreases.
Safe Haven Currencies: This is a term used to describe trading an alternative currency or instrument that is less volatile as a result of market turmoil and uncertainty. Safe haven currencies or instruments are considered low risk because their issuing governments are stable and their economies tend to be strong, however, this does not necessarily mean that they are ‘safe’.
Sector: A group of stocks that are in the same business. An example would be the “Technology” sector including companies like Apple and Microsoft.
Short: Going short or having a short position means that you sell a product with the expectation of prices heading down. Opposite of long.
Spread: This is the difference between the bid and the ask prices of a product, or the amount someone is willing to buy it and someone is willing to sell it.
Straight Through Processing (STP) Broker: An STP broker provides clients with direct access to other participants in the currency market by consolidating price quotations from several banks. Clients will have instant access (Straight Through Processing) to some of the best prices with extremely tight spreads.
Symbol: A unique combination of number or alphabets, which denote a particular product traded on the exchange. Eg. EUR/USD (Euro vs. US Dollar), APPL (Apple), BN4 (Keppel Corp), XAU/USD (Gold). Do note that each product may be represented by different symbols on different exchanges.
Variable Spreads: Variable spreads are spreads that don’t have the same constant value. A variable spread will condense and widen as market conditions and liquidity change.
Volatility: This refers to the price movements of a product or the market as a whole. Highly volatile products are ones with extreme daily up and down movements and wide intraday trading ranges. This is often common with products that are thinly traded, or when there is a lot of news in the market.
Volume: The number of products traded during a particular time period, normally measured in average daily trading volume.
Virtual Private Server (VPS): A VPS is used to keep the Meta-Trader 4 platform running even if the trader exits the program. This minimizes the chance of system downtime due to technology and connectivity failures.