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.
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 risk/reward ratio is a known concept for those engaging in business. So, what is a Risk/Reward Ratio in trading, and does it follow the same guidelines and practices of the business world?
In trading, the Risk/Reward Ratio measures the expected gains of a given trade, asset, or position against the risk of potential loss. It is typically shown as a figure for the assessed risk separated by a ':' from the figure for the prospective reward.
What is a good Risk/Reward Ratio?
Acceptable ratios can vary, based on multiple factors. You can calculate this by dividing your "reward" (the end result or net profit) by the price of your maximum risk. It is generally accepted that if a risk is equal or greater than the corresponding reward, the trade position will not be worth the risk. Equally generally acceptable is the notion that a ratio greater than 1:3 is minimally required in order to justify the risk, i.e. a good risk/reward ratio.
By definition, this ratio quantifies the relationship between the potential currency lost, if the trade or action taken do fail, versus realized sum (gained) if all goes as planned.
Traders make use of the Risk/Reward Ratio to as one of the means to determine viability or worthiness of a given investment. One way to limit risk is to issue stop-loss orders, which trigger automatic sales of stock or other assets when they hit a specific value. This enables traders to limit potential risks.
CFDs are a leveraged financial instrument that allow traders to gain exposure to an underlying asset, such as shares, commodities or indices. While this provides great potential for profits, it also carries significant risks. The main risk is the possibility of losses greater than your initial deposit if the market moves against you. CFDs also have costs associated with trading such as commissions and spreads. Make sure you understand the risks before trading with CFDs.
What are the disadvantages of CFDs?
CFDs are complex instruments and may not be suitable for everyone due to the risk of leverage. CFDs also come with costs, including spreads and commissions which can cut into potential profits. Furthermore, it's important to understand how margin calls work as well as potential losses from unanticipated price movements or illiquidity in the market.
How much can you lose in a CFD trade?
In a CFD trade, you can potentially lose more than your initial investment, as the loss is based on the difference between the entry and exit price of the trade. It is important to set stop loss orders to limit potential losses. Additionally, using proper risk management strategies can help to minimize losses.
Fintech ETF (ARKF) is an ETF focussing on innovative and disruptive financial technologies. Companies represented within ARKF transaction innovations, blockchain, risk transformation, frictionless funding platforms, customer facing platforms, and new Intermediaries.
ProShares Ultra Bloomberg Crude Oil ETF (UCO) is a leveraged asset that seeks to deliver twice the daily investment results of the Bloomberg WTI Crude Oil Subindex. This is a single-day bet and is not suitable for buy-and-hold investors. Results can vary significantly if held for periods longer than one day. This is a leveraged ETF so traders take on more risk than with an unleveraged product.
UPRO, ProShares Ultra Pro S&P500, provides 3x daily exposure to the S&P 500 Index. The ETF aims to deliver daily returns that are three times that of the S&P 500 Index, which comprises US large cap equities. The S&P 500 represents some of the largest and most liquid US stocks on the market.
This is a leveraged product and, as such, carries more risk. It is an aggressive instrument, design for intraday trading, and should not be used as part of a buy-and-hold strategy.
ProShares UltraShort Bloomberg Crude Oil (SCO), aims to deliver results that are twice the inverse daily performance of the Bloomberg WTI Crude Oil Subindex. It is an ETF product for traders looking to short crude oil in a single day bet. Trades that last for more than a day are not expected to see the same returns.
The subindex reflects WTI Crude Oil prices and only consists of futures contracts on WTI Crude Oil. This is a leveraged product, all leveraged products carry more risk than unleveraged products.
ProShares UltraPro Russell2000 (URTY) seeks to deliver daily results that are three times daily performance of the USA2000 Index. This is an aggressive single-day bet and results will vary if positions are held for longer than a day.
This ETF is a leveraged product, which carry more risk. It aims to deliver results that are 300% of the returns of the USA2000 Index. The USA2000 Index covers US small cap companies and a broad range of sectors including finance and tech. Holdings include Etsy, Planet Fitness and Hubspot.
The Direxion Daily Financial Bear 3 (FAZ) Shares ETF tracks the inverse performance of the Russell 1000 Financial Services Index by 300%. It is the opposite of the The Direxion Daily Financial Bull 3X Shares ETF (FAS). Traders benefit when the underlying stocks fall, rather than rise. It is leveraged in the same way, so comes with high levels of volatility and risk.
This ETF allows traders to take a bearish view on the performance of commercial banks, a reduction in lending is what FAZ traders will be looking for.
Gilts are issues by the British Government and are generally considered to be low-risk investments. They traditionally have maturities of five, ten and 30 years. As with shares and funds, bond prices rise and fall as their attractiveness changes, based on changes in the market, economy and currency. The price is also affected by the attractiveness of other investments, particularly other ‘safe havens’ such as cash.
The UK Gilt 10 year bond reached a historic high of 16.09% in November 1981, and a record low of 0.52% in August 2016.
Direxion Daily Small Cap Bear 3x Shares (TZA) seeks to deliver daily results that are three times the inverse of the daily performance of the USA2000 Index. This is an aggressive single-day bet against the USA2000, and results will vary if positions are held for longer than a day.
This ETF is a leveraged product, which carry more risk. It aims to deliver results that are 300% opposite the returns of the USA2000 Index. The USA2000 Index covers US small cap companies and a broad range of sectors including finance and tech. Holdings include Etsy, Planet Fitness and Hubspot.
ProShares Ultra QQQ (QLD) aims to deliver daily investment results that are twice the performance of the Nasdaq 100 Index. This ETF provides leveraged exposure to a market-cap weighted index of 100 non-financial stocks listed on the NASDAQ. This is a single-day bet and traders are advised that returns can vary dramatically if they hold positions for longer than one day. All leveraged products carry more risk than unleveraged products.
The Nasdaq 100 is dominate by tech firms, so the performance of the index is closely tied to the sector. Top holdings include Apple, Amazon, Facebook and Tesla.
ProShares UltraShort 20+ Year Treasury (TBT) aims to deliver daily investment results that reflect twice the inverse of the daily performance of the ICE US Treasury 20+ Year Bond Index. Traders would look to get a 200% return opposite to the movement of US Treasury Securities.
This is a leveraged product, and so carries more risk. As with many leveraged ETFs, it delivers daily results and it designed as a single day bet. Positions that are held for longer than a day will get differing results. This ETF can be a useful tactical position or hedge against rising interest rates.
ProShares UltraPro QQQ (TQQQ) is a leveraged ETF that tracks the performance of the Nasdaq 100 index. This ETF aims to deliver a daily output that is three times the daily performance of the Nasdaq 100. That means TQQQ will deliver results that are 300% of how the index has moved.
The Nasdaq 100 includes the largest companies on the Nasdaq stock market and holdings include Apple, 21st Century Fox Inc, Kraft Heinz and Facebook. This is a single-day bet and is not recommended for use for longer than periods of one day, as the results will differ. Leveraged products carry more risk.
ProShares UltraPro Short S&P500 (SPXU) seeks daily investment results that are 300% the inverse of the daily performance of the S&P 500. This is a single day bet for traders looking to go short on S&P500 or hedge other trades. Like any leveraged product, there is more risk involved in this ETF than in unleveraged products.
S&P500, the index that it inversely tracks, is considered a benchmark for large-cap US equities. It comprises 500 leading companies, many of which are household names, and a broad range of sectors – although tech firms feature heavily. Holdings include Microsoft, Apple, Amazon, Berkshire Hathaway and Johnson & Johnson.
ProShares UltraShort QQQ (QID) aims to deliver daily investment results that are twice the inverse daily performance of the Nasdaq 100 Index. This is a single-day bet and traders are advised that returns can vary dramatically if they hold positions for longer than one day. This is the sister product to QLD, which delivers two times the daily performance of the Nasdaq 100.
As with most inverse and leveraged products, this fund is designed to provide inverse exposure on a daily basis, not as a long-term inverse bet against the index. All leveraged products carry more risk. Nasdaq 100 holdings include Apple, Amazon, Facebook and Tesla.
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.
The Direxion Daily Financial Bull 3X (FAS) Shares ETF is a leveraged ETF, aiming to secure traders three times the daily returns on the performance of the Russell 1000 Financial Services Index. This increased exposure also increases risk, so this ETF is more suited to traders with the capital to withstand volatility and with a high risk tolerance.
The portfolio is composed of 70% stocks. Sector exposure is mostly financial services, which make up 77.21% of holdings, with another 15.99% in Real Estate. Commercial banks account for a high proportion of this ETF, with stocks including Berkshire Hathaway Inc, JPMorgan Chase & Co, Bank of America Corp, Visa, Wells Fargo and Citigroup all featuring.
JNUG, also known as Direxion Daily Junior Gold Miners Index Bull 3X Shares, aims to deliver three times the daily returns of junior gold and silver mining companies from developed and emerging markets. It seeks 300% of the performance of the MVIS Global Junior Gold Miners Index. The term junior refers to the size of the firms, which are considered to be small-cap.
This is a single-day fund, and funds should not be expected to provide three time the return of the benchmark index if positions are held for longer than one day. As a leveraged ETF, this asset carries more risk than ETFs that are not leveraged. This asset is aimed at intraday traders and is not suitable for all investors.
Blue-chip stocks are shares of very large, successful, and reputable and financially companies. Blue-chip companies are mostly common household names.
What is the difference between a regular stock and a blue-chip stock?
A blue-chip stock refers to a stock of a well-established, financially stable and reliable company with a long history of steady growth and stability. Regular stocks are any other stocks. Blue-chip stocks are generally considered a lower risk investment, while regular stocks can have varying degrees of risk.
How do you know if a stock is blue-chip?
Blue chip stocks are usually large, well-established and financially stable companies with a long history of steady growth, consistent profits and strong brand recognition.
What are some examples of bluechip stocks?
Some examples of blue chip stocks are:
Apple Inc.
Microsoft Corporation
Amazon.com Inc.
Berkshire Hathaway
ProShares UltraPro Short QQQ (SQQQ) is an inverse leveraged ETF that tracks the performance of the Nasdaq 100 index. This ETF aims to deliver a daily output that is three times the inverse of the daily performance of the Nasdaq 100. That means SQQQ will deliver results that are 300% opposite to how the index has moved. They are a useful product for traders looking to go short or to hedge their other positions.
The Nasdaq 100 includes the largest companies on the Nasdaq stock market and holdings include Apple, 21st Century Fox Inc, Kraft Heinz and Facebook. This is a single-day bet and is not recommended for use for longer than periods of one day, as the results will differ. Leveraged products carry more risk.
Online brokers are digital trading platforms that allow users to trade stocks, options, ETFs and other financial products online. They offer convenience and competitive pricing, making them popular among individual investors and traders.
What are the three types of brokers?
Trading brokers come in three main varieties: full-service, discount, and online. Full-service brokers offer a variety of services such as research, advice, and account management. Discount brokers are low-cost and may only offer basic services. Online brokers provide customers access to the markets with limited assistance.
Are online brokers safe?
Online brokers are generally safe when used correctly. It is important to use trusted and reliable providers, keep your account secure, and be mindful of any potential risks when trading online. For example, markets.com is fully regulated and controlled for maximum security and safety while you trade.
An Overnight Index Swap (Swap Fee) is a process where the settlement of a deal is rolled forward to another value date, and a charge is levied based on the difference in the interest rates of the two currencies. Every day at 21:00 GMT, open positions are rolled over to the next day and the positions gain or lose interest based on the interest differential between the bought and sold currencies.
What is OIS compound?
The index rate is typically the rate for overnight lending between banks, either non-secured or secured. The fixed rate of OIS is typically an interest rate considered less risky than the corresponding interbank rate (LIBOR) because there is limited counterparty risk.
The LIBOR–OIS spread is the difference between IRS rates, based on the LIBOR, and OIS rates, based on overnight rates, for the same term.
Volatility is the amount of uncertainty or risk associated with the size of changes in a security's value. It is measured by calculating the standard deviation of returns over a given period. High volatility means the price of an asset can change dramatically over a short time period in either direction. Traders often take advantage of volatility by speculating on stocks, options, and other financial instruments.
What causes market volatility?
Market volatility can be caused by a variety of factors including economic data releases, political events, changes in interest rates, and unexpected news or events. It can also be caused by changes in investor sentiment, speculation and market manipulation.
How do you know if a market is volatile?
A market is considered volatile if prices change rapidly, unpredictably, and significantly. This can be measured using volatility indices or by analyzing price movements and fluctuations over time.
The New Zealand dollar to US Dollar exchange rate is represented by the acronym NZD/USD. The New Zealand dollar, also known as the ‘Kiwi' because of the bird depicted upon the NZ$1 coin is the smallest major in terms of trading volume, accounting for 2.1% of daily forex trades. Around $104 billion worth of NZD is traded each day.
The New Zealand economy is heavily reliant upon exports, with dairy being the nation's biggest industry. Mining is also important and, like its antipodean neighbour Australia, New Zealand relies heavily upon trade with China. Data from China that shows strength or weakness in industry or consumer demand can have a strong impact upon NZD/USD.
As a commodity-correlated currency the New Zealand dollar is also highly-sensitive to risk-appetite. In times of geopolitical or economic uncertainty the NZD/USD exchange rate weakens, while market confidence tends to push NZD/USD higher.
The US Dollar to South African rand exchange rate is identified by the abbreviation USD/ZAR. The US Dollar is by far the world's most-traded currency, accounting for 87% of all over-the-counter FX each day - $4.4 trillion. The rand is the 20th most active currency, accounting for 1% of average daily turnover. Around $40 billion worth of USD/ZAR is traded each day.
USD/ZAR appreciates in times of market uncertainty, as traders move away from higher-yielding, but higher risk, emerging market currencies into lower-yielding, lower risk, assets. The South African rand is a highly-volatile currency thanks to the country's unstable economy, high levels of government debt, poor credit rating, and the political ramifications of apartheid.
The US Dollar is not only the most ubiquitous currency on the globe, but also a safe-haven asset. In times of market uncertainty traders withdraw from riskier assets into stable USD. It is the most popular reserve currency.
NZD/CAD is the abbreviation for the New Zealand dollar to Canadian dollar exchange rate. The New Zealand dollar is the 10th most-traded currency, accounting for 2.1% of daily transactions. US$104 billion worth of NZD is traded daily. The Canadian dollar is the 6th most-traded currency, involved in 5.1% of all daily transactions.
The New Zealand dollar is highly-sensitive to commodity prices. Dairy is the country's main industry; when dairy prices fall, the outlook for the New Zealand economy weakens, pushing the NZD/CAD rate lower. When dairy prices rise, the opposite happens.
The Canadian dollar is heavily-exposed to changes in the price of crude oil - Canada's primary export. Both currencies are inversely correlated with the US Dollar, so even in times of risk movement in the NZD/CAD is more driven by fundamental factors.
The Canadian dollar is more exposed because the USA is Canada's largest trading partner by far.
The New Zealand dollar to Japanese yen exchange rate is identified by the abbreviation NZD/JPY. The New Zealand dollar is the 10th most-traded currency, accounting for 2.1% of daily transactions. US$104 billion worth of NZD is traded daily. The Japanese yen is the 3rd most-traded currency, involved in 22% of all daily currency trades.
The pair is highly sensitive to changes in market risk-appetite, as the New Zealand dollar is a commodity-correlated currency and the Japanese yen is a safe-haven currency.
New Zealand's main industry is diary; when dairy prices fall, the outlook for the New Zealand economy weakens, pushing the NZD/JPY exchange rate lower. When dairy prices rise, the opposite happens.
In times of market uncertainty, appetite for the safe-haven Japanese yen can increase sharply. However, the yen is often softened by the Bank of Japan's ultra-loose monetary stimulus package, which includes quantitative easing and negative interest rates.
A quoted price is the most recent price at which an asset was traded at. Global and local events, either of a financial nature or completely unrelated to finances continually affect the quoted prices of assets such as stocks, bonds, commodities, and derivatives changes continually throughout a trading. Additionally, It is often the price point where buyers and sellers agree on, the most up-to-date agreement between buyers and sellers, or the bid and ask prices. It is also where supply meets demand.
Is a quoted price legally binding?
In most cases, when trading in an exchange, the quoted price is binding and the trade is executed at the quoted price, with the exchange acting as a counterparty to the trade. However, when trading OTC (over-the-counter), the quoted price is not necessarily binding as the parties have more flexibility in negotiating the final price, and the counterparty risk is higher.
AUD/USD is the abbreviation for the Australian dollar and US Dollar currency pair and is the world's fourth most popular currency pairing, accounting for 5.2% of all FX trades with $266bn in trading volumes daily. The number represents how many US Dollars (the quote currency) is required to buy one Australian dollar (the base currency).
The Australian dollar is a commodity-correlated currency, because the Australian economy is still largely reliant upon mineral exports, primarily iron ore. The pairing is a good indicator of market risk sentiment with the AUD/ tending to rally along with rising commodity prices and falling when they drop.
The AUD/USD is also highly sensitive to changes in the monetary policy decisions made by the Federal Reserve and the Reserve Bank of Australia. A more hawkish US Federal Reserve can push the AUD/USD exchange rate significantly lower, whilst the pair can rally when the RBA is raising interest rates.
The US Dollar to Hungarian forint exchange rate is an exotic currency pair known by the abbreviation USD/HUF. The US Dollar is by far the world's most-traded currency, accounting for 87% of all over-the-counter FX each day - $4.4 trillion. The forint is the 26th most-active currency, accounting for just 0.3% of daily transactions.
The US Dollar is not only the most ubiquitous currency on the globe, but also a safe-haven asset. In times of market uncertainty traders withdraw from riskier assets into stable USD.
As an emerging market currency, the forint is popular in times of confidence and is sold in favour of safer, lower-yielding assets when volatility increases.
Compared to its emerging market peers, Hungary has a small level of foreign currency debt, providing some insulation for the economy and its currency against external disruption. Hungary enjoys a strong economy, with low payroll and corporate taxes and growth that outpaces the EU average.
The US Dollar to Romanian leu exchange rate is identified by the abbreviation USD/RON. The US Dollar is by far the world's most-traded currency, accounting for 87% of all over-the-counter FX each day - $4.4 trillion. The Romanian leu the 34th most-active currency, accounting for just 0.1% of average daily turnover.
Romania is an emerging market economy and is one of Europe's poorest nations. The country wanted to adopt the euro, but has so far failed to meet the criteria. USD/RON appreciates in times of market uncertainty, as traders move away from higher-yielding, but higher risk, emerging market currencies into lower-yielding, lower risk, currencies.
The US Dollar is not only the most ubiquitous currency on the globe, but also a safe-haven asset. In times of market uncertainty traders withdraw from riskier assets into stable USD. It is the most popular reserve currency, meaning central banks stockpile dollars to use in times of domestic currency weakness.
The US Dollar to Swedish Krona exchange rate is identified by the abbreviation USD/SEK. The US Dollar is by far the world's most-traded currency, accounting for 87% of all over-the-counter FX each day - $4.4 trillion.
The Swedish Krona is the 9th most-traded currency, accounting for 2.2% of daily transactions. US$112 billion worth of SEK is traded daily.
The US Dollar is not only the most ubiquitous currency on the globe, but also a safe-haven asset. In times of market uncertainty traders withdraw from riskier assets into stable USD.
The Swedish krona shares a strong correlation with its Scandinavian peers the Norwegian krone and the Danish krone. These currencies - which all translate as “crown” - came about in 1873 when Sweden and Denmark formed the Scandinavian Monetary Union, backed by the gold standard. Norway joined two years later. When the union was dissolved after World War Two, the countries independently kept the currency.
The US Dollar to Singapore dollar exchange rate is identified by the abbreviation USD/SGD. The US Dollar is by far the world's most-traded currency, accounting for 87% of all over-the-counter FX each day - $4.4 trillion.
The Singapore dollar accounts for 1.8% of all daily forex transactions, making it the 12th most-traded currency on the globe.
The US Dollar is not only the most ubiquitous currency on the globe, but also a safe-haven asset. In times of market uncertainty traders withdraw from riskier assets into stable USD.
The Singapore dollar has been allowed to float free by the Monetary Authority of Singapore (MAS) since 1985, but the range in which it is permitted to trade has never been disclosed. SGD has a weak correlation with the Chinese yuan. This, combined with a solid financial sector and property market, has made Singapore an attractive place for offshore investors, helping to keep the appeal of the local currency elevated.
CAD/CHF is the abbreviation for the Canadian dollar to Swiss franc exchange rate. US$260 billion worth of Canadian dollars and US$243 billion worth of francs is traded each day. The Canadian dollar is the 6th most-traded currency, and makes up one side in 5.1% of all daily trades. The Swiss franc is the 7th most-popular trading currency in the world and is involved in nearly 5% of all forex transactions each day.
The pair is sensitive to changes in market risk appetite, as the Canadian dollar is a commodity-correlated currency and the franc is a safe-haven currency.
The producing and exporting of crude oil is vital to the Canadian economy, so changes in price can push CAD/CHF higher or lower. Oil is sensitive to changes in risk appetite, creating further volatility for the Canadian dollar.
Compounding the effect of market uncertainty upon CAD/CHF is the Swiss franc's reputation as a safe-haven, thanks to Switzerland's strong economy and developed financial sector.
The Canadian dollar to Japanese yen exchange rate is identified by the abbreviation CAD/JPY. The Canadian dollar is the 6th most-popular currency, making up one side in 5.1% of daily trades. The Japanese yen is the 3rd most-traded currency, accounting for 22%.
The pair is highly sensitive to changes in market risk-appetite, as the Canadian dollar is a commodity-correlated currency and the Japanese yen is a safe-haven currency.
The Canadian dollar is highly sensitive to changes in the price of crude oil - Canada's primary export. In turn, crude prices often respond to market appetite for risk, so the strength of the CAD/JPY exchange rate is largely dictated by whether traders are feeling optimistic or pessimistic over global conditions.
In times of market uncertainty, appetite for the safe-haven Japanese yen can increase sharply. However, the yen is often softened by the Bank of Japan's ultra-loose monetary stimulus package, which includes quantitative easing and negative interest rates.
USD/CZK is the abbreviation for the US Dollar to Czech koruna exchange rate. The US Dollar is by far the world's most-traded currency, accounting for 87% of all over-the-counter FX each day - $4.4 trillion. The koruna is the 28th most-traded currency, accounting for just 0.3% of daily transactions.
The Czech Republic economy is strongly intertwined with that of the Eurozone; in particular Germany, which receives the bulk of Czech exports. Recent strength in the Eurozone has benefited the Czech Republic, contributing to an unemployment rate that is amongst the lowest in Europe. Strong data from the currency bloc therefore supports CZK.
In April 2017, the Czech National Bank exited its exchange rate commitment to cap CZK strength, implemented in November 2013, allowing the currency to fluctuate unrestrained.
The US Dollar is not only the most ubiquitous currency on the globe, but also a safe-haven asset. In times of market uncertainty traders withdraw from riskier assets into stable USD.
The US Dollar to Mexican peso exchange rate is identified by the abbreviation USD/MXN. The US Dollar is by far the world's most-traded currency, accounting for 87% of all over-the-counter FX each day - $4.4 trillion.
The Mexican peso is the 11th most-traded currency, accounting for 1.9% of daily transactions.
The US Dollar is not only the most ubiquitous currency on the globe, but also a safe-haven asset. In times of market uncertainty traders withdraw from riskier assets into stable USD. It is the most popular reserve currency
MXN is tied to the price of crude oil because of Mexico's high reserves, which the government uses as collateral when borrowing to fund spending. 10% of Mexico's GDP comes from oil production, so when prices fall it not only pushes up borrowing costs, but also weakens the outlook for growth.
Cross-border trade with the US also generates strong demand for pesos. The currency therefore weakens when trade comes under threat.
The Australian dollar to Japanese yen exchange rate goes by the abbreviation AUD/JPY. The Australian dollar is often known as the “Aussie”, and is the 5th most-traded currency in the world, being involved in 6.9% of all daily forex trades. The Japanese yen is the 3rd most-traded currency, accounting for 22% of all daily trades.
The Australian dollar is a commodity-correlated currency and is sensitive to price changes in iron ore, of which Australia is the world's largest exporter. The Japanese yen is a safe-haven asset, and is popular in times of uncertainty. Falling risk appetite undermines the AUD/JPY pairing, while market confidence pushes it higher.
A key driver of AUD/JPY volatility is the interest rate differential between the two nations. Like other central banks, the Reserve Bank of Australia cut interest rates in response to the 2008 financial crisis, but Australia's strong economy limited the need for easing. In contrast, the Bank of Japan still maintains ultra-loose stimulus.
USD/CAD is the abbreviation for the US Dollar to Canadian dollar exchange rate. The pair accounts for 4.3% - $218 billion - of all daily forex trades. The US Dollar is the most popular currency to trade, while the Canadian dollar is the 6th most popular. CAD, also known as the “Loonie”, after the bird depicted upon the C$1 coin, accounts for 4.6% of daily forex activity.
The majority of Canadian dollars are exchanged for US Dollars. Canada is the second-largest trade partner for the US; in 2017 the US exported $341.2 billion worth of goods to Canada and imported $332.8 billion. The two nations and Mexico are bound by the North American Free Trade Agreement (NAFTA), although its future is uncertain.
Canada is one of the world's largest oil producers, so the price of crude on the international market has a significant impact upon the USD/CAD exchange rate. In times of high risk-appetite USD/CAD weakens, while low risk-appetite pushes the pairing higher.
The US Dollar to Polish zloty exchange rate is identified by the abbreviation USD/PLN. The US Dollar is by far the world's most-traded currency, accounting for 87% of all over-the-counter FX each day - $4.4 trillion. The Polish zloty the 22nd most active currency, accounting for 0.7% of average daily turnover. Approximately $19 billion worth of USD/PLN is traded each day.
Poland is an emerging market economy, favoured by investors in times of market certainty because of its higher yielding assets.
The zloty reflects the strength or weakness of the Eurozone economy due to the strong trading relationship between Poland and the Eurozone, as well as the fact that Poland could eventually become a member of the bloc. Positive Eurozone data can therefore support the zloty.
The US Dollar is not only the most ubiquitous currency on the globe, but also a safe-haven asset. In times of market uncertainty traders withdraw from riskier assets into stable USD. It is the most popular reserve currency.
EUR/AUD is the abbreviation for the euro to Australian dollar exchange rate. The pairing accounts for 0.3% of the average daily forex trading volume across the globe, which equates to US$16 billion.
The euro is the currency of the Eurozone, which is overseen by the European Central Bank. The euro, also known as the common currency, the single currency, or the single unit, has an inverse correlation with the US Dollar. However, the impact of this upon the euro is lessened when trading against the Australian dollar, because the “Aussie” also moves inversely to the US Dollar.
While not a safe-haven asset, the euro is considered more stable than the Australian dollar, meaning that the EUR/AUD/ pairing often strengthens in times of market pessimism, and weakens when risk-demand is elevated.
The Australian economy is highly-reliant upon exports of iron ore, for which Australia accounts for over 50% of the global supply. Changes in the market price can have a strong effect upon EUR/AUD.
The US Dollar to Turkish lira exchange rate is identified by the abbreviation USD/TRY. The US Dollar is by far the world's most-traded currency, accounting for 87% of all over-the-counter FX each day - $4.4 trillion. The lira is the 16th most active currency, accounting for 1.4% of average daily turnover.
Turkey is an emerging market and relies heavily upon the EU for both imports and exports; weakness in the Eurozone economy is therefore a bad sign for Turkey as well. USD/TRY appreciates in times of market uncertainty, as traders move away from higher-yielding, but higher risk, emerging market currencies into lower risk currencies.
The Turkish economy is largely fuelled by foreign currency loans, a strong USD can prompt further lira selling on fear of higher credit costs for Turkey's corporations.
The US Dollar is not only the most ubiquitous currency on the globe, but also a safe-haven asset. In times of market uncertainty traders withdraw from riskier assets into stable USD.
The pound Sterling to Japanese yen exchange rate is identified by the abbreviation GBP/JPY. GBP is the 4th most-traded currency, accounting for 13% of all daily trades; US$649 billion worth. The Japanese yen is the 3rd most-traded currency, involved in 22% of all daily currency trades.
Recently, political factors have seen their influence over the pound grow. This is because the Brexit referendum, which resulted in the UK voting to leave the EU, has created significant uncertainty regarding the UK economic outlook. Signs of upheaval in government as Downing Street tries to negotiate a Brexit deal that pleases all sides of the debate, as well as fears that the UK will crash out of the EU with no deal in place, weigh heavily on Sterling.
The GBP/JPY exchange rate is heavily-influenced by movement in the US Dollar. The Japanese yen is a safe-haven asset, meaning that it appreciates in times of low risk-appetite. However, when USD is strong the lower-yielding yen is less appealing.
A Guaranteed stop order provides traders with a form of protection for their positions. They can have a guaranteed exit at the exact price they specify. This can be used regardless of market volatility. This is different from “standard” stop-loss orders, which may be filled at worse price levels than were requested due to “slippage”. A guaranteed stop loss order (GSLOs) will incur a fee / premium which will only be charged if it was triggered.
How does guaranteed stop work?
A guaranteed stop loss works in the same way as a standard one does, via instructions provided to the broker to close a position at a specific level, thereby reducing the risk should the market move against the trader.
Should I use guaranteed stop-loss?
Guaranteed stop-loss automatically exits you from the market at a certain predetermined price level in order to limit potential losses if the market goes against you. As such, especially for less experienced traders, it is a recommended strategy to mitigate losses.
The UK 100 is a blue-chip index of the largest 100 companies on the London Stock Exchange in terms of market capitalisation. Companies are only included if they meet relevant size and liquidity requirements.
The index was launched on 3rd January 1984, with a base date of 30th December 1983 and a base level of 1,000 points.
In terms of weighting, the three largest sectors of the UK 100 as of H2 2018 are Oil & Gas (16.56%), Banks (12.70%), and Personal & Household Goods (12.37%).
Traditionally the index has lagged its peers, such as the larger FTSE 250 and the US S&P 500. The index fluctuates in response to market risk sentiment and the strength of the pound Sterling. The UK 100 contains many international companies who report their earnings in other currencies, so a stronger pound weakens company profits.
Because of this, the UK 100 is also considered to be an unreliable indicator of the health of the UK economy because of its large international component.
The euro to Japanese yen exchange rate has the acronym EUR/JPY. The euro is the 2nd most-traded currency on the planet, making up one side of 31% of daily trades. The Japanese yen is the 3rd most-traded currency, involved in 22% of all daily currency trades. EUR/JPY accounts for 1.6% of all daily currency trades; $79 billion per day.
While a strong US Dollar can weaken demand for the Japanese yen, it has a much stronger impact upon the euro. This means that in times of safe-haven demand the EUR/JPY exchange rate falls and, although the euro is not a high-beta currency, the pairing appreciates when risk-appetite is strong.
Both the European Central Bank and the Bank of Japan maintain ultra-loose monetary stimulus, but the ECB has recently taken tentative steps towards normalisation. Although negative rates are unlikely to disappear any time soon in either economy, the fact the ECB is in more of a position to adjust borrowing costs stands in the euro's favour.
An exchange, market or stock exchange is a marketplace where commodities, securities, derivatives, stocks and other financial instruments are traded. The core function of an exchange is to provide for organized trading and efficient distribution of market & stock information within the exchange. Exchanges provide their users the necessary platform from which to trade.
Why should you trade on an exchange?
Trading on an exchange offers security, reliability, liquidity and low costs. Exchange-regulated markets provide transparency, where all market participants have the same access to prices and trading information. Exchanges also offer robust risk management and safety protocols to protect against any price manipulation or abuse of the system.
What are types of exchange?
There are three main types of trading exchanges: traditional exchanges, dark pools, and electronic communication networks (ECNs). Traditional exchanges provide an organized marketplace to buy and sell securities while dark pools facilitate large orders in private forums. ECNs allow investors to directly access liquidity pools and execute trades with other participants in the market.
Maintenance Margin, or “variation margin,” is considered as the minimum amount of equity (i.e., funds) which needs to be maintained in a trader’s margin account before a margin call is issued as due to the account value being below a minimum threshold and not being able to support open margin trade positions. Margin accounts are what leveraged trades use to trade, where they can purchase securities such as stocks, bonds, or options with funds borrowed from the brokerage.
How do you avoid maintenance margin?
To avoid maintenance margin issues, traders should monitor their account closely and adjust their leverage if needed. If your maintenance margin is not maintained it will result in a margin call, which may indicate that the trader should reconsider the risk exposure of their portfolio.
Why are maintenance margins important?
Maintenance margins are important to protect against losses due to fluctuations in the market. They ensure that traders maintain adequate capital reserves and can cover any potential losses.
USD/CHF is the symbol for the US Dollar to Swiss franc exchange rate. The pairing accounts for 3.6% ($180 billion) of all daily forex activity. The Swiss franc is the 7th most popular trading currency in the world and is involved in nearly 5% of all forex transactions each day.
The US Dollar and Swiss franc are both safe-haven currencies, meaning that the pairing is less responsive to risk-appetite on the global market than other pairings. However, the Swiss franc shares a strong correlation with the euro, so anything that weakens the euro would benefit the US Dollar and pressure the franc lower. If the euro strengthens, the USD/CHF pairing is likely to depreciate. The franc used to be pegged to the euro, but the Swiss National Bank unexpectedly allowed the currency to float free in January 2015.
CHF is a popular choice with traders because of Switzerland's strong and stable economy. It is a wealthy nation with a strong banking sector and its citizens enjoy a great quality of life.
Coffee is a “soft” commodity - referring to those that are grown rather than mined. It is the world's second-most popular commodity, behind only crude oil. The market is worth around $100 billion.
Over 50 countries worldwide grow coffee, with around two-thirds of the global supply produced in the Americas. Brazil, Vietnam, and Colombia are the three largest producers.
Coffee is priced in USD per lb. It hit a record high of $339.86/lb during April 1977, while the lowest price on record is $42.50/lb in October 2001.
Coffee is a highly-traded commodity that is often bought by speculators, so risk appetite has a strong effect on prices. Around half of the coffee produced on the globe is bought by just four companies: Kraft, P&G, Sara Lee, and Nestle, so changes in the fortunes of these companies can also impact prices.
Coffee futures allow you to speculate on, or hedge against, changes in the price of coffee. Futures rollover on the second Friday of February, April, June, August, and November.
USD/NOK is the symbol for the US Dollar to Norwegian krone exchange rate. The US Dollar is by far the world's most-traded currency, accounting for 87% of all over-the-counter FX each day - $4.4 trillion.
The krone is the 13th most-trade currency, accounting for 1.7% of all daily forex activity. Around $US48 billion worth of USD/NOK - 0.9% of the total daily volume - is traded each day.
The US Dollar is not only the most ubiquitous currency on the globe, but also a safe-haven asset. In times of market uncertainty traders withdraw from riskier assets into stable USD.
The Norwegian economy is strongly-reliant upon crude oil and natural gas; the nation is one of the 5 top exporters of gas and oil, with the sector accounting for 22% of Norwegian GDP and 67% of the country's exports. USD/NOK therefore benefits doubly in times of low risk-appetite.
The EU is an important trade partner for Norway, accounting for 72% of its trade. Eurozone economic data can therefore have an impact upon NOK.
USD/DKK is the symbol for the US Dollar to Denmark krone exchange rate. The US Dollar is by far the world's most-traded currency, accounting for 87% of all over-the-counter FX each day - $4.4 trillion.
The Denmark krone is the 21st most-traded currency in the world and is involved in 0.8% of all forex transactions each day. On average US$42 billion worth of krone is exchanged each day.
The US Dollar is not only the most ubiquitous currency on the globe, but also a safe-haven asset. In times of market uncertainty traders withdraw from riskier assets into stable USD.
The Danish krone is pegged to the euro through the European Exchange Rate Mechanism, also known as ERM 2. The central fixed rate is 746.038 krone per €100 but, unlike the standard +/- 15% fluctuation permitted under ERM 2, the Krone is limited to a fluctuation of just +/- 2.25%. Because it is pegged to the euro, the krone is also highly-vulnerable to USD strength - even when traded against other currencies.
The US Dollar to Brazilian real exchange rate is known by the acronym USD/BRL. The US Dollar is by far the world's most-traded currency, accounting for 87% of all over-the-counter FX each day - $4.4 trillion.
The Brazilian real is the 19th most actively traded currency, accounting for 1% of all average daily turnover. US $45 billion worth of over-the-counter USD/BRL trades are made every day.
The US Dollar is not only the most ubiquitous currency on the globe, but also a safe-haven asset. In times of market uncertainty traders withdraw from riskier assets into stable USD.
The real was adopted in July 1994 and was pegged against the US Dollar until 1999. The USD/BRL exchange rate is a popular one with carry traders; those who borrow dollars, convert them into real and then use the proceeds to buy debt issued in Brazil, where interest rates are significantly higher than in the United States. Times of market uncertainty can deter carry traders, as high USD/BRL volatility can weaken profits made from exploiting the interest rate differential.
The Cboe Volatility Index (VIX) represents the market’s expectations for near-term price changes of the S&P 500 Index (SPX). The Cboe Volatility Index is used to track volatility within that index. As it is derived from the prices of SPX index options, it generates a 30-day forward potential of volatility.
How is the CBOE volatility index calculated?
Volatility is often seen as a way to measure and speculate on market sentiment, as well as assessing risks. The VIX is calculated through the prices of SPX index options and is represented as a percentage. If the VIX value increases, it is likely that the S&P 500 is falling, and if the VIX value declines, then the S&P 500 is likely to be experiencing stability.
How do you trade the CBOE VIX?
The CBOE VIX can be traded on most major financial markets. To trade it, you need to buy or sell contracts for the futures, options or exchange-traded products linked to it. Trading in these contracts can be done through a broker and usually requires a margin account.
A trade execution is the process of executing a trading order in the financial markets. This typically involves verifying all of the parameters for the order, sending the request to the market or exchange, monitoring execution, and ensuring all transaction requirements have been met.
Brokers execute Trade Execution Order in the following ways:
• By sending orders to a Stock Exchange
• Sending them to market makers
• Via their own inventory of securities
Why is execution of trade important?
Trade execution is important due to the fact that even digital orders are not fully instantaneous. Trade orders can be split into several batches to sell since price quotes are only for a specific number of shares. The trade execution price may differ from the price seen on the order screen.
What is trade execution time?
Trade execution time is the period of time between a trade being placed and the completion of the trade. This includes market access, pricing, liquidity sourcing, risk management and settlement of funds. Trade execution time can vary depending on asset class, liquidity levels and other factors.
Stock trading is the practice of buying and selling stocks, or shares of ownership in a publicly-traded company, with the goal of making a profit through price appreciation or by receiving income in the form of dividends. Stock traders buy and sell shares in the stock market using a brokerage account, and they use a variety of strategies and techniques to determine when to enter and exit trades. Stock trading is a popular form of investment, but it also comes with risks and profits are in no way guaranteed. You should acquire a good understanding of the market and individual stocks before making trading decisions.
How are Stocks Different from Other Securities?
Stocks, also known as equities, represent ownership in a corporation, while other securities represent claims on an underlying asset. Other types of securities include bonds (debt securities), options, and derivatives.
How Do I Start Trading Stocks?
You can trade stocks using a stock exchange. Platforms like markets.com offer CFDs on stocks and other securities so you can start assembling and get trading outcomes of your own!
Financial Markets define any place (physical or virtual) or system which provides buyers and sellers with the means to trade financial instruments of any kind.
What are the types of financial markets?
Types of financial markets include stock markets, bond markets, foreign exchange markets, commodity markets, money markets, derivatives markets, and options markets.
What is the main function of financial markets?
The main function of financial markets is to facilitate the interaction between those who need capital with those who have capital to invest. In addition to raising capital, financial markets allow participants to transfer risk (generally through derivatives) and promote commerce. The term "market" can also be used for exchanges, or organizations which enable trade in financial securities.
Within the financial sector, the term "financial markets" is often used to refer just to the markets that are used to raise finances. For long term finance, they are usually called the capital markets; for short term finance, they are usually called money markets. The money market deals in short-term loans, generally for a period of a year or less.
Margin trading refers to the practice of borrowing money from a broker to purchase securities. It allows traders to buy more securities than they could afford to buy with cash alone, by leveraging the securities they already own as collateral. This increases the potential returns but also increases the potential risks, as the trader is responsible for paying interest on the borrowed money and must also cover any losses. Margin trading is considered to be a high-risk strategy and is only suitable for experienced traders with a good understanding of the risks involved.
How much money do you need for margin?
The amount of money required for margin trading depends on the minimum deposit requirement set by the broker. For markets.com this is 100 of your local currency, with the exception of South Africa where it is 1000 rand.
What level of margin is safe?
The level of margin that is considered safe depends on the trader's risk tolerance and investment goals. A lower margin level is generally considered to be safer, as it reduces the potential for large losses
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.
Exposure in finance and trading refers to the potential financial loss or gain that an individual or entity may incur as a result of changes in market conditions or prices. It can refer to the overall risk of a portfolio, or to the specific risk associated with a particular security or market.
What is Leverage? How does leverage effect exposure?
Leverage refers to the use of debt or other financial instruments to increase the potential return on an investment. In trading, leverage allows an investor to control a larger position with a smaller amount of capital. Leverage can increase exposure to potential losses as well as gains, as a small change in the value of the underlying asset can have a larger impact on the value of a leveraged position.
How do you calculate exposure in trading?
Exposure in trading can be calculated by multiplying the size of a position by the current market price of the underlying asset. The VaR method also can be used by taking into account the volatility of the market and any potential correlation with other assets in the portfolio.
Alpha is the performance measurement of a trade, or ROI (return on an investment) measured against a market index or benchmark that is considered to represent the market's movement as a whole. The positive or negative return of any given trade in relation to the return of the benchmark index is an alpha.
What does Alpha Tell you?
Traders use Alpha (α) to describe a strategy's ability to beat the market. Thus, it is also often referred to as “excess return” or “abnormal rate of return”. These terms refer to a concept that markets are efficient, and so they are earned returns that do not reflect the market’s performance.
What is alpha and beta in trading?
Alpha is often used in conjunction with beta (the Greek letter β), which measures the broad market's overall volatility or risk, known as systematic market risk.
Alpha is used in finance as a measure of performance. indicating when a strategy, trader, or portfolio manager has managed to beat the market return over some period. Alpha, often considered the active return on an investment, gauges the performance of an investment against a market index or benchmark that is considered to represent the market’s movement.
Currency futures are legally binding agreements that are traded on exchanges, where traders can buy or sell a specific currency at a fixed exchange rate on a future date. These contracts allow traders to hedge against foreign exchange risks by fixing the price at which a currency can be obtained (exchanged). On the expiration date of the contract, the "counterparties" to the agreement must deliver the specified currency amount at the agreed-upon price.
What is the benefit of buying a currency futures contract?
The main benefit of buying a currency futures contract is that it allows traders to fix the price of a currency and thus hedge against foreign exchange risks.
What is a futures contract in simple terms?
A futures contract is a legally binding agreement to buy or sell a specific asset at a fixed price on a future date.
What happens when currency futures expire?
At expiration, the counterparties to the contract must deliver the specified currency amount at the agreed-upon price. Traders are responsible for having enough capital in their account to cover margins and losses which result after taking the position. If they wish to exit their obligation prior to the contract's delivery date, they need to close out their positions.
The foreign exchange market, also known as forex, is a decentralized market where currencies are traded 24/5. It has an average daily trading volume of over $5 trillion and facilitates the exchange of one currency into another for businesses, investors, and traders. It is influenced by economic and political events.
Why is Foreign Exchange important?
The foreign exchange market is important because it allows businesses, investors and traders to convert one currency into another, facilitating international trade and investment. It also enables countries to maintain control over their monetary policy and stabilize their economies. Additionally, the foreign exchange market is a major source of financial market liquidity and is used by a wide range of market participants, including banks, corporations, governments, and individual traders. It also enables people to manage the risk associated with currency fluctuations.
How is Forex trading done?
Forex trading is done by buying and selling currency pairs, using a platform provided by a Forex broker such as markets.com. Traders use different strategies and analysis to predict the price movements and decide whether to buy or sell a certain currency pair. It can also be done through contracts for difference (CFDs) which allow traders to speculate on price movements without owning the underlying currency.
Index Trading is a type of trading that involves trading a specific financial index such as the S&P 500. It is considered to be a passive investment strategy, where the investor seeks to match their performance with the broader market, instead of attempting to beat it.
What is an index?
An index is a measure of a portion of the stock market that reflects changes in the value of a basket of stocks within it. This can provide an overall snapshot of how a specific market is performing. For example, the US Tech 100 gives a broad overview of the US tech market performance at any given time.
What are indexes used for in finance?
Indexes are used in finance to measure the performance of portfolios and to benchmark the performance of investments against a predetermined set of criteria. They also help investors assess and analyze market trends, risks, and opportunities.
What are different types of index in stock market?
There are different types of indices in the stock market. Some indices used in Index trading are often used as benchmarks to evaluate performance in financial markets. Some of the most important indices in the U.S. markets are the Dow Jones Industrial Average and the S&P 500.
Liquidity refers to how easily or quickly an asset can be bought or sold in a secondary market. Liquid investments can be sold readily and without paying considerable fees. This enables their holders to trade them for cash when needed.
What are the three types of liquidity?
Traders and business owners use three types of liquidity ratio to assess an enterprise. Quick ratio, cash ratio and current ratio. These different measures of liquidity are often used in tandem, but each have their own merits and applications independently.
What happens when liquidity is low?
Stocks with low liquidity are more difficult to sell. Traders may take a bigger loss if they cannot sell the shares when they want to. Liquidity risk is the risk that traders won’t find a market for their assets. This may prevent them from entering or exiting at the desired moment.
What is a good liquidity for a stock?
A stock is considered to have good liquidity when it can be easily bought or sold without significantly affecting the stock's price. This means that there are a large number of buyers and sellers actively trading the stock, and the bid-ask spread (the difference between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept) is small.
Stop Orders are a type of stock order that helps limit the investor’s risk. The order triggers a purchase or sale once a set price is reached, either above (stop buy) or below (stop sell). Stop Orders are used to protect investors against an unfavorable price movements and lock in potential gains.
How long do stop orders last?
Stop orders are instructions given to a broker to buy or sell an asset when its price reaches a predetermined level. Stop orders remain in effect until the stop price is triggered, at which point the order becomes a market order and will be executed. This means that stop orders may last for an indefinite amount of time. It is important to monitor the current market price closely as stop orders do not guarantee execution.
Are stop orders a good idea?
Stop orders can be useful as they can help limit an investor's loss or protect a profit on a security. They are often used to automatically exit a position when the market moves against the investor. However, the use of stop orders may be subject to market conditions and the specific investment strategy of an investor, so whether or not they are a good idea depends on the individual's financial situation and risk tolerance.
Day trading is the practice of buying and selling financial securities, such as stocks or futures, with the aim of making short-term profits within a single day's trading session. It requires a good understanding of markets and an ability to take advantage of opportunities in the right timing. Professional day traders are typically very experienced and have a deep understanding of the markets, products, strategies, and the risks.
How does day trading work?
Day Trading works in the same way any other trading process, yet at times the intervals between positions are short to very short. Day traders buy and sell batches of various assets within the same day, or even within very short periods within that day. It can be said that the process is based on exploiting the inevitable up-and-down price movements which occur during a trading session.
How do I start day trading?
To start day trading, you need to have an account with a broker like markets.com, basic knowledge of the stock market and financial markets, and the ability to access the markets online or via an app. You should also educate yourself on risk management strategies, study different investment styles, and use technical analysis when deciding what stocks to buy and sell. Finally, make sure to set realistic goals and keep records of your trades.
Arbitrage is trading that makes use of small differences in price between identical assets in two or more markets. An asset will most likely be sold in different markets, forms or via a different financial products.
Arbitrage is one alternative trading strategy that can prove exceptionally profitable when leveraged by sophisticated traders. It also carries risks which need to be considered prior and during an arbitrage.
Arbitrage as a trading strategy is when an asset is simultaneously bought and sold in different markets, thus taking advantage of a price difference, and generating a potential profit. Arbitrage is commonly leveraged by hedge funds and other sophisticated investors.
What is an example of arbitrage?
Without going into actual trading advice, here are several examples of Arbitrage in Trading:
• Exchange rates
• Offshore operations
• Cryptocurrency
And perhaps the most obvious and common form of arbitrage which is acting as a go between or affiliate, earning commission on price differences between the seller and the buyer.
Types of arbitrage traders use:
• Pure arbitrage - Traders simultaneously buying and selling assets in different markets to take advantage of a price differences.
• Merger arbitrage – When two publicly traded companies merge. If the target is a publicly traded company, the acquiring company must purchase its outstanding shares Convertible arbitrage.
• Convertible Arbitrage. It is related to convertible bonds, also called convertible notes or convertible debt.
Treasury stock, also known as reacquired stock, is stock which a company has repurchased from shareholders. This stock is issued and bought back by the company for various reasons including to improve financial statements and reward shareholders through dividend payments. Companies must keep records of their treasury stock in order to report them on financial statements.
How is treasury stock different from common stock?
Treasury stock, also known as "buyback," is a corporation's own stock that has been purchased back by the issuing company from shareholders. Treasury stock does not give voting rights or dividend payments. In contrast, common stock gives owners voting rights and entitles them to dividends, when declared. Treasury stocks are used to offset dilution and strengthen balance sheets while still giving shareholders an opportunity to sell shares without market risk.
What is the benefit of treasury stock?
By purchasing their own stock, companies can benefit from reducing risk, enhancing corporate governance and even increasing profits. In addition, the stock may be held in reserve for future issuance or to protect against takeover attempts.
Is treasury stock debt or equity?
Treasury stock is a form of equity, rather than debt. It is a company's own shares which have been bought back and held by the company, resulting in the number of outstanding shares being reduced. The buyback is often used to increase shareholder value, reduce the supply of outstanding stock, or as part of employee compensation programs.
A long position is a market position where the investor has purchased a security such as a stock, commodity, or currency in expectation of it increasing in value. The holder of the position will benefit if the asset increases in value. A long position may also refer to an investor buying an option, where they will be able to purchase an underlying security at a specific price on or before the expiration date.
What is riskier a long or a short position?
A short position is considered riskier than a long position because the potential loss is theoretically unlimited, while the potential profit is limited to the amount of depreciation in the value of the security. When an investor short sells a stock, they borrow shares from someone else and sell them, with the hope that the price will drop so they can buy the shares back at a lower price and return them to the lender, pocketing the difference. In case the price of the stock rises instead, the loss for the short seller is theoretically unlimited as there is no limit to how high the stock price can go.
When should I buy a long position?
When an investor believes that the market will rise, they could consider purchasing a long position.
How can I protect my long position?
Protecting a long position often involves setting up a stop-loss order, which automatically sells the asset at a predetermined price. This ensures that any sharp market drops don't result in excessive losses for the investor.
Market Makers are financial institutions or investors that provide liquidity to the markets by placing buy and sell orders at specific prices. They are incentivized to do this in order to make profits from the bid-ask spread.
What is the difference between dealer and market maker?
A dealer and a market maker are both intermediaries in the securities market that provide liquidity and help facilitate trades. However, they have some key differences. A dealer is a person or entity that buys and sells securities for their own account and risk. They hold inventory of securities and make a profit by buying at a lower price and selling at a higher price.A market maker is a firm or individual that provides liquidity to the market by continuously buying and selling a security at publicly quoted prices. They are also called liquidity providers, and they make money by charging a bid-ask spread, the difference between the prices they are willing to buy and sell a security. They do not hold inventory of securities like dealers do.
Do market makers manipulate price?
Market makers are allowed to buy and sell securities at their own discretion, and they may adjust the prices they are willing to buy and sell a security in order to make a profit. However, they are also subject to regulatory oversight, and they must act in a fair and transparent manner. They are not allowed to manipulate prices, and any illegal activities such as insider trading, wash trading or any other form of market manipulation are strictly prohibited.
Spread Betting is a type of financial speculation which allows you to take a position on the future direction of the price of a security, such as stocks, commodities or currencies. You can choose to speculate whether an asset will go up or down in value, without having to buy or sell it. Spread Betting enables you to take a view on the markets and gain access to the financial markets with limited capital outlay.
How does a spread bet work?
A spread bet is placed by betting on whether the asset's price will rise or fall. The investor can set their own stake size, which means they can take more or less risk according to their preferences. Spread bets are flexible and convenient, allowing you to benefit from even the slightest market movements.
What does a negative spread mean?
A negative spread in trading refers to a situation where the ask price for a security is lower than the bid price. This means that a trader could potentially sell a security for a higher price than they would have to pay to buy it. This is an unusual situation that can occur due to a temporary market anomaly or a technical error. Negative spreads are rare and they tend to be corrected quickly, as they represent an opportunity for arbitrage. Traders should be cautious when dealing with negative spreads and should consult with their broker or trading platform to understand the cause of the negative spread and its potential impact on their trade.
Technical analysis is a type of financial analysis that looks at historical price movements and trading volumes to predict future price movements in the market. It involves studying trends, chart patterns, momentum indicators, and other factors to make informed decisions about trading. Technical analysis can help traders and investors gain insight into market sentiment, timing their trades for optimal returns.
Why is technical analysis important?
Technical analysis is a critical component of successful financial and trading strategies. It helps investors understand the past performance of a security, identify current trends and anticipate future price movements. Technical analysis relies on mathematical calculations and charting techniques to evaluate securities, which can be an invaluable tool for traders to optimize returns and manage risk.
Which tool is best for technical analysis?
There are many tools that can be used for technical analysis, and different traders may have different preferences. Some commonly used tools include:
Ultimately, the best tool for technical analysis will depend on the individual trader's preferences and the market conditions they are trading in. it's important to use multiple tools and indicators to validate the signals and make better decisions.
A range refers to the difference between the highest and lowest prices a stock may reach during a specific time frame. This range gives investors an indication of how volatile a particular asset might be in terms of its price movements, as well as what opportunities they might have to make money. By analyzing historical data and keeping up-to-date with market news, investors can develop strategies to capitalize on different ranges.
How do you use ranges in trading?
Range trading is a popular trading strategy in finance, particularly for traders looking to limit their risk and profit from a given market movement. When using ranges, traders identify support and resistance levels for a security or asset, and look to take profits when prices reach either level. By using a range-trading strategy, traders can limit the amount of capital they are willing to risk per trade, as well as capitalize on both long-term and short-term movements in the market.
What is trend in trading?
A trend in trading is the general direction of a security's price over a period of time. Trend analysis helps traders make predictions about future market movements, allowing them to enter and exit positions at optimal times. Trends can be either upward or downward and often take weeks, months or even years to develop. To identify trends, technical analysis tools such as support and resistance levels, trend lines, and chart patterns are used by traders to detect buying and selling opportunities in the markets. Fundamental analysis also plays a role in recognizing potential profitable trading opportunities since underlying economic conditions may influence a security’s price.
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 leverage refers to the use of borrowed money to increase the potential return on an investment. It is the process of using borrowed money to increase the purchasing power of an investor, by using debt to amplify the trading outcomes from an investment. This leverage can increase returns but also increases the risk of loss, as the interest and principal payments on the debt must be made regardless of the performance of the investment. In other words, it is the amount of debt used to finance a firm's assets and it is measured by debt-to-equity ratio.
What is a financial leverage ratio?
In trading, financial leverage ratio is a metric used to measure the level of leverage used by a trader or a trading firm. It is the ratio of the value of the trader's or firm's assets to the value of their equity capital. Leverage ratios in trading can be used to identify traders or firms that are using a high level of leverage, meaning they are using a large amount of borrowed money to invest in markets.
What affects financial leverage?
In trading, financial leverage is affected by a number of factors, including:
Margin requirements: The amount of money or collateral required by a broker to open a leveraged position.
Risk tolerance: A trader's willingness to take on risk and their ability to handle potential losses.
Investment horizon: A trader's investment time frame and goals can affect their use of leverage.
Market conditions: Volatility, liquidity, and other market conditions can influence a trader's decision to use leverage.
Capital: The amount of capital a trader has available to invest, will influence their use of leverage.
Trailing Stop Orders are a type of stock order that lets investors adjust the stop price as a security rises or falls. This order works by continuously monitoring the price of a security and dynamically adjusts the stop price with every tick. The advantage of this type of order is that it allows investors to limit their losses, while locking in profits, without having to manually modify the stop-loss point.
Are Trailing Stop Orders good?
Trailing Stop Orders can be a good way to protect profits in your trading. They allow you to set an automated stop-loss that trails the price of a stock, adjusting up as it rises, while allowing you to lock in some gains if the stock begins to fall. This is especially useful when dealing with volatile stocks, giving you more control over your position.
What is a disadvantage of a trailing stop loss?
Trailing stop losses can help minimize risk when trading, however they also limit potential gains. The stop price adjusts based on market conditions, so as the price increases, the stop loss will move up. If the stock drops significantly and your trailing stop loss is too close, it may be triggered before you have a chance to react.
Which is better stop limit or trailing stop?
It depends entirely on the trader. A stop limit will sell at the specified price, while a trailing stop will track price changes and sell when the specified amount is exceeded. Different traders may have different needs and objectives, so which type of order is best will vary. Consider your goals before deciding which option is right for you.
A limit order is an order to buy or sell an asset such as a security at a specific price or better than that price. Traders wishing to define a maximum price for either buying or selling an asset can use limit orders. By placing a limit order they tell a broker to buy or sell a particular stock at a certain price or better than that price (lower for buying, higher for selling). This order is executed only if the transaction can be processed at the limit set in the order.
Is a limit order a good idea?
A key benefit of using a limit order is to ensure that the stock is bought or sold at a certain price point or better than that price point. There is of course the risk of not being able to execute that order as that specific price may never reach that limit as set in the order.
What are the types of limit order?
There are several types of limit orders in trading:
Buy Limit Order: An order to buy a security at a specific price or lower.
Sell Limit Order: An order to sell a security at a specific price or higher.
Buy Stop Limit Order: A stop order to buy a security at a specific price or higher, only activated once a specified stop price has been reached.
Sell Stop Limit Order: A stop order to sell a security at a specific price or lower, only activated once a specified stop price has been reached.
Trailing Stop Limit Order: A type of stop order where the stop price is set at a fixed amount or percentage below or above the market price, and adjusts as the market price moves.
Take profit is an order type that is used by traders to automatically exit a trade when a certain profit level is reached. Once the specified price level is hit, the trade will be closed and the profit will be locked in. Take profit can also be used in short positions, where the trader is betting on the price to decrease. In this case, the trader would set a take profit order at a price level below the current market price. Once that price level is reached, the trade will be closed and the profit will be locked in.
When should I take profit on my shares?
The decision to take profit on a stock should be based on your own personal investment strategy and goals. Some investors may choose to take profit when a stock reaches a certain level of appreciation or when it reaches a technical resistance level. Others may choose to hold onto a stock for the long-term and only take profit when they need the money for other investments or expenses.
What is the purpose of take profit?
The purpose of a take profit order is to automatically lock in profit at a specific price level, without the need for a trader to constantly monitor the market. By setting a take profit order, a trader can set a specific level at which they want to exit a trade with a profit, and then let the market run its course. Additionally, it allows the trader to set a level of risk-reward they are comfortable with, and not be affected by emotions and human biases, which could cause them to hold on to a trade for too long or exit too soon.
Market capitalization, commonly referred to as market cap, is a measure of a company's size and is calculated by multiplying the total number of its shares outstanding by the current market price of each share. Market cap can be used to help assess how much a company is worth in the eyes of investors.
Is high market cap good?
A high market capitalization (market cap) generally indicates that a company is well-established, has a strong financial performance, and is considered to be a reliable investment by the market. High market cap companies are often considered to be blue-chip stocks and are more stable and less risky than lower market cap companies.
However, a high market cap does not guarantee that a company will perform well in the future, it just reflects the current market's perception of the company, the stock price and the number of shares outstanding. The company may still be facing internal or external challenges, and the stock may be overvalued. Therefore, it's always important to do your own research and analysis before investing in any stock regardless of its market capitalization.
What is a good market capitalization?
A good market capitalization for an investment depends on the investor's individual preferences and goals. Generally, companies with a high market capitalization are considered to be well-established and financially stable, making them a more reliable investment. However, it is important to note that high market capitalization does not always guarantee future performance.
Is it better to have a small or large market cap?
Small-cap companies tend to be more risky but have higher growth potential. Large-cap companies are considered to be more stable but have lower growth potential. At the end of the day it will all depend on the investor's preference for risk and tolerance for profit/loss.
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.
What is a Lot in trading?
In trading, Lots are defined as the number of units of a financial instrument bought or sold on an exchange. A Round Lot is made of 100 shares, where an Odd Lot can be made of any number of shares less than 100. As for bonds, their lots follow a different set of rules. They can range from $1,000 to $100,000 or $1 million. In Forex, trade is done via lots, which are essentially the number of currency units traders buy or sell. As such, a “lot” is a unit measuring a transaction amount. The standard lot is 100K units of currency. Additionally, there are also mini lots valued at 10K units of currency, micro lots valued at 1K units of currency and nano lots that contain 100 units of currency.
What is a lot size in trading?
Lot size in trading refers to the number of units or shares of a security that are traded at once. It's a way to measure the amount of a security that is being bought or sold in a single transaction.
How many shares are in a lot?
The number of shares in a lot can vary depending on the security being traded and the exchange or platform it is traded on. For example, in the US stock market, a standard lot size is 100 shares, but it can be different in other markets or for other securities such as futures or forex.
What is a good lot size?
A good lot size in trading depends on the specific circumstances and goals of the trader. A lot size that is too small may not be cost-effective and may not allow the trader to achieve their desired position size. A lot size that is too large can be too risky and may not be affordable.
A margin call is a demand from a broker to a trader that additional funds must be added to the trader’s account in order to maintain their current positions.
What would trigger a margin call?
A margin call occurs when an investor using margin (borrowed money) to trade in securities or other financial instruments, does not have enough money or equity in their account to meet the minimum margin requirement set by their broker. This can happen when the value of the securities in the account falls below a certain level, resulting in a negative balance in the margin account. A margin call can be a warning sign that the investor is taking on too much risk, and it can be a good opportunity to re-evaluate their investment strategy.
What happens if you get a margin call?
When a margin call happens, the broker will contact the investor and ask them to deposit additional funds into their account or sell some of their profiting securities to bring the account equity back above the minimum margin requirement. If the investor is unable to meet the margin call, the broker may take action to liquidate the investor's securities in order to bring the account back to a positive balance.
Do you lose money on a margin call?
A margin call itself does not necessarily mean that you will lose money, but it does indicate that you are at risk of losing money if you do not take action to meet the call. When a margin call occurs, it is a warning that your account balance has dropped below the minimum margin requirement set by your broker, and if you do not take action to bring it back above that level, your broker may take action to liquidate your securities in order to bring the account back to a positive balance.
Slippage is a common occurrence in trading when the price of an asset changes before an order can be filled. Slippage often happens when large orders are placed and market conditions change quickly, meaning that traders must accept the new price for their order or risk having it rejected. It’s important for traders to factor slippage into their trading strategies as unexpected slippage can affect trade outcomes.
What is a good slippage tolerance?
A good slippage tolerance is a matter of personal preference and depends on the trading strategy and risk tolerance. Generally, a low slippage tolerance is preferred as it allows for more precise execution of trades at the desired price. A high slippage tolerance allows for more flexibility in trade execution, but may result in less favorable prices. A slippage tolerance of 1-2% is considered to be reasonable for many traders.
How do traders avoid big losses when it comes to slippage?
Traders can avoid big losses due to slippage by using proper risk management strategies, such as setting stop-loss orders, using smaller position sizes, and using limit orders instead of market orders. Additionally, traders can look for a trustworthy and reliable broker with low slippage levels. Trading during less volatile periods can also help to minimize slippage.
What is maximum slippage?
Maximum slippage in trading refers to the largest difference between the expected price and the actual execution price of a trade. It is a measure of the worst-case scenario for slippage and can represent the largest potential loss a trader may face due to slippage. It is usually set by the trader in advance and if the slippage exceeds that level, the trade will not execute. The level of maximum slippage a trader is willing to accept is generally based on their individual risk tolerance.
A Stop Loss Order is a type of order that investors can use to limit losses when trading securities. This order instructs a broker to automatically sell a security when it reaches a certain price, known as the stop loss price. By using this order, investors can reduce their risk exposure by locking in gains and preventing larger losses.
How does a stop-loss order work?
A stop-loss order is an investment strategy that helps you limit losses by automatically selling your securities when they drop to a predetermined price. By setting up this order, you can avoid having to monitor the stock's performance every day and ensure that any potential losses are minimized.
What is the difference between a stop-loss and a stop limit order?
A stop-loss order is used to limit losses on a security position by automatically selling when the price drops below a specified level. Whereas a stop-limit order combines the features of a stop-loss with those of a limit order, enabling traders to specify both the price at which they are willing to sell and the maximum loss they are willing to take.
What is a good stop-loss order?
A good stop-loss order is one that is placed at a level that effectively limits potential losses on a trade. The specific level at which to place a stop-loss order will depend on the trader's risk tolerance and the price action of the security being traded. Generally, traders will place stop-loss orders at levels that are below the current price for long positions, or above the current price for short positions, in order to limit potential losses if the price moves in the opposite direction. It's important to note that stop loss orders act as a protective measure, but they don't guarantee that a trade will be executed at the exact stop loss level.
ProShares Ultra Bloomberg Crude Oil ETF (UCO) is a leveraged asset that seeks to deliver twice the daily investment results of the Bloomberg WTI Crude Oil Subindex. This is a single-day bet and is not suitable for buy-and-hold investors. Results can vary significantly if held for periods longer than one day. This is a leveraged ETF so traders take on more risk than with an unleveraged product.
ProShares UltraShort Bloomberg Crude Oil (SCO), aims to deliver results that are twice the inverse daily performance of the Bloomberg WTI Crude Oil Subindex. It is an ETF product for traders looking to short crude oil in a single day bet. Trades that last for more than a day are not expected to see the same returns.
The subindex reflects WTI Crude Oil prices and only consists of futures contracts on WTI Crude Oil. This is a leveraged product, all leveraged products carry more risk than unleveraged products.
Blue-chip stocks are shares of very large, successful, and reputable and financially companies. Blue-chip companies are mostly common household names.
What is the difference between a regular stock and a blue-chip stock?
A blue-chip stock refers to a stock of a well-established, financially stable and reliable company with a long history of steady growth and stability. Regular stocks are any other stocks. Blue-chip stocks are generally considered a lower risk investment, while regular stocks can have varying degrees of risk.
How do you know if a stock is blue-chip?
Blue chip stocks are usually large, well-established and financially stable companies with a long history of steady growth, consistent profits and strong brand recognition.
What are some examples of bluechip stocks?
Some examples of blue chip stocks are:
Apple Inc.
Microsoft Corporation
Amazon.com Inc.
Berkshire Hathaway
AUD/USD is the abbreviation for the Australian dollar and US Dollar currency pair and is the world's fourth most popular currency pairing, accounting for 5.2% of all FX trades with $266bn in trading volumes daily. The number represents how many US Dollars (the quote currency) is required to buy one Australian dollar (the base currency).
The Australian dollar is a commodity-correlated currency, because the Australian economy is still largely reliant upon mineral exports, primarily iron ore. The pairing is a good indicator of market risk sentiment with the AUD/ tending to rally along with rising commodity prices and falling when they drop.
The AUD/USD is also highly sensitive to changes in the monetary policy decisions made by the Federal Reserve and the Reserve Bank of Australia. A more hawkish US Federal Reserve can push the AUD/USD exchange rate significantly lower, whilst the pair can rally when the RBA is raising interest rates.
CAD/CHF is the abbreviation for the Canadian dollar to Swiss franc exchange rate. US$260 billion worth of Canadian dollars and US$243 billion worth of francs is traded each day. The Canadian dollar is the 6th most-traded currency, and makes up one side in 5.1% of all daily trades. The Swiss franc is the 7th most-popular trading currency in the world and is involved in nearly 5% of all forex transactions each day.
The pair is sensitive to changes in market risk appetite, as the Canadian dollar is a commodity-correlated currency and the franc is a safe-haven currency.
The producing and exporting of crude oil is vital to the Canadian economy, so changes in price can push CAD/CHF higher or lower. Oil is sensitive to changes in risk appetite, creating further volatility for the Canadian dollar.
Compounding the effect of market uncertainty upon CAD/CHF is the Swiss franc's reputation as a safe-haven, thanks to Switzerland's strong economy and developed financial sector.
The Canadian dollar to Japanese yen exchange rate is identified by the abbreviation CAD/JPY. The Canadian dollar is the 6th most-popular currency, making up one side in 5.1% of daily trades. The Japanese yen is the 3rd most-traded currency, accounting for 22%.
The pair is highly sensitive to changes in market risk-appetite, as the Canadian dollar is a commodity-correlated currency and the Japanese yen is a safe-haven currency.
The Canadian dollar is highly sensitive to changes in the price of crude oil - Canada's primary export. In turn, crude prices often respond to market appetite for risk, so the strength of the CAD/JPY exchange rate is largely dictated by whether traders are feeling optimistic or pessimistic over global conditions.
In times of market uncertainty, appetite for the safe-haven Japanese yen can increase sharply. However, the yen is often softened by the Bank of Japan's ultra-loose monetary stimulus package, which includes quantitative easing and negative interest rates.
The Australian dollar to Japanese yen exchange rate goes by the abbreviation AUD/JPY. The Australian dollar is often known as the “Aussie”, and is the 5th most-traded currency in the world, being involved in 6.9% of all daily forex trades. The Japanese yen is the 3rd most-traded currency, accounting for 22% of all daily trades.
The Australian dollar is a commodity-correlated currency and is sensitive to price changes in iron ore, of which Australia is the world's largest exporter. The Japanese yen is a safe-haven asset, and is popular in times of uncertainty. Falling risk appetite undermines the AUD/JPY pairing, while market confidence pushes it higher.
A key driver of AUD/JPY volatility is the interest rate differential between the two nations. Like other central banks, the Reserve Bank of Australia cut interest rates in response to the 2008 financial crisis, but Australia's strong economy limited the need for easing. In contrast, the Bank of Japan still maintains ultra-loose stimulus.
Coffee is a “soft” commodity - referring to those that are grown rather than mined. It is the world's second-most popular commodity, behind only crude oil. The market is worth around $100 billion.
Over 50 countries worldwide grow coffee, with around two-thirds of the global supply produced in the Americas. Brazil, Vietnam, and Colombia are the three largest producers.
Coffee is priced in USD per lb. It hit a record high of $339.86/lb during April 1977, while the lowest price on record is $42.50/lb in October 2001.
Coffee is a highly-traded commodity that is often bought by speculators, so risk appetite has a strong effect on prices. Around half of the coffee produced on the globe is bought by just four companies: Kraft, P&G, Sara Lee, and Nestle, so changes in the fortunes of these companies can also impact prices.
Coffee futures allow you to speculate on, or hedge against, changes in the price of coffee. Futures rollover on the second Friday of February, April, June, August, and November.
The Cboe Volatility Index (VIX) represents the market’s expectations for near-term price changes of the S&P 500 Index (SPX). The Cboe Volatility Index is used to track volatility within that index. As it is derived from the prices of SPX index options, it generates a 30-day forward potential of volatility.
How is the CBOE volatility index calculated?
Volatility is often seen as a way to measure and speculate on market sentiment, as well as assessing risks. The VIX is calculated through the prices of SPX index options and is represented as a percentage. If the VIX value increases, it is likely that the S&P 500 is falling, and if the VIX value declines, then the S&P 500 is likely to be experiencing stability.
How do you trade the CBOE VIX?
The CBOE VIX can be traded on most major financial markets. To trade it, you need to buy or sell contracts for the futures, options or exchange-traded products linked to it. Trading in these contracts can be done through a broker and usually requires a margin account.
Alpha is the performance measurement of a trade, or ROI (return on an investment) measured against a market index or benchmark that is considered to represent the market's movement as a whole. The positive or negative return of any given trade in relation to the return of the benchmark index is an alpha.
What does Alpha Tell you?
Traders use Alpha (α) to describe a strategy's ability to beat the market. Thus, it is also often referred to as “excess return” or “abnormal rate of return”. These terms refer to a concept that markets are efficient, and so they are earned returns that do not reflect the market’s performance.
What is alpha and beta in trading?
Alpha is often used in conjunction with beta (the Greek letter β), which measures the broad market's overall volatility or risk, known as systematic market risk.
Alpha is used in finance as a measure of performance. indicating when a strategy, trader, or portfolio manager has managed to beat the market return over some period. Alpha, often considered the active return on an investment, gauges the performance of an investment against a market index or benchmark that is considered to represent the market’s movement.
Currency futures are legally binding agreements that are traded on exchanges, where traders can buy or sell a specific currency at a fixed exchange rate on a future date. These contracts allow traders to hedge against foreign exchange risks by fixing the price at which a currency can be obtained (exchanged). On the expiration date of the contract, the "counterparties" to the agreement must deliver the specified currency amount at the agreed-upon price.
What is the benefit of buying a currency futures contract?
The main benefit of buying a currency futures contract is that it allows traders to fix the price of a currency and thus hedge against foreign exchange risks.
What is a futures contract in simple terms?
A futures contract is a legally binding agreement to buy or sell a specific asset at a fixed price on a future date.
What happens when currency futures expire?
At expiration, the counterparties to the contract must deliver the specified currency amount at the agreed-upon price. Traders are responsible for having enough capital in their account to cover margins and losses which result after taking the position. If they wish to exit their obligation prior to the contract's delivery date, they need to close out their positions.
Day trading is the practice of buying and selling financial securities, such as stocks or futures, with the aim of making short-term profits within a single day's trading session. It requires a good understanding of markets and an ability to take advantage of opportunities in the right timing. Professional day traders are typically very experienced and have a deep understanding of the markets, products, strategies, and the risks.
How does day trading work?
Day Trading works in the same way any other trading process, yet at times the intervals between positions are short to very short. Day traders buy and sell batches of various assets within the same day, or even within very short periods within that day. It can be said that the process is based on exploiting the inevitable up-and-down price movements which occur during a trading session.
How do I start day trading?
To start day trading, you need to have an account with a broker like markets.com, basic knowledge of the stock market and financial markets, and the ability to access the markets online or via an app. You should also educate yourself on risk management strategies, study different investment styles, and use technical analysis when deciding what stocks to buy and sell. Finally, make sure to set realistic goals and keep records of your trades.
Arbitrage is trading that makes use of small differences in price between identical assets in two or more markets. An asset will most likely be sold in different markets, forms or via a different financial products.
Arbitrage is one alternative trading strategy that can prove exceptionally profitable when leveraged by sophisticated traders. It also carries risks which need to be considered prior and during an arbitrage.
Arbitrage as a trading strategy is when an asset is simultaneously bought and sold in different markets, thus taking advantage of a price difference, and generating a potential profit. Arbitrage is commonly leveraged by hedge funds and other sophisticated investors.
What is an example of arbitrage?
Without going into actual trading advice, here are several examples of Arbitrage in Trading:
• Exchange rates
• Offshore operations
• Cryptocurrency
And perhaps the most obvious and common form of arbitrage which is acting as a go between or affiliate, earning commission on price differences between the seller and the buyer.
Types of arbitrage traders use:
• Pure arbitrage - Traders simultaneously buying and selling assets in different markets to take advantage of a price differences.
• Merger arbitrage – When two publicly traded companies merge. If the target is a publicly traded company, the acquiring company must purchase its outstanding shares Convertible arbitrage.
• Convertible Arbitrage. It is related to convertible bonds, also called convertible notes or convertible debt.
Fintech ETF (ARKF) is an ETF focussing on innovative and disruptive financial technologies. Companies represented within ARKF transaction innovations, blockchain, risk transformation, frictionless funding platforms, customer facing platforms, and new Intermediaries.
The Direxion Daily Financial Bear 3 (FAZ) Shares ETF tracks the inverse performance of the Russell 1000 Financial Services Index by 300%. It is the opposite of the The Direxion Daily Financial Bull 3X Shares ETF (FAS). Traders benefit when the underlying stocks fall, rather than rise. It is leveraged in the same way, so comes with high levels of volatility and risk.
This ETF allows traders to take a bearish view on the performance of commercial banks, a reduction in lending is what FAZ traders will be looking for.
Gilts are issues by the British Government and are generally considered to be low-risk investments. They traditionally have maturities of five, ten and 30 years. As with shares and funds, bond prices rise and fall as their attractiveness changes, based on changes in the market, economy and currency. The price is also affected by the attractiveness of other investments, particularly other ‘safe havens’ such as cash.
The UK Gilt 10 year bond reached a historic high of 16.09% in November 1981, and a record low of 0.52% in August 2016.
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.
The Direxion Daily Financial Bull 3X (FAS) Shares ETF is a leveraged ETF, aiming to secure traders three times the daily returns on the performance of the Russell 1000 Financial Services Index. This increased exposure also increases risk, so this ETF is more suited to traders with the capital to withstand volatility and with a high risk tolerance.
The portfolio is composed of 70% stocks. Sector exposure is mostly financial services, which make up 77.21% of holdings, with another 15.99% in Real Estate. Commercial banks account for a high proportion of this ETF, with stocks including Berkshire Hathaway Inc, JPMorgan Chase & Co, Bank of America Corp, Visa, Wells Fargo and Citigroup all featuring.
EUR/AUD is the abbreviation for the euro to Australian dollar exchange rate. The pairing accounts for 0.3% of the average daily forex trading volume across the globe, which equates to US$16 billion.
The euro is the currency of the Eurozone, which is overseen by the European Central Bank. The euro, also known as the common currency, the single currency, or the single unit, has an inverse correlation with the US Dollar. However, the impact of this upon the euro is lessened when trading against the Australian dollar, because the “Aussie” also moves inversely to the US Dollar.
While not a safe-haven asset, the euro is considered more stable than the Australian dollar, meaning that the EUR/AUD/ pairing often strengthens in times of market pessimism, and weakens when risk-demand is elevated.
The Australian economy is highly-reliant upon exports of iron ore, for which Australia accounts for over 50% of the global supply. Changes in the market price can have a strong effect upon EUR/AUD.
The pound Sterling to Japanese yen exchange rate is identified by the abbreviation GBP/JPY. GBP is the 4th most-traded currency, accounting for 13% of all daily trades; US$649 billion worth. The Japanese yen is the 3rd most-traded currency, involved in 22% of all daily currency trades.
Recently, political factors have seen their influence over the pound grow. This is because the Brexit referendum, which resulted in the UK voting to leave the EU, has created significant uncertainty regarding the UK economic outlook. Signs of upheaval in government as Downing Street tries to negotiate a Brexit deal that pleases all sides of the debate, as well as fears that the UK will crash out of the EU with no deal in place, weigh heavily on Sterling.
The GBP/JPY exchange rate is heavily-influenced by movement in the US Dollar. The Japanese yen is a safe-haven asset, meaning that it appreciates in times of low risk-appetite. However, when USD is strong the lower-yielding yen is less appealing.
A Guaranteed stop order provides traders with a form of protection for their positions. They can have a guaranteed exit at the exact price they specify. This can be used regardless of market volatility. This is different from “standard” stop-loss orders, which may be filled at worse price levels than were requested due to “slippage”. A guaranteed stop loss order (GSLOs) will incur a fee / premium which will only be charged if it was triggered.
How does guaranteed stop work?
A guaranteed stop loss works in the same way as a standard one does, via instructions provided to the broker to close a position at a specific level, thereby reducing the risk should the market move against the trader.
Should I use guaranteed stop-loss?
Guaranteed stop-loss automatically exits you from the market at a certain predetermined price level in order to limit potential losses if the market goes against you. As such, especially for less experienced traders, it is a recommended strategy to mitigate losses.
The euro to Japanese yen exchange rate has the acronym EUR/JPY. The euro is the 2nd most-traded currency on the planet, making up one side of 31% of daily trades. The Japanese yen is the 3rd most-traded currency, involved in 22% of all daily currency trades. EUR/JPY accounts for 1.6% of all daily currency trades; $79 billion per day.
While a strong US Dollar can weaken demand for the Japanese yen, it has a much stronger impact upon the euro. This means that in times of safe-haven demand the EUR/JPY exchange rate falls and, although the euro is not a high-beta currency, the pairing appreciates when risk-appetite is strong.
Both the European Central Bank and the Bank of Japan maintain ultra-loose monetary stimulus, but the ECB has recently taken tentative steps towards normalisation. Although negative rates are unlikely to disappear any time soon in either economy, the fact the ECB is in more of a position to adjust borrowing costs stands in the euro's favour.
An exchange, market or stock exchange is a marketplace where commodities, securities, derivatives, stocks and other financial instruments are traded. The core function of an exchange is to provide for organized trading and efficient distribution of market & stock information within the exchange. Exchanges provide their users the necessary platform from which to trade.
Why should you trade on an exchange?
Trading on an exchange offers security, reliability, liquidity and low costs. Exchange-regulated markets provide transparency, where all market participants have the same access to prices and trading information. Exchanges also offer robust risk management and safety protocols to protect against any price manipulation or abuse of the system.
What are types of exchange?
There are three main types of trading exchanges: traditional exchanges, dark pools, and electronic communication networks (ECNs). Traditional exchanges provide an organized marketplace to buy and sell securities while dark pools facilitate large orders in private forums. ECNs allow investors to directly access liquidity pools and execute trades with other participants in the market.
Financial Markets define any place (physical or virtual) or system which provides buyers and sellers with the means to trade financial instruments of any kind.
What are the types of financial markets?
Types of financial markets include stock markets, bond markets, foreign exchange markets, commodity markets, money markets, derivatives markets, and options markets.
What is the main function of financial markets?
The main function of financial markets is to facilitate the interaction between those who need capital with those who have capital to invest. In addition to raising capital, financial markets allow participants to transfer risk (generally through derivatives) and promote commerce. The term "market" can also be used for exchanges, or organizations which enable trade in financial securities.
Within the financial sector, the term "financial markets" is often used to refer just to the markets that are used to raise finances. For long term finance, they are usually called the capital markets; for short term finance, they are usually called money markets. The money market deals in short-term loans, generally for a period of a year or less.
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.
Exposure in finance and trading refers to the potential financial loss or gain that an individual or entity may incur as a result of changes in market conditions or prices. It can refer to the overall risk of a portfolio, or to the specific risk associated with a particular security or market.
What is Leverage? How does leverage effect exposure?
Leverage refers to the use of debt or other financial instruments to increase the potential return on an investment. In trading, leverage allows an investor to control a larger position with a smaller amount of capital. Leverage can increase exposure to potential losses as well as gains, as a small change in the value of the underlying asset can have a larger impact on the value of a leveraged position.
How do you calculate exposure in trading?
Exposure in trading can be calculated by multiplying the size of a position by the current market price of the underlying asset. The VaR method also can be used by taking into account the volatility of the market and any potential correlation with other assets in the portfolio.
The foreign exchange market, also known as forex, is a decentralized market where currencies are traded 24/5. It has an average daily trading volume of over $5 trillion and facilitates the exchange of one currency into another for businesses, investors, and traders. It is influenced by economic and political events.
Why is Foreign Exchange important?
The foreign exchange market is important because it allows businesses, investors and traders to convert one currency into another, facilitating international trade and investment. It also enables countries to maintain control over their monetary policy and stabilize their economies. Additionally, the foreign exchange market is a major source of financial market liquidity and is used by a wide range of market participants, including banks, corporations, governments, and individual traders. It also enables people to manage the risk associated with currency fluctuations.
How is Forex trading done?
Forex trading is done by buying and selling currency pairs, using a platform provided by a Forex broker such as markets.com. Traders use different strategies and analysis to predict the price movements and decide whether to buy or sell a certain currency pair. It can also be done through contracts for difference (CFDs) which allow traders to speculate on price movements without owning the underlying currency.
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.
JNUG, also known as Direxion Daily Junior Gold Miners Index Bull 3X Shares, aims to deliver three times the daily returns of junior gold and silver mining companies from developed and emerging markets. It seeks 300% of the performance of the MVIS Global Junior Gold Miners Index. The term junior refers to the size of the firms, which are considered to be small-cap.
This is a single-day fund, and funds should not be expected to provide three time the return of the benchmark index if positions are held for longer than one day. As a leveraged ETF, this asset carries more risk than ETFs that are not leveraged. This asset is aimed at intraday traders and is not suitable for all investors.
Index Trading is a type of trading that involves trading a specific financial index such as the S&P 500. It is considered to be a passive investment strategy, where the investor seeks to match their performance with the broader market, instead of attempting to beat it.
What is an index?
An index is a measure of a portion of the stock market that reflects changes in the value of a basket of stocks within it. This can provide an overall snapshot of how a specific market is performing. For example, the US Tech 100 gives a broad overview of the US tech market performance at any given time.
What are indexes used for in finance?
Indexes are used in finance to measure the performance of portfolios and to benchmark the performance of investments against a predetermined set of criteria. They also help investors assess and analyze market trends, risks, and opportunities.
What are different types of index in stock market?
There are different types of indices in the stock market. Some indices used in Index trading are often used as benchmarks to evaluate performance in financial markets. Some of the most important indices in the U.S. markets are the Dow Jones Industrial Average and the S&P 500.
Liquidity refers to how easily or quickly an asset can be bought or sold in a secondary market. Liquid investments can be sold readily and without paying considerable fees. This enables their holders to trade them for cash when needed.
What are the three types of liquidity?
Traders and business owners use three types of liquidity ratio to assess an enterprise. Quick ratio, cash ratio and current ratio. These different measures of liquidity are often used in tandem, but each have their own merits and applications independently.
What happens when liquidity is low?
Stocks with low liquidity are more difficult to sell. Traders may take a bigger loss if they cannot sell the shares when they want to. Liquidity risk is the risk that traders won’t find a market for their assets. This may prevent them from entering or exiting at the desired moment.
What is a good liquidity for a stock?
A stock is considered to have good liquidity when it can be easily bought or sold without significantly affecting the stock's price. This means that there are a large number of buyers and sellers actively trading the stock, and the bid-ask spread (the difference between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept) is small.
A long position is a market position where the investor has purchased a security such as a stock, commodity, or currency in expectation of it increasing in value. The holder of the position will benefit if the asset increases in value. A long position may also refer to an investor buying an option, where they will be able to purchase an underlying security at a specific price on or before the expiration date.
What is riskier a long or a short position?
A short position is considered riskier than a long position because the potential loss is theoretically unlimited, while the potential profit is limited to the amount of depreciation in the value of the security. When an investor short sells a stock, they borrow shares from someone else and sell them, with the hope that the price will drop so they can buy the shares back at a lower price and return them to the lender, pocketing the difference. In case the price of the stock rises instead, the loss for the short seller is theoretically unlimited as there is no limit to how high the stock price can go.
When should I buy a long position?
When an investor believes that the market will rise, they could consider purchasing a long position.
How can I protect my long position?
Protecting a long position often involves setting up a stop-loss order, which automatically sells the asset at a predetermined price. This ensures that any sharp market drops don't result in excessive losses for the investor.
Financial leverage refers to the use of borrowed money to increase the potential return on an investment. It is the process of using borrowed money to increase the purchasing power of an investor, by using debt to amplify the trading outcomes from an investment. This leverage can increase returns but also increases the risk of loss, as the interest and principal payments on the debt must be made regardless of the performance of the investment. In other words, it is the amount of debt used to finance a firm's assets and it is measured by debt-to-equity ratio.
What is a financial leverage ratio?
In trading, financial leverage ratio is a metric used to measure the level of leverage used by a trader or a trading firm. It is the ratio of the value of the trader's or firm's assets to the value of their equity capital. Leverage ratios in trading can be used to identify traders or firms that are using a high level of leverage, meaning they are using a large amount of borrowed money to invest in markets.
What affects financial leverage?
In trading, financial leverage is affected by a number of factors, including:
Margin requirements: The amount of money or collateral required by a broker to open a leveraged position.
Risk tolerance: A trader's willingness to take on risk and their ability to handle potential losses.
Investment horizon: A trader's investment time frame and goals can affect their use of leverage.
Market conditions: Volatility, liquidity, and other market conditions can influence a trader's decision to use leverage.
Capital: The amount of capital a trader has available to invest, will influence their use of leverage.
A limit order is an order to buy or sell an asset such as a security at a specific price or better than that price. Traders wishing to define a maximum price for either buying or selling an asset can use limit orders. By placing a limit order they tell a broker to buy or sell a particular stock at a certain price or better than that price (lower for buying, higher for selling). This order is executed only if the transaction can be processed at the limit set in the order.
Is a limit order a good idea?
A key benefit of using a limit order is to ensure that the stock is bought or sold at a certain price point or better than that price point. There is of course the risk of not being able to execute that order as that specific price may never reach that limit as set in the order.
What are the types of limit order?
There are several types of limit orders in trading:
Buy Limit Order: An order to buy a security at a specific price or lower.
Sell Limit Order: An order to sell a security at a specific price or higher.
Buy Stop Limit Order: A stop order to buy a security at a specific price or higher, only activated once a specified stop price has been reached.
Sell Stop Limit Order: A stop order to sell a security at a specific price or lower, only activated once a specified stop price has been reached.
Trailing Stop Limit Order: A type of stop order where the stop price is set at a fixed amount or percentage below or above the market price, and adjusts as the market price moves.
What is a Lot in trading?
In trading, Lots are defined as the number of units of a financial instrument bought or sold on an exchange. A Round Lot is made of 100 shares, where an Odd Lot can be made of any number of shares less than 100. As for bonds, their lots follow a different set of rules. They can range from $1,000 to $100,000 or $1 million. In Forex, trade is done via lots, which are essentially the number of currency units traders buy or sell. As such, a “lot” is a unit measuring a transaction amount. The standard lot is 100K units of currency. Additionally, there are also mini lots valued at 10K units of currency, micro lots valued at 1K units of currency and nano lots that contain 100 units of currency.
What is a lot size in trading?
Lot size in trading refers to the number of units or shares of a security that are traded at once. It's a way to measure the amount of a security that is being bought or sold in a single transaction.
How many shares are in a lot?
The number of shares in a lot can vary depending on the security being traded and the exchange or platform it is traded on. For example, in the US stock market, a standard lot size is 100 shares, but it can be different in other markets or for other securities such as futures or forex.
What is a good lot size?
A good lot size in trading depends on the specific circumstances and goals of the trader. A lot size that is too small may not be cost-effective and may not allow the trader to achieve their desired position size. A lot size that is too large can be too risky and may not be affordable.
Online brokers are digital trading platforms that allow users to trade stocks, options, ETFs and other financial products online. They offer convenience and competitive pricing, making them popular among individual investors and traders.
What are the three types of brokers?
Trading brokers come in three main varieties: full-service, discount, and online. Full-service brokers offer a variety of services such as research, advice, and account management. Discount brokers are low-cost and may only offer basic services. Online brokers provide customers access to the markets with limited assistance.
Are online brokers safe?
Online brokers are generally safe when used correctly. It is important to use trusted and reliable providers, keep your account secure, and be mindful of any potential risks when trading online. For example, markets.com is fully regulated and controlled for maximum security and safety while you trade.
An Overnight Index Swap (Swap Fee) is a process where the settlement of a deal is rolled forward to another value date, and a charge is levied based on the difference in the interest rates of the two currencies. Every day at 21:00 GMT, open positions are rolled over to the next day and the positions gain or lose interest based on the interest differential between the bought and sold currencies.
What is OIS compound?
The index rate is typically the rate for overnight lending between banks, either non-secured or secured. The fixed rate of OIS is typically an interest rate considered less risky than the corresponding interbank rate (LIBOR) because there is limited counterparty risk.
The LIBOR–OIS spread is the difference between IRS rates, based on the LIBOR, and OIS rates, based on overnight rates, for the same term.
The New Zealand dollar to US Dollar exchange rate is represented by the acronym NZD/USD. The New Zealand dollar, also known as the ‘Kiwi' because of the bird depicted upon the NZ$1 coin is the smallest major in terms of trading volume, accounting for 2.1% of daily forex trades. Around $104 billion worth of NZD is traded each day.
The New Zealand economy is heavily reliant upon exports, with dairy being the nation's biggest industry. Mining is also important and, like its antipodean neighbour Australia, New Zealand relies heavily upon trade with China. Data from China that shows strength or weakness in industry or consumer demand can have a strong impact upon NZD/USD.
As a commodity-correlated currency the New Zealand dollar is also highly-sensitive to risk-appetite. In times of geopolitical or economic uncertainty the NZD/USD exchange rate weakens, while market confidence tends to push NZD/USD higher.
NZD/CAD is the abbreviation for the New Zealand dollar to Canadian dollar exchange rate. The New Zealand dollar is the 10th most-traded currency, accounting for 2.1% of daily transactions. US$104 billion worth of NZD is traded daily. The Canadian dollar is the 6th most-traded currency, involved in 5.1% of all daily transactions.
The New Zealand dollar is highly-sensitive to commodity prices. Dairy is the country's main industry; when dairy prices fall, the outlook for the New Zealand economy weakens, pushing the NZD/CAD rate lower. When dairy prices rise, the opposite happens.
The Canadian dollar is heavily-exposed to changes in the price of crude oil - Canada's primary export. Both currencies are inversely correlated with the US Dollar, so even in times of risk movement in the NZD/CAD is more driven by fundamental factors.
The Canadian dollar is more exposed because the USA is Canada's largest trading partner by far.
The New Zealand dollar to Japanese yen exchange rate is identified by the abbreviation NZD/JPY. The New Zealand dollar is the 10th most-traded currency, accounting for 2.1% of daily transactions. US$104 billion worth of NZD is traded daily. The Japanese yen is the 3rd most-traded currency, involved in 22% of all daily currency trades.
The pair is highly sensitive to changes in market risk-appetite, as the New Zealand dollar is a commodity-correlated currency and the Japanese yen is a safe-haven currency.
New Zealand's main industry is diary; when dairy prices fall, the outlook for the New Zealand economy weakens, pushing the NZD/JPY exchange rate lower. When dairy prices rise, the opposite happens.
In times of market uncertainty, appetite for the safe-haven Japanese yen can increase sharply. However, the yen is often softened by the Bank of Japan's ultra-loose monetary stimulus package, which includes quantitative easing and negative interest rates.
Maintenance Margin, or “variation margin,” is considered as the minimum amount of equity (i.e., funds) which needs to be maintained in a trader’s margin account before a margin call is issued as due to the account value being below a minimum threshold and not being able to support open margin trade positions. Margin accounts are what leveraged trades use to trade, where they can purchase securities such as stocks, bonds, or options with funds borrowed from the brokerage.
How do you avoid maintenance margin?
To avoid maintenance margin issues, traders should monitor their account closely and adjust their leverage if needed. If your maintenance margin is not maintained it will result in a margin call, which may indicate that the trader should reconsider the risk exposure of their portfolio.
Why are maintenance margins important?
Maintenance margins are important to protect against losses due to fluctuations in the market. They ensure that traders maintain adequate capital reserves and can cover any potential losses.
Margin trading refers to the practice of borrowing money from a broker to purchase securities. It allows traders to buy more securities than they could afford to buy with cash alone, by leveraging the securities they already own as collateral. This increases the potential returns but also increases the potential risks, as the trader is responsible for paying interest on the borrowed money and must also cover any losses. Margin trading is considered to be a high-risk strategy and is only suitable for experienced traders with a good understanding of the risks involved.
How much money do you need for margin?
The amount of money required for margin trading depends on the minimum deposit requirement set by the broker. For markets.com this is 100 of your local currency, with the exception of South Africa where it is 1000 rand.
What level of margin is safe?
The level of margin that is considered safe depends on the trader's risk tolerance and investment goals. A lower margin level is generally considered to be safer, as it reduces the potential for large losses
Market Makers are financial institutions or investors that provide liquidity to the markets by placing buy and sell orders at specific prices. They are incentivized to do this in order to make profits from the bid-ask spread.
What is the difference between dealer and market maker?
A dealer and a market maker are both intermediaries in the securities market that provide liquidity and help facilitate trades. However, they have some key differences. A dealer is a person or entity that buys and sells securities for their own account and risk. They hold inventory of securities and make a profit by buying at a lower price and selling at a higher price.A market maker is a firm or individual that provides liquidity to the market by continuously buying and selling a security at publicly quoted prices. They are also called liquidity providers, and they make money by charging a bid-ask spread, the difference between the prices they are willing to buy and sell a security. They do not hold inventory of securities like dealers do.
Do market makers manipulate price?
Market makers are allowed to buy and sell securities at their own discretion, and they may adjust the prices they are willing to buy and sell a security in order to make a profit. However, they are also subject to regulatory oversight, and they must act in a fair and transparent manner. They are not allowed to manipulate prices, and any illegal activities such as insider trading, wash trading or any other form of market manipulation are strictly prohibited.
Market capitalization, commonly referred to as market cap, is a measure of a company's size and is calculated by multiplying the total number of its shares outstanding by the current market price of each share. Market cap can be used to help assess how much a company is worth in the eyes of investors.
Is high market cap good?
A high market capitalization (market cap) generally indicates that a company is well-established, has a strong financial performance, and is considered to be a reliable investment by the market. High market cap companies are often considered to be blue-chip stocks and are more stable and less risky than lower market cap companies.
However, a high market cap does not guarantee that a company will perform well in the future, it just reflects the current market's perception of the company, the stock price and the number of shares outstanding. The company may still be facing internal or external challenges, and the stock may be overvalued. Therefore, it's always important to do your own research and analysis before investing in any stock regardless of its market capitalization.
What is a good market capitalization?
A good market capitalization for an investment depends on the investor's individual preferences and goals. Generally, companies with a high market capitalization are considered to be well-established and financially stable, making them a more reliable investment. However, it is important to note that high market capitalization does not always guarantee future performance.
Is it better to have a small or large market cap?
Small-cap companies tend to be more risky but have higher growth potential. Large-cap companies are considered to be more stable but have lower growth potential. At the end of the day it will all depend on the investor's preference for risk and tolerance for profit/loss.
A margin call is a demand from a broker to a trader that additional funds must be added to the trader’s account in order to maintain their current positions.
What would trigger a margin call?
A margin call occurs when an investor using margin (borrowed money) to trade in securities or other financial instruments, does not have enough money or equity in their account to meet the minimum margin requirement set by their broker. This can happen when the value of the securities in the account falls below a certain level, resulting in a negative balance in the margin account. A margin call can be a warning sign that the investor is taking on too much risk, and it can be a good opportunity to re-evaluate their investment strategy.
What happens if you get a margin call?
When a margin call happens, the broker will contact the investor and ask them to deposit additional funds into their account or sell some of their profiting securities to bring the account equity back above the minimum margin requirement. If the investor is unable to meet the margin call, the broker may take action to liquidate the investor's securities in order to bring the account back to a positive balance.
Do you lose money on a margin call?
A margin call itself does not necessarily mean that you will lose money, but it does indicate that you are at risk of losing money if you do not take action to meet the call. When a margin call occurs, it is a warning that your account balance has dropped below the minimum margin requirement set by your broker, and if you do not take action to bring it back above that level, your broker may take action to liquidate your securities in order to bring the account back to a positive balance.
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 risk/reward ratio is a known concept for those engaging in business. So, what is a Risk/Reward Ratio in trading, and does it follow the same guidelines and practices of the business world?
In trading, the Risk/Reward Ratio measures the expected gains of a given trade, asset, or position against the risk of potential loss. It is typically shown as a figure for the assessed risk separated by a ':' from the figure for the prospective reward.
What is a good Risk/Reward Ratio?
Acceptable ratios can vary, based on multiple factors. You can calculate this by dividing your "reward" (the end result or net profit) by the price of your maximum risk. It is generally accepted that if a risk is equal or greater than the corresponding reward, the trade position will not be worth the risk. Equally generally acceptable is the notion that a ratio greater than 1:3 is minimally required in order to justify the risk, i.e. a good risk/reward ratio.
By definition, this ratio quantifies the relationship between the potential currency lost, if the trade or action taken do fail, versus realized sum (gained) if all goes as planned.
Traders make use of the Risk/Reward Ratio to as one of the means to determine viability or worthiness of a given investment. One way to limit risk is to issue stop-loss orders, which trigger automatic sales of stock or other assets when they hit a specific value. This enables traders to limit potential risks.
CFDs are a leveraged financial instrument that allow traders to gain exposure to an underlying asset, such as shares, commodities or indices. While this provides great potential for profits, it also carries significant risks. The main risk is the possibility of losses greater than your initial deposit if the market moves against you. CFDs also have costs associated with trading such as commissions and spreads. Make sure you understand the risks before trading with CFDs.
What are the disadvantages of CFDs?
CFDs are complex instruments and may not be suitable for everyone due to the risk of leverage. CFDs also come with costs, including spreads and commissions which can cut into potential profits. Furthermore, it's important to understand how margin calls work as well as potential losses from unanticipated price movements or illiquidity in the market.
How much can you lose in a CFD trade?
In a CFD trade, you can potentially lose more than your initial investment, as the loss is based on the difference between the entry and exit price of the trade. It is important to set stop loss orders to limit potential losses. Additionally, using proper risk management strategies can help to minimize losses.
UPRO, ProShares Ultra Pro S&P500, provides 3x daily exposure to the S&P 500 Index. The ETF aims to deliver daily returns that are three times that of the S&P 500 Index, which comprises US large cap equities. The S&P 500 represents some of the largest and most liquid US stocks on the market.
This is a leveraged product and, as such, carries more risk. It is an aggressive instrument, design for intraday trading, and should not be used as part of a buy-and-hold strategy.
ProShares UltraPro Russell2000 (URTY) seeks to deliver daily results that are three times daily performance of the USA2000 Index. This is an aggressive single-day bet and results will vary if positions are held for longer than a day.
This ETF is a leveraged product, which carry more risk. It aims to deliver results that are 300% of the returns of the USA2000 Index. The USA2000 Index covers US small cap companies and a broad range of sectors including finance and tech. Holdings include Etsy, Planet Fitness and Hubspot.
Direxion Daily Small Cap Bear 3x Shares (TZA) seeks to deliver daily results that are three times the inverse of the daily performance of the USA2000 Index. This is an aggressive single-day bet against the USA2000, and results will vary if positions are held for longer than a day.
This ETF is a leveraged product, which carry more risk. It aims to deliver results that are 300% opposite the returns of the USA2000 Index. The USA2000 Index covers US small cap companies and a broad range of sectors including finance and tech. Holdings include Etsy, Planet Fitness and Hubspot.
ProShares Ultra QQQ (QLD) aims to deliver daily investment results that are twice the performance of the Nasdaq 100 Index. This ETF provides leveraged exposure to a market-cap weighted index of 100 non-financial stocks listed on the NASDAQ. This is a single-day bet and traders are advised that returns can vary dramatically if they hold positions for longer than one day. All leveraged products carry more risk than unleveraged products.
The Nasdaq 100 is dominate by tech firms, so the performance of the index is closely tied to the sector. Top holdings include Apple, Amazon, Facebook and Tesla.
ProShares UltraPro QQQ (TQQQ) is a leveraged ETF that tracks the performance of the Nasdaq 100 index. This ETF aims to deliver a daily output that is three times the daily performance of the Nasdaq 100. That means TQQQ will deliver results that are 300% of how the index has moved.
The Nasdaq 100 includes the largest companies on the Nasdaq stock market and holdings include Apple, 21st Century Fox Inc, Kraft Heinz and Facebook. This is a single-day bet and is not recommended for use for longer than periods of one day, as the results will differ. Leveraged products carry more risk.
ProShares UltraPro Short S&P500 (SPXU) seeks daily investment results that are 300% the inverse of the daily performance of the S&P 500. This is a single day bet for traders looking to go short on S&P500 or hedge other trades. Like any leveraged product, there is more risk involved in this ETF than in unleveraged products.
S&P500, the index that it inversely tracks, is considered a benchmark for large-cap US equities. It comprises 500 leading companies, many of which are household names, and a broad range of sectors – although tech firms feature heavily. Holdings include Microsoft, Apple, Amazon, Berkshire Hathaway and Johnson & Johnson.
ProShares UltraShort QQQ (QID) aims to deliver daily investment results that are twice the inverse daily performance of the Nasdaq 100 Index. This is a single-day bet and traders are advised that returns can vary dramatically if they hold positions for longer than one day. This is the sister product to QLD, which delivers two times the daily performance of the Nasdaq 100.
As with most inverse and leveraged products, this fund is designed to provide inverse exposure on a daily basis, not as a long-term inverse bet against the index. All leveraged products carry more risk. Nasdaq 100 holdings include Apple, Amazon, Facebook and Tesla.
ProShares UltraPro Short QQQ (SQQQ) is an inverse leveraged ETF that tracks the performance of the Nasdaq 100 index. This ETF aims to deliver a daily output that is three times the inverse of the daily performance of the Nasdaq 100. That means SQQQ will deliver results that are 300% opposite to how the index has moved. They are a useful product for traders looking to go short or to hedge their other positions.
The Nasdaq 100 includes the largest companies on the Nasdaq stock market and holdings include Apple, 21st Century Fox Inc, Kraft Heinz and Facebook. This is a single-day bet and is not recommended for use for longer than periods of one day, as the results will differ. Leveraged products carry more risk.
A quoted price is the most recent price at which an asset was traded at. Global and local events, either of a financial nature or completely unrelated to finances continually affect the quoted prices of assets such as stocks, bonds, commodities, and derivatives changes continually throughout a trading. Additionally, It is often the price point where buyers and sellers agree on, the most up-to-date agreement between buyers and sellers, or the bid and ask prices. It is also where supply meets demand.
Is a quoted price legally binding?
In most cases, when trading in an exchange, the quoted price is binding and the trade is executed at the quoted price, with the exchange acting as a counterparty to the trade. However, when trading OTC (over-the-counter), the quoted price is not necessarily binding as the parties have more flexibility in negotiating the final price, and the counterparty risk is higher.
A trade execution is the process of executing a trading order in the financial markets. This typically involves verifying all of the parameters for the order, sending the request to the market or exchange, monitoring execution, and ensuring all transaction requirements have been met.
Brokers execute Trade Execution Order in the following ways:
• By sending orders to a Stock Exchange
• Sending them to market makers
• Via their own inventory of securities
Why is execution of trade important?
Trade execution is important due to the fact that even digital orders are not fully instantaneous. Trade orders can be split into several batches to sell since price quotes are only for a specific number of shares. The trade execution price may differ from the price seen on the order screen.
What is trade execution time?
Trade execution time is the period of time between a trade being placed and the completion of the trade. This includes market access, pricing, liquidity sourcing, risk management and settlement of funds. Trade execution time can vary depending on asset class, liquidity levels and other factors.
Stock trading is the practice of buying and selling stocks, or shares of ownership in a publicly-traded company, with the goal of making a profit through price appreciation or by receiving income in the form of dividends. Stock traders buy and sell shares in the stock market using a brokerage account, and they use a variety of strategies and techniques to determine when to enter and exit trades. Stock trading is a popular form of investment, but it also comes with risks and profits are in no way guaranteed. You should acquire a good understanding of the market and individual stocks before making trading decisions.
How are Stocks Different from Other Securities?
Stocks, also known as equities, represent ownership in a corporation, while other securities represent claims on an underlying asset. Other types of securities include bonds (debt securities), options, and derivatives.
How Do I Start Trading Stocks?
You can trade stocks using a stock exchange. Platforms like markets.com offer CFDs on stocks and other securities so you can start assembling and get trading outcomes of your own!
Stop Orders are a type of stock order that helps limit the investor’s risk. The order triggers a purchase or sale once a set price is reached, either above (stop buy) or below (stop sell). Stop Orders are used to protect investors against an unfavorable price movements and lock in potential gains.
How long do stop orders last?
Stop orders are instructions given to a broker to buy or sell an asset when its price reaches a predetermined level. Stop orders remain in effect until the stop price is triggered, at which point the order becomes a market order and will be executed. This means that stop orders may last for an indefinite amount of time. It is important to monitor the current market price closely as stop orders do not guarantee execution.
Are stop orders a good idea?
Stop orders can be useful as they can help limit an investor's loss or protect a profit on a security. They are often used to automatically exit a position when the market moves against the investor. However, the use of stop orders may be subject to market conditions and the specific investment strategy of an investor, so whether or not they are a good idea depends on the individual's financial situation and risk tolerance.
Treasury stock, also known as reacquired stock, is stock which a company has repurchased from shareholders. This stock is issued and bought back by the company for various reasons including to improve financial statements and reward shareholders through dividend payments. Companies must keep records of their treasury stock in order to report them on financial statements.
How is treasury stock different from common stock?
Treasury stock, also known as "buyback," is a corporation's own stock that has been purchased back by the issuing company from shareholders. Treasury stock does not give voting rights or dividend payments. In contrast, common stock gives owners voting rights and entitles them to dividends, when declared. Treasury stocks are used to offset dilution and strengthen balance sheets while still giving shareholders an opportunity to sell shares without market risk.
What is the benefit of treasury stock?
By purchasing their own stock, companies can benefit from reducing risk, enhancing corporate governance and even increasing profits. In addition, the stock may be held in reserve for future issuance or to protect against takeover attempts.
Is treasury stock debt or equity?
Treasury stock is a form of equity, rather than debt. It is a company's own shares which have been bought back and held by the company, resulting in the number of outstanding shares being reduced. The buyback is often used to increase shareholder value, reduce the supply of outstanding stock, or as part of employee compensation programs.
Spread Betting is a type of financial speculation which allows you to take a position on the future direction of the price of a security, such as stocks, commodities or currencies. You can choose to speculate whether an asset will go up or down in value, without having to buy or sell it. Spread Betting enables you to take a view on the markets and gain access to the financial markets with limited capital outlay.
How does a spread bet work?
A spread bet is placed by betting on whether the asset's price will rise or fall. The investor can set their own stake size, which means they can take more or less risk according to their preferences. Spread bets are flexible and convenient, allowing you to benefit from even the slightest market movements.
What does a negative spread mean?
A negative spread in trading refers to a situation where the ask price for a security is lower than the bid price. This means that a trader could potentially sell a security for a higher price than they would have to pay to buy it. This is an unusual situation that can occur due to a temporary market anomaly or a technical error. Negative spreads are rare and they tend to be corrected quickly, as they represent an opportunity for arbitrage. Traders should be cautious when dealing with negative spreads and should consult with their broker or trading platform to understand the cause of the negative spread and its potential impact on their trade.
Technical analysis is a type of financial analysis that looks at historical price movements and trading volumes to predict future price movements in the market. It involves studying trends, chart patterns, momentum indicators, and other factors to make informed decisions about trading. Technical analysis can help traders and investors gain insight into market sentiment, timing their trades for optimal returns.
Why is technical analysis important?
Technical analysis is a critical component of successful financial and trading strategies. It helps investors understand the past performance of a security, identify current trends and anticipate future price movements. Technical analysis relies on mathematical calculations and charting techniques to evaluate securities, which can be an invaluable tool for traders to optimize returns and manage risk.
Which tool is best for technical analysis?
There are many tools that can be used for technical analysis, and different traders may have different preferences. Some commonly used tools include:
Ultimately, the best tool for technical analysis will depend on the individual trader's preferences and the market conditions they are trading in. it's important to use multiple tools and indicators to validate the signals and make better decisions.
A range refers to the difference between the highest and lowest prices a stock may reach during a specific time frame. This range gives investors an indication of how volatile a particular asset might be in terms of its price movements, as well as what opportunities they might have to make money. By analyzing historical data and keeping up-to-date with market news, investors can develop strategies to capitalize on different ranges.
How do you use ranges in trading?
Range trading is a popular trading strategy in finance, particularly for traders looking to limit their risk and profit from a given market movement. When using ranges, traders identify support and resistance levels for a security or asset, and look to take profits when prices reach either level. By using a range-trading strategy, traders can limit the amount of capital they are willing to risk per trade, as well as capitalize on both long-term and short-term movements in the market.
What is trend in trading?
A trend in trading is the general direction of a security's price over a period of time. Trend analysis helps traders make predictions about future market movements, allowing them to enter and exit positions at optimal times. Trends can be either upward or downward and often take weeks, months or even years to develop. To identify trends, technical analysis tools such as support and resistance levels, trend lines, and chart patterns are used by traders to detect buying and selling opportunities in the markets. Fundamental analysis also plays a role in recognizing potential profitable trading opportunities since underlying economic conditions may influence a security’s price.
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.
Trailing Stop Orders are a type of stock order that lets investors adjust the stop price as a security rises or falls. This order works by continuously monitoring the price of a security and dynamically adjusts the stop price with every tick. The advantage of this type of order is that it allows investors to limit their losses, while locking in profits, without having to manually modify the stop-loss point.
Are Trailing Stop Orders good?
Trailing Stop Orders can be a good way to protect profits in your trading. They allow you to set an automated stop-loss that trails the price of a stock, adjusting up as it rises, while allowing you to lock in some gains if the stock begins to fall. This is especially useful when dealing with volatile stocks, giving you more control over your position.
What is a disadvantage of a trailing stop loss?
Trailing stop losses can help minimize risk when trading, however they also limit potential gains. The stop price adjusts based on market conditions, so as the price increases, the stop loss will move up. If the stock drops significantly and your trailing stop loss is too close, it may be triggered before you have a chance to react.
Which is better stop limit or trailing stop?
It depends entirely on the trader. A stop limit will sell at the specified price, while a trailing stop will track price changes and sell when the specified amount is exceeded. Different traders may have different needs and objectives, so which type of order is best will vary. Consider your goals before deciding which option is right for you.
Take profit is an order type that is used by traders to automatically exit a trade when a certain profit level is reached. Once the specified price level is hit, the trade will be closed and the profit will be locked in. Take profit can also be used in short positions, where the trader is betting on the price to decrease. In this case, the trader would set a take profit order at a price level below the current market price. Once that price level is reached, the trade will be closed and the profit will be locked in.
When should I take profit on my shares?
The decision to take profit on a stock should be based on your own personal investment strategy and goals. Some investors may choose to take profit when a stock reaches a certain level of appreciation or when it reaches a technical resistance level. Others may choose to hold onto a stock for the long-term and only take profit when they need the money for other investments or expenses.
What is the purpose of take profit?
The purpose of a take profit order is to automatically lock in profit at a specific price level, without the need for a trader to constantly monitor the market. By setting a take profit order, a trader can set a specific level at which they want to exit a trade with a profit, and then let the market run its course. Additionally, it allows the trader to set a level of risk-reward they are comfortable with, and not be affected by emotions and human biases, which could cause them to hold on to a trade for too long or exit too soon.
Slippage is a common occurrence in trading when the price of an asset changes before an order can be filled. Slippage often happens when large orders are placed and market conditions change quickly, meaning that traders must accept the new price for their order or risk having it rejected. It’s important for traders to factor slippage into their trading strategies as unexpected slippage can affect trade outcomes.
What is a good slippage tolerance?
A good slippage tolerance is a matter of personal preference and depends on the trading strategy and risk tolerance. Generally, a low slippage tolerance is preferred as it allows for more precise execution of trades at the desired price. A high slippage tolerance allows for more flexibility in trade execution, but may result in less favorable prices. A slippage tolerance of 1-2% is considered to be reasonable for many traders.
How do traders avoid big losses when it comes to slippage?
Traders can avoid big losses due to slippage by using proper risk management strategies, such as setting stop-loss orders, using smaller position sizes, and using limit orders instead of market orders. Additionally, traders can look for a trustworthy and reliable broker with low slippage levels. Trading during less volatile periods can also help to minimize slippage.
What is maximum slippage?
Maximum slippage in trading refers to the largest difference between the expected price and the actual execution price of a trade. It is a measure of the worst-case scenario for slippage and can represent the largest potential loss a trader may face due to slippage. It is usually set by the trader in advance and if the slippage exceeds that level, the trade will not execute. The level of maximum slippage a trader is willing to accept is generally based on their individual risk tolerance.
A Stop Loss Order is a type of order that investors can use to limit losses when trading securities. This order instructs a broker to automatically sell a security when it reaches a certain price, known as the stop loss price. By using this order, investors can reduce their risk exposure by locking in gains and preventing larger losses.
How does a stop-loss order work?
A stop-loss order is an investment strategy that helps you limit losses by automatically selling your securities when they drop to a predetermined price. By setting up this order, you can avoid having to monitor the stock's performance every day and ensure that any potential losses are minimized.
What is the difference between a stop-loss and a stop limit order?
A stop-loss order is used to limit losses on a security position by automatically selling when the price drops below a specified level. Whereas a stop-limit order combines the features of a stop-loss with those of a limit order, enabling traders to specify both the price at which they are willing to sell and the maximum loss they are willing to take.
What is a good stop-loss order?
A good stop-loss order is one that is placed at a level that effectively limits potential losses on a trade. The specific level at which to place a stop-loss order will depend on the trader's risk tolerance and the price action of the security being traded. Generally, traders will place stop-loss orders at levels that are below the current price for long positions, or above the current price for short positions, in order to limit potential losses if the price moves in the opposite direction. It's important to note that stop loss orders act as a protective measure, but they don't guarantee that a trade will be executed at the exact stop loss level.
ProShares UltraShort 20+ Year Treasury (TBT) aims to deliver daily investment results that reflect twice the inverse of the daily performance of the ICE US Treasury 20+ Year Bond Index. Traders would look to get a 200% return opposite to the movement of US Treasury Securities.
This is a leveraged product, and so carries more risk. As with many leveraged ETFs, it delivers daily results and it designed as a single day bet. Positions that are held for longer than a day will get differing results. This ETF can be a useful tactical position or hedge against rising interest rates.
Volatility is the amount of uncertainty or risk associated with the size of changes in a security's value. It is measured by calculating the standard deviation of returns over a given period. High volatility means the price of an asset can change dramatically over a short time period in either direction. Traders often take advantage of volatility by speculating on stocks, options, and other financial instruments.
What causes market volatility?
Market volatility can be caused by a variety of factors including economic data releases, political events, changes in interest rates, and unexpected news or events. It can also be caused by changes in investor sentiment, speculation and market manipulation.
How do you know if a market is volatile?
A market is considered volatile if prices change rapidly, unpredictably, and significantly. This can be measured using volatility indices or by analyzing price movements and fluctuations over time.
The US Dollar to South African rand exchange rate is identified by the abbreviation USD/ZAR. The US Dollar is by far the world's most-traded currency, accounting for 87% of all over-the-counter FX each day - $4.4 trillion. The rand is the 20th most active currency, accounting for 1% of average daily turnover. Around $40 billion worth of USD/ZAR is traded each day.
USD/ZAR appreciates in times of market uncertainty, as traders move away from higher-yielding, but higher risk, emerging market currencies into lower-yielding, lower risk, assets. The South African rand is a highly-volatile currency thanks to the country's unstable economy, high levels of government debt, poor credit rating, and the political ramifications of apartheid.
The US Dollar is not only the most ubiquitous currency on the globe, but also a safe-haven asset. In times of market uncertainty traders withdraw from riskier assets into stable USD. It is the most popular reserve currency.
The US Dollar to Hungarian forint exchange rate is an exotic currency pair known by the abbreviation USD/HUF. The US Dollar is by far the world's most-traded currency, accounting for 87% of all over-the-counter FX each day - $4.4 trillion. The forint is the 26th most-active currency, accounting for just 0.3% of daily transactions.
The US Dollar is not only the most ubiquitous currency on the globe, but also a safe-haven asset. In times of market uncertainty traders withdraw from riskier assets into stable USD.
As an emerging market currency, the forint is popular in times of confidence and is sold in favour of safer, lower-yielding assets when volatility increases.
Compared to its emerging market peers, Hungary has a small level of foreign currency debt, providing some insulation for the economy and its currency against external disruption. Hungary enjoys a strong economy, with low payroll and corporate taxes and growth that outpaces the EU average.
The US Dollar to Romanian leu exchange rate is identified by the abbreviation USD/RON. The US Dollar is by far the world's most-traded currency, accounting for 87% of all over-the-counter FX each day - $4.4 trillion. The Romanian leu the 34th most-active currency, accounting for just 0.1% of average daily turnover.
Romania is an emerging market economy and is one of Europe's poorest nations. The country wanted to adopt the euro, but has so far failed to meet the criteria. USD/RON appreciates in times of market uncertainty, as traders move away from higher-yielding, but higher risk, emerging market currencies into lower-yielding, lower risk, currencies.
The US Dollar is not only the most ubiquitous currency on the globe, but also a safe-haven asset. In times of market uncertainty traders withdraw from riskier assets into stable USD. It is the most popular reserve currency, meaning central banks stockpile dollars to use in times of domestic currency weakness.
The US Dollar to Swedish Krona exchange rate is identified by the abbreviation USD/SEK. The US Dollar is by far the world's most-traded currency, accounting for 87% of all over-the-counter FX each day - $4.4 trillion.
The Swedish Krona is the 9th most-traded currency, accounting for 2.2% of daily transactions. US$112 billion worth of SEK is traded daily.
The US Dollar is not only the most ubiquitous currency on the globe, but also a safe-haven asset. In times of market uncertainty traders withdraw from riskier assets into stable USD.
The Swedish krona shares a strong correlation with its Scandinavian peers the Norwegian krone and the Danish krone. These currencies - which all translate as “crown” - came about in 1873 when Sweden and Denmark formed the Scandinavian Monetary Union, backed by the gold standard. Norway joined two years later. When the union was dissolved after World War Two, the countries independently kept the currency.
The US Dollar to Singapore dollar exchange rate is identified by the abbreviation USD/SGD. The US Dollar is by far the world's most-traded currency, accounting for 87% of all over-the-counter FX each day - $4.4 trillion.
The Singapore dollar accounts for 1.8% of all daily forex transactions, making it the 12th most-traded currency on the globe.
The US Dollar is not only the most ubiquitous currency on the globe, but also a safe-haven asset. In times of market uncertainty traders withdraw from riskier assets into stable USD.
The Singapore dollar has been allowed to float free by the Monetary Authority of Singapore (MAS) since 1985, but the range in which it is permitted to trade has never been disclosed. SGD has a weak correlation with the Chinese yuan. This, combined with a solid financial sector and property market, has made Singapore an attractive place for offshore investors, helping to keep the appeal of the local currency elevated.
USD/CZK is the abbreviation for the US Dollar to Czech koruna exchange rate. The US Dollar is by far the world's most-traded currency, accounting for 87% of all over-the-counter FX each day - $4.4 trillion. The koruna is the 28th most-traded currency, accounting for just 0.3% of daily transactions.
The Czech Republic economy is strongly intertwined with that of the Eurozone; in particular Germany, which receives the bulk of Czech exports. Recent strength in the Eurozone has benefited the Czech Republic, contributing to an unemployment rate that is amongst the lowest in Europe. Strong data from the currency bloc therefore supports CZK.
In April 2017, the Czech National Bank exited its exchange rate commitment to cap CZK strength, implemented in November 2013, allowing the currency to fluctuate unrestrained.
The US Dollar is not only the most ubiquitous currency on the globe, but also a safe-haven asset. In times of market uncertainty traders withdraw from riskier assets into stable USD.
The US Dollar to Mexican peso exchange rate is identified by the abbreviation USD/MXN. The US Dollar is by far the world's most-traded currency, accounting for 87% of all over-the-counter FX each day - $4.4 trillion.
The Mexican peso is the 11th most-traded currency, accounting for 1.9% of daily transactions.
The US Dollar is not only the most ubiquitous currency on the globe, but also a safe-haven asset. In times of market uncertainty traders withdraw from riskier assets into stable USD. It is the most popular reserve currency
MXN is tied to the price of crude oil because of Mexico's high reserves, which the government uses as collateral when borrowing to fund spending. 10% of Mexico's GDP comes from oil production, so when prices fall it not only pushes up borrowing costs, but also weakens the outlook for growth.
Cross-border trade with the US also generates strong demand for pesos. The currency therefore weakens when trade comes under threat.
USD/CAD is the abbreviation for the US Dollar to Canadian dollar exchange rate. The pair accounts for 4.3% - $218 billion - of all daily forex trades. The US Dollar is the most popular currency to trade, while the Canadian dollar is the 6th most popular. CAD, also known as the “Loonie”, after the bird depicted upon the C$1 coin, accounts for 4.6% of daily forex activity.
The majority of Canadian dollars are exchanged for US Dollars. Canada is the second-largest trade partner for the US; in 2017 the US exported $341.2 billion worth of goods to Canada and imported $332.8 billion. The two nations and Mexico are bound by the North American Free Trade Agreement (NAFTA), although its future is uncertain.
Canada is one of the world's largest oil producers, so the price of crude on the international market has a significant impact upon the USD/CAD exchange rate. In times of high risk-appetite USD/CAD weakens, while low risk-appetite pushes the pairing higher.
The US Dollar to Polish zloty exchange rate is identified by the abbreviation USD/PLN. The US Dollar is by far the world's most-traded currency, accounting for 87% of all over-the-counter FX each day - $4.4 trillion. The Polish zloty the 22nd most active currency, accounting for 0.7% of average daily turnover. Approximately $19 billion worth of USD/PLN is traded each day.
Poland is an emerging market economy, favoured by investors in times of market certainty because of its higher yielding assets.
The zloty reflects the strength or weakness of the Eurozone economy due to the strong trading relationship between Poland and the Eurozone, as well as the fact that Poland could eventually become a member of the bloc. Positive Eurozone data can therefore support the zloty.
The US Dollar is not only the most ubiquitous currency on the globe, but also a safe-haven asset. In times of market uncertainty traders withdraw from riskier assets into stable USD. It is the most popular reserve currency.
The US Dollar to Turkish lira exchange rate is identified by the abbreviation USD/TRY. The US Dollar is by far the world's most-traded currency, accounting for 87% of all over-the-counter FX each day - $4.4 trillion. The lira is the 16th most active currency, accounting for 1.4% of average daily turnover.
Turkey is an emerging market and relies heavily upon the EU for both imports and exports; weakness in the Eurozone economy is therefore a bad sign for Turkey as well. USD/TRY appreciates in times of market uncertainty, as traders move away from higher-yielding, but higher risk, emerging market currencies into lower risk currencies.
The Turkish economy is largely fuelled by foreign currency loans, a strong USD can prompt further lira selling on fear of higher credit costs for Turkey's corporations.
The US Dollar is not only the most ubiquitous currency on the globe, but also a safe-haven asset. In times of market uncertainty traders withdraw from riskier assets into stable USD.
The UK 100 is a blue-chip index of the largest 100 companies on the London Stock Exchange in terms of market capitalisation. Companies are only included if they meet relevant size and liquidity requirements.
The index was launched on 3rd January 1984, with a base date of 30th December 1983 and a base level of 1,000 points.
In terms of weighting, the three largest sectors of the UK 100 as of H2 2018 are Oil & Gas (16.56%), Banks (12.70%), and Personal & Household Goods (12.37%).
Traditionally the index has lagged its peers, such as the larger FTSE 250 and the US S&P 500. The index fluctuates in response to market risk sentiment and the strength of the pound Sterling. The UK 100 contains many international companies who report their earnings in other currencies, so a stronger pound weakens company profits.
Because of this, the UK 100 is also considered to be an unreliable indicator of the health of the UK economy because of its large international component.
USD/CHF is the symbol for the US Dollar to Swiss franc exchange rate. The pairing accounts for 3.6% ($180 billion) of all daily forex activity. The Swiss franc is the 7th most popular trading currency in the world and is involved in nearly 5% of all forex transactions each day.
The US Dollar and Swiss franc are both safe-haven currencies, meaning that the pairing is less responsive to risk-appetite on the global market than other pairings. However, the Swiss franc shares a strong correlation with the euro, so anything that weakens the euro would benefit the US Dollar and pressure the franc lower. If the euro strengthens, the USD/CHF pairing is likely to depreciate. The franc used to be pegged to the euro, but the Swiss National Bank unexpectedly allowed the currency to float free in January 2015.
CHF is a popular choice with traders because of Switzerland's strong and stable economy. It is a wealthy nation with a strong banking sector and its citizens enjoy a great quality of life.
USD/NOK is the symbol for the US Dollar to Norwegian krone exchange rate. The US Dollar is by far the world's most-traded currency, accounting for 87% of all over-the-counter FX each day - $4.4 trillion.
The krone is the 13th most-trade currency, accounting for 1.7% of all daily forex activity. Around $US48 billion worth of USD/NOK - 0.9% of the total daily volume - is traded each day.
The US Dollar is not only the most ubiquitous currency on the globe, but also a safe-haven asset. In times of market uncertainty traders withdraw from riskier assets into stable USD.
The Norwegian economy is strongly-reliant upon crude oil and natural gas; the nation is one of the 5 top exporters of gas and oil, with the sector accounting for 22% of Norwegian GDP and 67% of the country's exports. USD/NOK therefore benefits doubly in times of low risk-appetite.
The EU is an important trade partner for Norway, accounting for 72% of its trade. Eurozone economic data can therefore have an impact upon NOK.
USD/DKK is the symbol for the US Dollar to Denmark krone exchange rate. The US Dollar is by far the world's most-traded currency, accounting for 87% of all over-the-counter FX each day - $4.4 trillion.
The Denmark krone is the 21st most-traded currency in the world and is involved in 0.8% of all forex transactions each day. On average US$42 billion worth of krone is exchanged each day.
The US Dollar is not only the most ubiquitous currency on the globe, but also a safe-haven asset. In times of market uncertainty traders withdraw from riskier assets into stable USD.
The Danish krone is pegged to the euro through the European Exchange Rate Mechanism, also known as ERM 2. The central fixed rate is 746.038 krone per €100 but, unlike the standard +/- 15% fluctuation permitted under ERM 2, the Krone is limited to a fluctuation of just +/- 2.25%. Because it is pegged to the euro, the krone is also highly-vulnerable to USD strength - even when traded against other currencies.
The US Dollar to Brazilian real exchange rate is known by the acronym USD/BRL. The US Dollar is by far the world's most-traded currency, accounting for 87% of all over-the-counter FX each day - $4.4 trillion.
The Brazilian real is the 19th most actively traded currency, accounting for 1% of all average daily turnover. US $45 billion worth of over-the-counter USD/BRL trades are made every day.
The US Dollar is not only the most ubiquitous currency on the globe, but also a safe-haven asset. In times of market uncertainty traders withdraw from riskier assets into stable USD.
The real was adopted in July 1994 and was pegged against the US Dollar until 1999. The USD/BRL exchange rate is a popular one with carry traders; those who borrow dollars, convert them into real and then use the proceeds to buy debt issued in Brazil, where interest rates are significantly higher than in the United States. Times of market uncertainty can deter carry traders, as high USD/BRL volatility can weaken profits made from exploiting the interest rate differential.
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