| Maintenance margin |
CFDs are margined products and therefore all trades are credited/debited a profit or loss at the close of business that day. Maintenance margin can therefore be positive or negative. More information on Margin here. |
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| Margin |
The amount of money needed to deposit with your CFD broker in order to fund a position.
With margined products only a percentage of the nominal value has to be lodged in cash, normally between 5 - 20%. So buy £10,000 worth of Tesco’s using a CFD and around £500-£1,000 needs to be deposited with your broker.
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| Margin Call |
A telephone call from your CFD broker asking for money to be deposited, usually because of adverse price movements. A solid and logical rule for trading is 'never pay a margin call', instead liquidate or reduce your positions and take the losses on the chin. |
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| Market Order |
An order to buy or sell at the current bid or offer price. For more details on the different types of orders see this section |
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| Mark to market |
Because derivative products are margined, that being only part of the nominal value has to be deposited to control the asset it is very easy for clients to be wiped out if the market moves against them.
Mark to market means that all profits and losses are credited/debited from client accounts at the close of business every day.
If you buy a stock at £1.00 (using a CFD) and it closes that night at £1.05, 5p of profit (X number of shares) will be credited to your account at the close of business. If the following day it closes at £1.00, 5p of losses will be debited from your account. This is mark to market at work.
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| MOC order |
'Market-on-close'. An order to cover a CFD trade (long or short) at the close of business.
If a trader was long 1000 Land Securities shares using a CFD then a closing MOC order would sell 1000 shares at on the close. If the trader had a short position then the MOC order would be to buy the shares on the close. For more details on the different types of orders see this section
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| Noise |
Normal everyday market movement, up and down without really going anywhere. The ebb and flow of everyday movement. |
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| Offer or Ask |
The price at which shares can be guaranteed bought. The trader also has the opportunity to bid for the shares as well but there is no guarantee that anyone will sell them to him. |
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| Open Position |
A long or short CFD position that has not been closed out |
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| Opening range |
Markets, especially busy ones never really open at one price, rather they are given an opening range (usually the first 2 minutes) where opening orders are filled |
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| Options |
For a comprehensive explanation of options please go to the LearnMoney Options section. |
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| Overbought |
A term used to describe a market or a stock that has appreciated so rapidly and has generated such excessively bullish sentiment that a near-term decline is highly likely |
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| Oversold |
A term used to describe a market or a stock that has declined so rapidly and has generated such excessively bearish sentiment that a near-term rally is highly likely. |
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| Pairs trade |
Another name for a spread trade but done with 2 stocks, usually from the same sector.
Buying a CFD on Barclays and selling short HSBC is an example of a pairs trade. The trade makes money if Barclays outperforms HSBC in either an up or down market. More information on Pairs trading
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| Resistance |
The price at which a prior advance was terminated or a future advance is likely to terminate, or where the market expects selling to materialise.
For example, if the FTSE 100 is trading at 5,500 you may hear pundits report that 'resistance is expected at 5,082’.
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| Short Position |
Having sold short, but not yet covered. A short position is entered with the aim of profiting from a price decline. |
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| Slippage |
Relates to stop losses and is the difference between where the stop loss level is and where the order was actually filled.
If the stop loss order is to sell 1000 Vodafone at £1.20 but the fill is actually at £1.19 then the 1p difference is referred to as negative slippage.
Slippage is normally not a problem in normal markets but in very volatile ones it can be expected. Slippage is further discussed on the Stop Loss section.
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| Spot |
Another word for the cash price |
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| Spread trade |
The simultaneous purchase of one contract and the sell of another related contract.
Buying gold, selling silver short is an example of a spread trade. The spread betting trader is doing the trade on the assumption that gold will out-perform silver in both a rising and falling market. Spread trading is sometimes called Pairs Trading.
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| Stamp duty |
Stamp duty is a government tax of 0.5% paid by the buyer on all share transactions. There is NO Stamp Duty with CFDs. |
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| Stop Loss |
A predetermined price at which a position will be closed to protect against further loss. The use of stop losses is the only inherently reliable way for a trader to manage risk.
Stop losses are further discussed in detail in the LearnMoney.co.uk's section on Spread Betting
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| Support |
The price at which a prior decline was terminated or a future decline is likely to attract buying. If the FTSE 100 is currently trading at 5,300, market participants may well be reporting that they expect support 'to come in at 5,270'. |
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| Technical analysis |
A form of charting but normally more complex. It can involve very sophisticated and powerful computer programs. Most market participants either love it or loathe it. |
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| Traded option |
A traded option is another name for an option. Click here for the Traded Options section. |
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| Trading Range |
A market where prices are range bound by a higher and lower price band. Normally markets will range trade when there is little or no news |
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| Volatility |
The degree of movement in the price of a stock or other security. Telecom stocks in general are deemed to be very volatile while Oil stocks less volatile. |
