Take a look at our list of the financial terms associated with trading and the markets. From beginners starting their trading journey to experts with decades of experience, all traders need to clearly understand a huge number of terms.
Hedging, or to hedge, in the trading domain is defined as traders reducing their exposure to risk. Hedging is done by taking an offsetting position in an asset or investment that reduces the price risk of an existing position.
Why is it called hedging?
"Hedge your bets" is a term which originated in the 1600s and means to decrease or limit one's risk. The origin of the phrase is thought to be derived from the action of literally fencing off an area with hedges
How does hedging work?
Hedging involves taking offsetting positions in different markets, such as futures contracts or derivatives to diversify risk if one instrument falls.
Risk management in trading is a strategy for mitigating losses. It involves understanding and analyzing risks, taking preventive steps to protect against potential losses, and having plans in place to address unanticipated situations. Good risk management practices help traders limit their downside and stay ahead of market volatility.
How do you manage risk in trading?
Traders can practise risk management in lots of different ways. It can be done by using strategies like position sizing, stop-loss orders, diversifying investments, and hedging. Through careful planning, you can set limits on your potential losses, identify potential opportunities and adjust your strategy accordingly. With disciplined risk management, you can protect your capital while you trade.
The CBOE Volatility Index, also known as the VIX Index, is a benchmark index which tracks market expectations of future volatility. Markets consider it a leading indicator of volatility on the US equity market. It is often known colloquially as the “Fear Index”.
The VIX Index is calculated based upon the price of options for the S&P 500, which is considered a barometer of the US stock market. Changes in the price of options reflect upon the demand for hedging or speculating tools and therefore upon market expectations of volatility.
By aggregating the weighted bid/ask prices of put and call options for the S&P 500, the VIX creates a simple, trackable measure of expected volatility over the next 30 days.
The VIX itself is not a tradable product, but it is used as the basis for options and futures. Our VIXX futures allow you to hedge against volatility, speculate on changes in US market conditions, or diversify your indices portfolio.
Futures rollover on the second Friday of every month.
Financial Derivatives are financial products that derive their value from the price of an underlying asset. These derivatives are often used by traders as a device to speculate on the future price movements of an asset, whether that be up or down, without having to buy the asset itself.
What are the four financial derivatives?
The four most common types of financial derivatives are futures contracts, options contracts, swaps and forward contracts.
What are the advantages of financial derivatives?
Financial derivatives can provide several benefits such as hedging, leveraging and portfolio diversification. These financial instruments help in managing risk by protecting investors from price volatility, enable high leverage to increase profits and also allow for better portfolio diversification through a wider range of investments.
Financial Derivatives examples
The most common underlying assets for derivatives are:
• Stocks
• Bonds
• Commodities
• Currencies
• Interest Rates
• Market Indexes (Indices)
Note: In CFD Trading traders get access to all the above Financial Derivatives as well as additional ones more suitable for trading CFDs. As such, CFDs enable traders to buy a prediction on a stock (up or down) without owning the stock itself.
A MetaTrader is an electronic trading platform widely used by online retail traders. The MetaTrader application consists of both a client and server component. The server component is run by the broker and the client software is provided to the broker’s customers, who use it to see live streaming prices and charts, to place orders, and to manage their accounts.The platform works on Microsoft Windows-based applications as well as on Andriod and Mac OS applications.
Marktets.com supports the use of both the MetaTrader 4 and MetaTrader 5 trading platforms with its traders.
Metatrader 4 is still one of the most popular and easy-to-use trading platforms. With Expert Advisors, micro-lots, hedging and one-click trading.
Metatrader 5 is a powerful upgrade and the most advanced online trading platform It is a multi-asset derivatives platform for trading on CFDs and enables traders to perform hedging and netting, and delivers more technical indicators as well as more insight with market depth and a wider number of timeframes.
Can I trade on MetaTrader without a broker?
While you can download and use the MetaTrader software without a broker, it is not possible to trade without one. In order to execute trades on MetaTrader, you will need to open an account with a broker that offers the platform and deposit funds into that account.
A Currency Pair is a term used in the Foreign Exchange, or Forex, domain. Currency pairs compare the value of one currency to another — the base currency versus a second comparative or 'quote' currency. A currency pair shows how much of a currency is required to buy a single unit of the currency it is being compared to. It is also known as an exchange rate and is used for all currencies traded in FX markets.
What is a foreign currency?
A foreign currency is, very simply, any currency used in a country that isn't your own.
What is the structure of a foreign exchange market?
The foreign exchange market is a decentralized market where global currencies are traded. In this market, participants buy, sell, exchange and speculate on currencies. It operates through a global network of banks, corporations, and individual traders, who buy and sell currencies for both hedging and speculative purposes. The market is open 24 hours a day and it is considered the largest and most liquid financial market in the world.
What are the most commonly traded currency pairs?
The most commonly traded currency pairs are USD/CAD, EUR/JPY, GBP/USD and AUD/CAD.
What is an ISO code?
Each currency is identified by an ISO code. An ISO code is a three-character abbreviated name that is standardised and internationally recognised. For example, the ISO code for the United States Dollar is USD.
Short selling is a trading strategy where an investor borrows shares of a stock or security they believe will decrease in value, and then sells it on the market. If the price of the stock or security falls as expected, the investor can then buy the shares back at the lower price, return the borrowed shares, and keep the difference as profit. Short selling is considered a high-risk strategy because theoretically there is no limit to how high the price of a stock can go, so the potential loss is theoretically infinite.
What is the benefit of short selling?
The benefit of short selling is that it allows investors to benefit from a decline in the value of a security. While traditional investors can only benefit when the prices of the assets they hold increase, short sellers can do well when the prices decrease as well. This allows investors to potentially profit in both rising and falling markets. Additionally, short selling can also be used as a hedging tool, to offset the risk of long positions in a portfolio.
Is Short Selling a good idea?
Short selling can be a good idea for some investors, but it is considered a high-risk strategy and is not suitable for all investors. It requires a great deal of knowledge and experience to correctly identify the securities that are likely to decrease in value and to correctly time the trade. Additionally,because the potential losses from short selling can be theoretically infinite as explained above it is important for investors to fully understand the risks and potential rewards associated with short selling before engaging in this strategy.
Financial instruments are a way to place money into financial markets, they can take many forms such as stocks, bonds, derivatives, currencies, commodities, etc. They are used by investors, companies and governments as a means of raising capital, hedging risk, and/or generating additional income. They represent a claim on some type of underlying asset or cash flow. They can be traded on financial markets and their value can fluctuate with market conditions.
What are the 5 financial instruments?
The five main types of financial instruments are: money market instruments, debt securities, equity securities, derivatives, and foreign exchange instruments. There are many more subsets of financial instrument but all of them will fall into one of these 5 broad categories.
1. Money market instruments (also known as Cash Instruments). These are financial instruments where their values are influenced by the condition of the markets (the value given to any given cash currency at any specific point in time).
2. Debt securities – Which are negotiable financial instruments. Debt securities provide their owners with regular payments of interest and guaranteed repayment of principal.
3. Equity securities - Equity securities are another form of financial instruments and represent the ownership of shares of stock.
4. Derivative instruments – These are instruments which are linked to a specific financial instrument or indicator or commodity, and through which specific financial speculative actions can be traded in financial markets in their own right.
5. Foreign Exchange Instruments - Which are represented on the foreign market and mainly consist of currency agreements and derivatives.
Is cash a financial instrument?
Yes, cash is the most basic form of financial instrument. It is widely accepted and can be used to purchase goods and services as well as other investments. Cash is an essential part of most financial transactions, allowing people to pay for their purchases with ease.
A Currency Pair is a term used in the Foreign Exchange, or Forex, domain. Currency pairs compare the value of one currency to another — the base currency versus a second comparative or 'quote' currency. A currency pair shows how much of a currency is required to buy a single unit of the currency it is being compared to. It is also known as an exchange rate and is used for all currencies traded in FX markets.
What is a foreign currency?
A foreign currency is, very simply, any currency used in a country that isn't your own.
What is the structure of a foreign exchange market?
The foreign exchange market is a decentralized market where global currencies are traded. In this market, participants buy, sell, exchange and speculate on currencies. It operates through a global network of banks, corporations, and individual traders, who buy and sell currencies for both hedging and speculative purposes. The market is open 24 hours a day and it is considered the largest and most liquid financial market in the world.
What are the most commonly traded currency pairs?
The most commonly traded currency pairs are USD/CAD, EUR/JPY, GBP/USD and AUD/CAD.
What is an ISO code?
Each currency is identified by an ISO code. An ISO code is a three-character abbreviated name that is standardised and internationally recognised. For example, the ISO code for the United States Dollar is USD.
Hedging, or to hedge, in the trading domain is defined as traders reducing their exposure to risk. Hedging is done by taking an offsetting position in an asset or investment that reduces the price risk of an existing position.
Why is it called hedging?
"Hedge your bets" is a term which originated in the 1600s and means to decrease or limit one's risk. The origin of the phrase is thought to be derived from the action of literally fencing off an area with hedges
How does hedging work?
Hedging involves taking offsetting positions in different markets, such as futures contracts or derivatives to diversify risk if one instrument falls.
Financial Derivatives are financial products that derive their value from the price of an underlying asset. These derivatives are often used by traders as a device to speculate on the future price movements of an asset, whether that be up or down, without having to buy the asset itself.
What are the four financial derivatives?
The four most common types of financial derivatives are futures contracts, options contracts, swaps and forward contracts.
What are the advantages of financial derivatives?
Financial derivatives can provide several benefits such as hedging, leveraging and portfolio diversification. These financial instruments help in managing risk by protecting investors from price volatility, enable high leverage to increase profits and also allow for better portfolio diversification through a wider range of investments.
Financial Derivatives examples
The most common underlying assets for derivatives are:
• Stocks
• Bonds
• Commodities
• Currencies
• Interest Rates
• Market Indexes (Indices)
Note: In CFD Trading traders get access to all the above Financial Derivatives as well as additional ones more suitable for trading CFDs. As such, CFDs enable traders to buy a prediction on a stock (up or down) without owning the stock itself.
Financial instruments are a way to place money into financial markets, they can take many forms such as stocks, bonds, derivatives, currencies, commodities, etc. They are used by investors, companies and governments as a means of raising capital, hedging risk, and/or generating additional income. They represent a claim on some type of underlying asset or cash flow. They can be traded on financial markets and their value can fluctuate with market conditions.
What are the 5 financial instruments?
The five main types of financial instruments are: money market instruments, debt securities, equity securities, derivatives, and foreign exchange instruments. There are many more subsets of financial instrument but all of them will fall into one of these 5 broad categories.
1. Money market instruments (also known as Cash Instruments). These are financial instruments where their values are influenced by the condition of the markets (the value given to any given cash currency at any specific point in time).
2. Debt securities – Which are negotiable financial instruments. Debt securities provide their owners with regular payments of interest and guaranteed repayment of principal.
3. Equity securities - Equity securities are another form of financial instruments and represent the ownership of shares of stock.
4. Derivative instruments – These are instruments which are linked to a specific financial instrument or indicator or commodity, and through which specific financial speculative actions can be traded in financial markets in their own right.
5. Foreign Exchange Instruments - Which are represented on the foreign market and mainly consist of currency agreements and derivatives.
Is cash a financial instrument?
Yes, cash is the most basic form of financial instrument. It is widely accepted and can be used to purchase goods and services as well as other investments. Cash is an essential part of most financial transactions, allowing people to pay for their purchases with ease.
A MetaTrader is an electronic trading platform widely used by online retail traders. The MetaTrader application consists of both a client and server component. The server component is run by the broker and the client software is provided to the broker’s customers, who use it to see live streaming prices and charts, to place orders, and to manage their accounts.The platform works on Microsoft Windows-based applications as well as on Andriod and Mac OS applications.
Marktets.com supports the use of both the MetaTrader 4 and MetaTrader 5 trading platforms with its traders.
Metatrader 4 is still one of the most popular and easy-to-use trading platforms. With Expert Advisors, micro-lots, hedging and one-click trading.
Metatrader 5 is a powerful upgrade and the most advanced online trading platform It is a multi-asset derivatives platform for trading on CFDs and enables traders to perform hedging and netting, and delivers more technical indicators as well as more insight with market depth and a wider number of timeframes.
Can I trade on MetaTrader without a broker?
While you can download and use the MetaTrader software without a broker, it is not possible to trade without one. In order to execute trades on MetaTrader, you will need to open an account with a broker that offers the platform and deposit funds into that account.
Risk management in trading is a strategy for mitigating losses. It involves understanding and analyzing risks, taking preventive steps to protect against potential losses, and having plans in place to address unanticipated situations. Good risk management practices help traders limit their downside and stay ahead of market volatility.
How do you manage risk in trading?
Traders can practise risk management in lots of different ways. It can be done by using strategies like position sizing, stop-loss orders, diversifying investments, and hedging. Through careful planning, you can set limits on your potential losses, identify potential opportunities and adjust your strategy accordingly. With disciplined risk management, you can protect your capital while you trade.
Short selling is a trading strategy where an investor borrows shares of a stock or security they believe will decrease in value, and then sells it on the market. If the price of the stock or security falls as expected, the investor can then buy the shares back at the lower price, return the borrowed shares, and keep the difference as profit. Short selling is considered a high-risk strategy because theoretically there is no limit to how high the price of a stock can go, so the potential loss is theoretically infinite.
What is the benefit of short selling?
The benefit of short selling is that it allows investors to benefit from a decline in the value of a security. While traditional investors can only benefit when the prices of the assets they hold increase, short sellers can do well when the prices decrease as well. This allows investors to potentially profit in both rising and falling markets. Additionally, short selling can also be used as a hedging tool, to offset the risk of long positions in a portfolio.
Is Short Selling a good idea?
Short selling can be a good idea for some investors, but it is considered a high-risk strategy and is not suitable for all investors. It requires a great deal of knowledge and experience to correctly identify the securities that are likely to decrease in value and to correctly time the trade. Additionally,because the potential losses from short selling can be theoretically infinite as explained above it is important for investors to fully understand the risks and potential rewards associated with short selling before engaging in this strategy.
The CBOE Volatility Index, also known as the VIX Index, is a benchmark index which tracks market expectations of future volatility. Markets consider it a leading indicator of volatility on the US equity market. It is often known colloquially as the “Fear Index”.
The VIX Index is calculated based upon the price of options for the S&P 500, which is considered a barometer of the US stock market. Changes in the price of options reflect upon the demand for hedging or speculating tools and therefore upon market expectations of volatility.
By aggregating the weighted bid/ask prices of put and call options for the S&P 500, the VIX creates a simple, trackable measure of expected volatility over the next 30 days.
The VIX itself is not a tradable product, but it is used as the basis for options and futures. Our VIXX futures allow you to hedge against volatility, speculate on changes in US market conditions, or diversify your indices portfolio.
Futures rollover on the second Friday of every month.