Glossary

  • The definitions on this page have been created with the aim to help you get a better understanding of the financial markets in general, CFD trading in particular.
  • Search Glossary

    B

    • Backwardation

      This occurs when the bid price exceeds the offer price for a stock. This is a market distortion usually when stock is suspended or under a share repurchase scheme
    • Base

      A technical analysis tool. A chart pattern depicting the period when the supply and demand of a certain stock are in relative equilibrium, resulting in a narrow trading range. The merging of the support level and resistance level
    • Base Rate

      The official lending rate at which the Bank of England offers to the market
    • Basis Point

      Basis point is a way of expressing variations in bond yields. One basis point is 0.01 percentage point. Basis points also are used for interest rates
    • Bear

      Someone who believes that prices in the stock market are going to decline. Opposite of a bull
    • Beta

      The measure of an asset's risk in relation to the market
    • Bid

      The quoted price at which someone can sell
    • Bid-Ask Spread

      The difference between what buyers are willing to pay and what sellers are asking for in terms of price
    • Black-Scholes option pricing model

      A model for pricing call options based on arbitrage arguments. Uses the stock price, the exercise price, the risk-free interest rate, the time to expiration, and the expected standard deviation of the stock return
    • Bollinger Bands

      Plus or minus two standard deviations where the standard deviations are calculated historically in a moving window estimation. Hence, the bands will widen if the most recent data is more volatile. If the prices break out of the band, this is considered a significant move
    • Bond

      Bonds are debt and are issued for a certain period of time
    • Bull

      Someone who believes that prices in the stock market are going to rise. Opposite of a bear
    • Buy

      Same as taking a long position
    • Buy Order

      An instruction to buy at a different price to where the market is currently trading

    C

    • Cable

      A commonly used term to describe the exchange rate between British pound sterling and the U.S. dollar
    • Call option

      An option that gives the holder the right to buy the underlying asset. Opposite of a put
    • CFD

      Contract for Difference
    • Chartist

      Person who analyses markets with the use of charts
    • Closing Price

      The price at which a product was traded to close the open position. Also refers to the price of the last transaction in a days trading session
    • Contingent if done order

      Instructions you give us to attach a stop loss and/or limit order to your opening order if it is triggered and filled
    • Contract Note

      The confirmation of your trade describing the market, the unit of trading, the action (buy or sell), the price and the expiry date
    • Cost of Carry

      The interest intrinsic in our share futures prices, excluding any dividends payable during the contract period
    • CPI

      Consumer Price Index, used as a measure of inflation
    • Cross Rates

      Foreign exchange rate between two currencies other than the US dollar
    • Currency future

      A financial future contract for the delivery of a specified foreign currency

    D

    • Day Trading

      Opening and closing of a position in the same contract in one day
    • Delist

      To remove a stock's listing on an exchange
    • Deliver

      The sale of a futures contract may require the seller to deliver the commodity during the delivery month, if the short position is not offset prior to that time
    • Delivery Date

      Date by which a seller must fulfil the obligations of a forward or futures contract
    • Delta

      The ratio of the change in price of an option to the change in price of the underlying asset
    • Derivative

      A financial contract whose value is based on or derived from, a traditional security (such as a stock or bond), an asset or a market index
    • Dividend

      Portion of a company's earnings paid to stockholders. Clients who have buy positions in share contracts are not entitled to dividend payments
    • Double Witching Day

      The last trading day before expiry of options and futures on the same underlying asset

    E

    • ECB

      European Central Bank
    • EDSP

      Exchange Delivery Settlement Price. Used by many markets to arrive at the Expiry Price
    • Expiry Date

      Date at which a contract will be expired. Not to be confused with Last Day of Trading
    • Expiry Price

      Price at which contracts are settled if they are left to expiry

    F

    • Fair Value

      Price at which theoretical future contracts should be trading above or below the leading future contract. Fair values for stock indices are determined by differentials in interest rates and dividend payments
    • Fast Market

      Excessively rapid trading in a specific security that causes a delay in its electronic updating
    • Fill

      Execution of an opening or closing order
    • Fundamental Analysis

      Examination of a company's financials, assets, management, market niche, and products to determine value
    • Futures Contract

      Trading contract that specifies a future date for delivery of an object

    G

    • Gamma

      The ratio of a change in the option delta to a change in the price of the asset on which the option is written
    • Gap

      Where the market trades through a level specified by the client in an order. Market gaps are common during times of volatility. Guaranteed orders protect against gapping
    • Gearing

      The use of debt to increase exposure to high risk/reward. Gearing is also known as leverage
    • Guaranteed order

      For a small fee you can protect an order against the risk of any market gaps

    H

    I

    • IMM

      International Monetary Market
    • Index Futures

      A futures contract on an index in the futures market
    • Indicators

      Indices, either positive or negative, which indicate the strength and significant trends in our nation's economy. Inflation, interest rates and employment figures are examples
    • Inflation

      The rate at which the general level of prices for goods and services is rising
    • Initial Margin Requirement

      Amount needed on deposit or credit in order to open a position. This can be reduced by placing a stop loss
    • IPO

      Initial Public Offering. Private company's first offer of stock to the public
    • In-the-money Option

      A put option that has a strike price higher than the underlying future price, or a call option with a strike price lower than the underlying futures price
    • Intrinsic Value

      The value of an option if it were to expire immediately with the underlying stock at its current price
    • Issued Share Capital

      Total amount of shares that have been issued

    L

    • Lagging Indicators

      Economic indicators that follow rather than precede a country's overall pace of economic activity
    • Last Day of Trading

      The last day on which you can open or close a trade in a particular market. Not to be confused with Expiry Date
    • Leading Indicators

      Economic indicators that change before the economy changes
    • Level Two

      Live pricing system that provides market depth
    • Leverage

      Leverage is also known as gearing. Where a position can be taken in product with only a fraction of its value.
    • Liability

      Debt, financial obligation, or potential loss
    • LIBOR

      London Interbank Offered Rate
    • Limit order

      Minimum selling or maximum buying price as instructed by the client. A limit order is an order to buy or sell a better price to where the market is currently trading
    • Limit up, limit down

      Price change, up or down, a product is allowed to make during one day of trading
    • Liquidity

      A market characterized by the ability to buy and sell with relative ease
    • Long

      Opening a buy position in expectation that the market price will rise

    M

    • Margin

      The deposit or available credit needed on your account in order to have your positions open
    • Margin Call

      A call from the credit department for further funds to be deposited in the account to support additional exposure from running losses
    • Market Capitalisation

      The number of shares of a company in issue, multiplied by its share price

    N

    • Normal Market Size (NMS)

      A system that categorizes the size of transactions that are normal for a particular security and forces market makers to deal within these sizes

    O

    • Offer

      The price offered at which someone can buy; also called the ask
    • One Cancels the Other (OCO)

      OCO orders you can leave two separate opening orders in the same market so that if one of them is triggered and filled, the other is cancelled. This leaves you with just the one open position
    • Open position

      A long or short position whose value will change with a change in prices
    • Option

      A financial derivative instrument that gives the right to purchase (call) or sell (put) a fixed amount of stock at a specified price and within a certain time limit.
    • Option writer

      Also called the option seller; the party who grants a right to trade a security at a given price in the future
    • Order

      Buy or sell instruction given by a client to a dealer
    • Order Book

      A term used for the SETS system employed in London. Orders to buy and sell are allowed to collect on an order book where they can match and execute against one another
    • Our Quote

      The City Index dealing quote. Orders can be left based on our quote, meaning they will not be triggered or filled until the City Index buy or sell price hits the specific level
    • Out-of-the-money Option

      A call option is out of the money if the strike price is greater than the market price of the underlying security. That is, you have the right to purchase a security at a price higher than the market price, which is not valuable

    P

    • Partial Fill

      Where the client has specified that they wish only part of their stake filled on a closing order
    • Par Value

      Face value of a security
    • Portfolio

      A collection of investments, real and/or financial
    • Put Option

      A financial derivative instrument used in options trading. A put would give an investor the right, but not the obligation, to sell the underlying instrument at a fixed price up to a predetermined date. The opposite of a put is a call

    R

    • Real Time

      A real-time stock or bond quote is one that states a security's most recent price as opposed to a delayed quote. City Index dealing prices update in real-time
    • Resistance Level

      A price level above which it is supposedly difficult for a security or market to rise
    • Retail Investor

      Small individual investors who commit capital for their personal account rather than on behalf of another
    • Rights Issue

      A privilege allowing existing shareholders to buy shares shortly before they are offered to the public at a specified and usually discounted price and usually in proportion to the number of shares already owned. Such corporate actions mean that City Index will adjust any position accordingly
    • ROCE

      Return On Capital Employed
    • Rollover

      Transferring a trade that is near expiry into the next contract period

    S

    • SEC

      Securities and Exchange Commission
    • Sector

      Used to characterize a group of securities that are similar with respect to industry
    • Sell

      Same as taking a short position
    • Settlement Price

      A figure determined by the closing price
    • Short

      Opening a sell position in expectation that the market price in that underlying product will fall
    • Slippage

      See Gap
    • Spot market

      Market in which commodities are bought and sold for cash and immediate delivery
    • Spread

      The difference between the buy and sell price
    • Stop Loss Order

      An order to close a position at a particular level when the price moves against you
    • Stop Order

      An opening or closing order to buy or sell at a worse price to where the market is currently trading
    • Straddle

      Purchase or sale of an equal number of puts and calls with the same terms at the same time
    • Strangle

      Buying or selling an out-of-the-money put option and call option on the same underlying instrument, with the same expiration. Profits are made only if there is a drastic change in the underlying instrument's price
    • Strike Price

      The stated price per share for which underlying stock may be purchased or sold by the option holder upon exercise of the option contract
    • Support Level

      A price level below which it is supposedly difficult for a security or market to fall. That is, the price level at which a market tends to stop falling because there is more demand than supply; can be identified on a technical basis by seeing where the market has stopped falling in the past
    • Suspended Trading

      Temporary halt in trading in a particular security, in advance of a major news announcement or to correct an imbalance of orders to buy and sell
    • Swing Trading

      Refers to a type of short term (one day to a couple of weeks) trading, triggered by technical analysis, for example, momentum

    T

    • Takeover

      Acquiring control of a corporation by stock purchase or exchange
    • Technical Analysis

      Analysis of a financial market by charting its performance, using historical patterns, and focusing on trends
    • Tick Size

      The minimum point movement in each market
    • Time to Maturity

      The time remaining until a financial contract expires
    • Time Value

      Portion of an option price that is in excess of the intrinsic value, due to the amount of volatility in the stock; sometime referred to as premium. Time value is positively related to the length of time remaining until expiration
    • Trading Range

      Range between the highest and lowest prices at which a stock is traded

    U

    • Underlying Asset

      The security or market that City Index prices are based on (derived from)

    V

    • Variation Margin

      Same as open P + L e.g. any running profit from an open position can be used as additional margin. Conversely, any running loss will need to be funded, especially if there is no stop loss in place
    • Volatile

      Situation that changes rapidly or suffers from extreme fluctuations

    W

    • Warrant

      A derivative product that is a certificate giving authority to the holder to buy securities at a certain price. Warrants are like call options, but with longer time spans - sometimes years
    • Working Order

      An order that remains working until it is filled or cancelled