Trading Terminology and Basics

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TRADING TERMINOLOGY AND BASICS


TRADING TERMINOLOGY AND BASICS

In trading, there are subject-specific terms and phrases used, like in any other area in life. To make it easier for you to get the hang of it, we have explained some of them in the following article. 

 

Symbol:
The Symbol describes the instrument you are trading. For example a currency pair (e.g. EUR/USD or USD/JPY etc.), an Index (Dax, Ibex, etc.), Commodities (Oil, etc.), Single Stock CFDs (Apple, Intel, etc.)

 

Market Order:
Opening a position with the current market price. When you decide to buy or sell, your order will be executed at the current market price.

 

Pending Order:
A pending order is an order which is “scheduled” for the future. The order will be executed once a set price is hit. For every pending order, you can set the expiry date accordingly.

 

Base currency:
This term is related to Forex trading and the notation of a currency pair. The currency that you chose to either Buy or Sell is named base currency. It is the first currency named in a currency pair. For example in EUR/USD, Euro is the base currency.

 

Quote currency:
This term is related to Forex trading and the notation of a currency pair. The currency in which the pair is quoted is named quote currency. In the example of EUR/USD, this would be the US-dollar.

 

Bid price:
The broker is willing to buy at this price. This means it is the price you can Sell.

 

Ask price:
The broker is willing to sell at this price. This means it is the price you can Buy.

 

Bid/Offer or Bid/Ask price:
In every instrument, we have a bid and ask price. Thus the pricing scheme looks like this: EUR/USD Bid: 1.2000 Ask 1.2003. The bid price is relevant if you want to go short (sell), the asking price is relevant if you go long (buy). Sometimes people also say Bid/Offer.

 

Position:
A position is the amount of a share, currency, commodity or any other instrument you are holding. Your position can be either one of two types: A short position (sell) or a long position (buy). 

 

Short position (SELL):
If you "Go Short“ you think the price will fall and therefore you sell (bid price) an instrument to buy it back in the future at a lower price. If the price falls after you entered, you make a profit. If the market goes "against you“, you will buy back at a higher price and face a loss.

EXAMPLES:

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Example 1 (In favour of you): You sell at 1.0000 and then buy back at 0.9000 -> Profit 0.10

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Example 2 (Against you): You sell at 1.0000, the market goes against you, you need to buy back 1.0020 -> loss of 0.0020.

 

Long position (BUY):
If you "go long" you think the price of an instrument will increase and therefore buy it (ask price) to sell it at a higher price in the future. If the market goes in your favour and the value increases, you make a profit, if it goes against you, you lose.

EXAMPLES:

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Example 1 (In favour of you): You buy at1.0000 and price goes up to 1.1000, you sell and make a profit of 0.1000.

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Example 2: (Against you) You buy at 1.0000 and price goes down to 0.9000, you sell and make a loss of 0.1000.

 

Spread:
The difference between the buy and sell price is called the spread.

 


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If you need further assistance, please do not hesitate to contact our staff.

1055095-512.png    Did you know? 

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