Forex Cheatsheet
Trading, especially in the financial markets, comes with its own set of jargon. Understanding these terms is crucial for anyone looking to participate in trading activities. Here's a cheat sheet that covers a broad spectrum of trading jargon:
1. Ask: The lowest price a seller is willing to accept for an asset.
2. Bid: The highest price a buyer is willing to pay for an asset.
3. Spread: The difference between the bid price and the ask price.
4. Bull Market: A market condition where prices are rising or expected to rise.
5. Bear Market: A market condition where prices are falling or expected to fall.
6. Broker: An individual or firm that acts as an intermediary between buyers and sellers.
7. Margin: The money borrowed from a brokerage firm to purchase an investment.
8. Leverage: Using various financial instruments or borrowed capital (like margin) to increase the potential return of an investment.
9. Short Selling: The sale of a security not owned by the seller, with the expectation that the price will go down.
10. Going Long: Buying a security with the expectation that the asset will rise in value.
11. Day Trading: The practice of buying and selling within the same trading day, before the close of the markets.
12. Position: The amount of a security owned (long position) or owed (short position) by an individual or institution.
13. Portfolio: A collection of financial investments like stocks, bonds, commodities, and cash.
14. Diversification: The practice of spreading investments among different financial instruments to reduce risk.
15. Volatility: A statistical measure of the dispersion of returns for a given security or market index.
16. Liquidity: The ability of an asset to be quickly converted into cash without any price discount.
17. Market Order: An order to buy or sell a security immediately at the best available current price.
18. Limit Order: An order to buy or sell a security at a specific price or better.
19. Stop-Loss Order: An order placed with a broker to buy or sell once the stock reaches a certain price.
20. Fill or Kill (FOK): An order to buy or sell a stock that must be executed immediately in its entirety; otherwise, the entire order is cancelled.
21. Initial Public Offering (IPO): The process of offering shares of a private corporation to the public in a new stock issuance.
22. Market Capitalization: The total dollar market value of a company’s outstanding shares of stock.
23. Dividend: The distribution of reward from a portion of the company’s earnings and is paid to a class of its shareholders.
24. Yield: The income return on an investment, such as the interest or dividends received from holding a particular security.
25. Index: A statistical measure of change in a securities market, representing a portfolio of securities.
26. Futures Contract: A legal agreement to buy or sell a particular commodity or asset at a predetermined price at a specified time in the future.
27. Option: A financial derivative that represents a contract sold by one party to another, offering the right, but not the obligation, to buy (call) or sell (put) a security at an agreed-upon price during a certain period of time or on a specific date.
28. Forex: The market in which currencies are traded.
29. Arbitrage: The simultaneous purchase and sale of an asset to profit from a difference in the price.
30. Blue Chip Stocks: Shares in large, well-known companies with a history of financial stability and performance.
31. Over-the-Counter (OTC): A decentralized market of securities not listed on an exchange, where trading is done directly between two parties.
32. Rally: A rapid increase in the general price level of the market or of the price of a stock.
33. Correction: A reverse movement, usually negative, of at least 10% in a stock, bond, commodity, or index.
34. Sector: A group of stocks representing companies in similar lines of business.
35. Technical Analysis: An analysis methodology for forecasting the direction of prices through the study of past market data, primarily price and volume.
36. Fundamental Analysis: A method of evaluating a security in an attempt to measure its intrinsic value, by examining related economic, financial, and other qualitative and quantitative factors.
37. P/E Ratio: Price-to-Earnings Ratio – a valuation ratio of a company’s current share price compared to its per-share earnings.
38. ETF: Exchange-Traded Fund – a type of security that involves a collection of securities—such as stocks—that often tracks an underlying index.
39. RSI: Relative Strength Index – a momentum indicator used in technical analysis that measures the magnitude of recent price changes to evaluate overbought or oversold conditions.
40. MACD: Moving Average Convergence Divergence – a trend-following momentum indicator that shows the relationship between two moving averages of a security’s price.
Remember, this cheat sheet is not exhaustive, as the field of trading has a vast array of jargon, which can also vary across different regions and entities. However, these terms represent some of the most common and fundamental jargon you’ll encounter in the world of trading.