| Bearish |
Bear, expecting prices to fall |
|
|
| Bid |
The price that the market will buy shares. A trader can sell at the bid price using CFDs to either go short or take a profit or loss on a long trade. |
|
|
| Bid-Ask Spread |
The difference between the bid price and the offer price. Often the best stocks to trade are those which have a tight bid-offer spread. This makes the cost of doing business far cheaper. Remember, costs are not just commission related. |
|
|
| Bullish |
Bull, expecting prices to rise |
|
|
| Charting |
A visual method of trading or analysis of the markets using price information to form a picture of previous price movements. Also called technical analysis. |
|
|
| Closed position |
A long or short position that has been liquidated whether at a profit or loss. |
|
|
| Commissions |
The cost that a broker will charge a client for buying/selling a financial product. Commission on CFDs range from broker to broker. Some charge a flat rate per trade while others charge a percentage of the deal size, say 0.20%.
Other CFD brokers offer 'commission free dealing'. They do this by offering their own CFD prices to clients, these are often different from the prices quoted on the cash market. More information on how CFD brokers charge commissions.
|
|
|
| Cover |
To sell a long position or buy back a short position as in 'I've covered my Vodafone position. |
|
|
| Dax 30 |
The main German stockmarket index similar to the FTSE 100. |
|
|
| Derivative |
Something that gets (derives) its value from something else. For example, the price of a Barclays Call Option is derived from the price of Barclays shares. Futures, Options, CFDs, they’re all collectively known as derivatives. |
|
|
| Dividend |
A share of a company's earnings paid to each shareholder. Typically dividends are paid bi-annually and are determined by the company's board of directors.
Dividends are paid to all holders of long CFD positions, but usually at a rate of 90% of their value. Short sellers using CFDs will have to pay the full 100% of the dividend, and while on paper this seems a disadvantage, it's not. See more information on how CFDs handle dividends.
|
|
|
| ETFs |
Exchange Traded Funds are shares that mimic an underlying sector or index. For example, if you buy the ETF on the FTSE 100 that will track the performance, up and down, on the FTSE 100. A CFD client can easily trade these exciting vehicles.
The big US shares of QQQQ and SPY are examples of ETFs on the Nasdaq 100 and S&P 500 index respectively. ETFs are also available on stockmarket sectors such as Telecoms or Drugs.
|
|
|
| Fill or filled |
A completed order as in a CFD broker remarking 'that order is filled, Sir' |
|
|
| Flat |
Having no position (short or long) |
|
|
| Gearing |
If a trader buys £1000 of Barclays stock in the cash market and it rises by 10%, his profit will be £100. But if he buys the same position using a CFD he may only have to put up a deposit of £100.
If the stock moves 10% higher his profit on capital invested will be £100 or 100%, this is gearing at work.
|
|
|
| GTC |
An order to buy or sell a spread bet that remains operative until the order is executed or cancelled. For more details on the different types of orders see this section |
|
|
| Hedging |
Minimising risk by being simultaneously long and short. Perhaps someone is long £50,000 of stock in the cash market and wants to protect this from potential downside risk.
To hedge he would sell £50,000 of CFDs. If the share price did go lower the loss on the stock position would be offset by profits made via the short position.
|
|
|
| Illiquid |
A market that doesn't have much volume, usually characterised by a wide bid-offer spreads. Illiquid markets are normally expensive to trade |
|
|
| Initial margin |
The amount of cash deposit that is needed to trade a given amount of a CFD position. Initial margin on CFDs is usually 10%-20% of the nominal amount of the position.
So on a bargain size of £10,000 initial margin would be £1,000-£2,000. More details on margin
|
|
|
| Leverage |
See gearing above. |
|
|
| Limit Order |
An order to buy or to sell a CFD position at a specific price.
Example: "Buy 1000 Vodafone at £1.20". This would be placed when Vodafone is trading above £1.20. The potential buyer is hoping for a better price than where the market is currently trading.
There is obviously the possibility the order will never get filled. Limit orders can also be used in the same fashion for selling above the market. For more details on the different types of orders see this section
|
|
|
| Liquidity or liquid |
The amount of business conducted in a given market or stock. Where possible you always want to trade products that have good liquidity chiefly because they are cheaper to trade because of tight bid-offer spreads.
An example of a liquid stock would be any FTSE 100 company.
|
|
|
| Long Position |
Having bought, but not yet sold. A long position is entered with the aim of profiting from an increase in price. See also a Short Position |
|
|
| Long trade |
A position that will make money in a rising market. Buying £5,000 worth of BT is an example of a long trade. |
