Trading Community Lingo: What to Know First
OK, you want to trade. But to become a trader, one must speak Traderish. Not that it’s too hard: the words are mostly English, and their meaning is not obscure but meant to pack a whole massive of descriptions into a single syllable. Knowing this slang makes your online CFD trading (as well as any other) much more efficient and time-saving.
Brief Generic Trading Vocabulary
Each profession that turns to a community has its slang. Not that it develops in order to encrypt the communication; rather, it appears to save time by shortening long descriptions or defining things that only exist within this profession. Trading is no exception. Here is a list of the most common terms used in trading.
- Trading – selling and buying assets (physical or virtual) which prices are changing.
- Asset – anything that can be sold to consumers directly. It may be natural resources, products, precious metals, or even foreign currencies.
- Derivative – a contract, which price depends on prices of certain assets, but the assets themselves are not involved. They were developed as tools of financial security but then became a self-sufficient trading tool.
- To open a position – to purchase a contract, the outcome of which will be clear at a certain moment in the future. That means a certain dependence on what’s to happen, as you have a contract with an unknown perspective.
- To close a position – to commit a deal opposite to the open position you have. If you have closed the position, you nullify the risks. It may be simply buying your assets back, being left with nothing but money.
Brief Forex Vocabulary
When Jamaica Accords replaced the gold standard in the early 1970s, it started the foreign exchange market (ForEx) as we know it. Now it’s among the most popular online trading environments.
- Forex – foreign exchange market, an environment that defines prices of contracts with dynamic exchange rate.
- Base currency – the first currency in a certain currency pair, the reference.
- Quote currency – the second currency in pair which can go up or down.
- Leverage – money you borrow from the trading account to make your deals.
- Overnight charging – a special charge that applies if you keep your positions open overnight.
Brief CFD Vocabulary
Contracts for Difference are a form of derivative contracts that can be sold and bought. They have become one of the most popular online trading tools because a CFD does not involve a real asset, material or financial, except for the contract itself.
- CFD – contract for difference, a type of derivative. Effectively, it’s an obligation to pay to the other side a certain amount of money if the price of a certain asset by a certain moment deviates from a certain value. This amount depends on the deviation and who pays who depends on whether the price is higher or lower than expected.
- Going short – selling a contract if you expect the price to go down.
- Going long – buying a contract if you expect the price to go up.
- Margin – the minimum amount of money you need to have on your deposit to open a position.
- Margin call – forced closure of the position if the tendency brings risks you won’t be able to bear.
To Be Contracted
Of course, it’s far from an exhaustive vocabulary, given that the deeper you go, the more specific things you encounter, with new words being coined for them as they appear. Still, learning the trading language means mastering the trader’s way of thinking.
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