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Trading Definitions: Commonly Heard Trading Terms by Traders

Trading Definitions
The global financial markets are laden with lots of potential opportunities for investors and traders to build a long-term investment portfolio that could bring potential returns on their investment. The financial markets have a lot of terms and terminologies that every trader should be familiar with going forward.
 
While these trading terms could help traders to better understand the workings of the market, failure to understand them could also mean that you will be moving around a cycle without achieving any tangible results. In this article, we have put together a comprehensive list of some of the common trading terms and their definition to help people understand what they stand for, and how they could be used as you try to navigate the financial market.
 
In the future, if you have a trainee that you are mentoring, you may share this article with the trainee to also get acquainted with the numerous trading terms and terminologies that are associated with the market. But before we dive in to list and explain the terms, let's quickly define what trading terms mean.

What Are Trading Terms?

Trading terms or terminologies are industry-specific jargon developed for the financial market. When investors or traders are discussing their experiences on the financial market (maybe forex, crypto, oil, or commodities), they tend to use these terminologies to discuss indices, patterns, charts, and strategies of the financial market. Learning these trading terms will give you a heads-up to accelerate your assimilation process.
 
Now, let's take a look at the most basic financial market terminologies that you will likely encounter as you navigate the financial market. 

A - Arbitrage 

Arbitrage means the simultaneous trading of a financial instrument with the intention of profiting from the strike price differential. Arbitrage exploits price differences of similar assets on different markets.
 
Ask
 
Ask can be defined as a motion or willingness to sell a futures contract at a specific strike price value. 

B - Back Month 

Back Month is also known as the far month contract. It is a specific type of futures contract that expires before the current contract month.
 
Basis
 
This is the difference between the future price and the current cash price of the same commodity. It is actually determined by the financial cost of holding the commodity Vs contracting it to buy for a later delivery. Unusual situations in demand and supply are the major factors that affect the basis.
 
Broker
 
In the financial market, a broker is an individual or a company that is responsible for facilitating a trade between a buyer and a seller. Generally, brokers make their money through the commission that both the buyer and the seller will pay before a trade is completed.
 
Bid
 
A bid can be defined as a motion to purchase a financial instrument at a given current market price.
 
Bear
 
This is a trader who expects prices to decline.
 
Bear Market
 
A bear market is a market whose prices are in a downward trend.
 
Bull
 
This is a trader who expects prices to increase.
 
Bull Market
 
This is a financial market in which prices are rising. 

C - Carrying Charge (Cost of Carry) 

The carrying charge is the cost of storage space financial charges and insurance include as a result of holding a physical commodity. It may also refer to the difference between the cost necessary to buy an instrument and the yield on a cash instrument.
 
Cash Commodity
 
This is a commodity that a trader wishes to buy or sell. Examples include corn, soybeans, silver, and gold.
 
Cash Market
 
This is the marketplace where traders trade actual commodities.
 
Commodity
 
This is a physical product that can be traded on the market. Commodities include foreign currencies, petroleum, metals, agricultural products, indexes, and financial instruments.
 
Contract
 
A contract is the unit of trade for a commodity future. A contract can also be defined as the agreement between a buyer and the seller on futures transactions. 

D - Daily Trading Limit 

This is the maximum price that is set for a contract by The exchange each day. While a daily trading limit cannot stop trading it can limit how far the price can move in any direction in a given trading day.
 
Day Order
 
A day order is usually placed for execution in one trading session. The other automatically expires at the close of the trading session if the other cannot be filled in that session.
 
Day Trade
 
Patriot is a trading strategy that involves the purchase and sale of a financial instrument within the same day.
 
Day Traders
 
Day traders and speculators who buy or sell commodities or financial instruments weeding the same trading day to make their profits.
 
Delivery
 
Delivery is the transfer of cash commodity to the buyer of a futures contract from the seller of a future contract. There are some Future contracts, for example, stock index contracts, which are cash-settled.
 
Delivery Month
 
A delivery month can be defined as the specific month which has been scheduled for delivery to take place under the terms and conditions of a futures contract. 

E - Exchange 

An exchange or a stock exchange is a platform or a marketplace where a financial instrument or underlying asset can be traded for profit, for example, the trading of cryptocurrencies usually takes place on an exchange. An example of an exchange is the London stock exchange. 

F - Forex Futures 

This is a term used to represent the foreign exchange futures. It can be described as the exchange-traded contracts to train a specific amount of a financial instrument or an underlying asset at a specific price.
 
Forward (Cash) Contract
 
This is a cash contract whereby buyers and sellers agree to fulfill an order to a buyer later in the future. They are privately negotiated.
 
Futures
 
This terminology is used to describe a contract covering the buy and sell of a financial instrument for future delivery on an exchange.
 
Futures Commission Merchant (FCM)
 
This is a company engaged in the business of soliciting and handling orders for the trading of futures contracts. Usually, the FCM is licensed by the CFTC.
 
Futures Contract
 
This is a legal agreement made on an exchange to buy and sell a specific financial instrument in the future.
 
Futures Exchange
 
This is a marketplace where futures are traded. The market is regulated, with stringent rules and regulations guiding the operations of the market.
 
G - Good till Canceled (GTC)
 
This is an order created by a broker or an exchange until a time the order will be filled or canceled.
 
H - Hedge
 
This is the buying and selling of a future contract for a cash transaction to be made available at a specified date later in a training session. Hedge involves opposite positions in the futures market or the cash market at the same time.
 
Hedger
 
This is a company or an individual planning to own a cash commodity like wheat, soya beans, or the United States treasury bonds.
 
Hedging
 
This is the standard practice of offsetting the risk inherent in a cash market. 

I - Initial Margin 

Initial margin can be defined or described as the minimum value on deposit to establish an options position or new features. The initial margin that is usually in the account of traders differs by contract. 

L - Last Trading Day 

On the financial market, the last trading day is the final day a trade me or call in a given feature.
 
Limit Move
 
This is the maximum price that is set for a contract by The exchange each day. While a limit move cannot stop trading it can limit how far the price can move in any direction in a given trading day.
 
Limit Order
 
A limit order is an order given for a trade specifying the maximum amount beyond which the trade shouldn't execute.
 
Leverage
 
This is the ability given to a trader by a broker or an exchange to control large amounts with small capital.
 
Limit Order
 
A limit order is an order that specifies the maximum amount which a buyer has agreed to pay for a contract. This order is specifically used to limit the amount a buyer is willing to commit to a trade.
 
Liquid
 
This is the feature of a commodity or securing, showing there are enough units to allow large transactions without a change of price.
 
Liquidation
 
This is a transaction that closes out or offsets a short or long futures position. 

M - Managed Futures 

Managed futures represent an asset composed of commodity trading advisors (CTAs). These individuals manage their customers' assets on a discretionary basis.
 
Margin
 
These are funds deposited by traders with their brokers or exchanges. The margin helps brokers to grow and achieve their aspirations.
 
Margin Call
 
Margin call is a demand from a brokerage firm to their traders to bring margin deposits to a required support level. The traders will respond by depositing more funds to top up the amount that is in their margin account.
 
Market Order (MKT)
 
A market order is an order to buy or sell a particular commodity or financial instrument, including delivery months and quantity at the best possible prices available.
 
Market-If-Touched (M.I.T.) Order
 
This is an order that automatically becomes a market order as soon as the other price has been achieved.
 
Market on Close (MOC)
 
The market on close is also an order to sell or buy at the end of a training session. 

O - Offer 

An offer can be defined as a bid. It indicates the willingness to sell a financial instrument at a given price in the future.
 
Open Order
 
This is an order issued to a broker until the order is executed or canceled. 

P - Performance Bond (Margin) 

These are funds deposited by traders with their brokers or exchanges. The performance bond helps brokers to grow and achieve their aspirations.
 
Pit
 
This is a constructed Sports on the trading floor of some exchanges or brokers we're trading is usually conducted. Some exchanges prefer to call the spot a "ring."
 
Position
 
The simplest meaning to define a position is a market commitment. A seller of an asset is said to have a short position, while a buyer of the same asset is said to have a long position.
 
Price Limit Order
 
A price limit order is an order that specifies the maximum amount which a buyer has agreed to pay for a contract. This order is specifically used to limit the amount a buyer is willing to commit to a trade. 

S - Settlement Price 

This is the agreed or last price paid for a financial instrument or a commodity on any given trading day on the market. The settlement price is usually determined by averaging a closing range of prices.
 
Scalp
 
To scalp means to trade the market for small gains, usually within the same hour or day. Scalpers also engaged in technical analysis to make a profit.
 
Speculator
 
This is a trader who attempts to predict the price changes of an asset with the intention of making money. Speculators can carry out technical analysis to develop their trading strategies.
 
Spot
 
This is an immediate delivery market where a trader's order is executed instantly.
 
Spread
 
This is the price difference between two related commodities or markets. You can also define it as the price differential of an asset in a single market.
 
Stop Order
 
This is also popularly called a stop loss order. It is used to initiate a new position and also offset an existing position. A stop order is an order issued to buy or sell when a specific market reaches a particular point on the market
 
Stop Limit
 
A stop-limit to buy becomes a limit order when the futures contract trades above the stop price. Similarly, a stop limit to sell becomes a limit order when the futures contract trades below the stop price. 

T - Tick 

A small price increment in a given trade.
 
Tangible assets
 
These are physical financial assets on a blue chip company's balance sheet. These include buildings, machinery, or office equipment.
 
Technical analysis
 
This is the prediction of market price movements using historical market statistics or price charts.
 
Trading floor
 
This is the area of a broker or an exchange where assets or financial instruments are traded. It is also usually referred to as a trading pit.
 
Trading plan
 
This is a strategy developed by individual traders to maximize their stay in the financial markets.
 
Trailing stops
 
This is a type of Star Plus that follows the positive market movement of an asset you are trading. A trailing stop can lock in your position or profit and close the position if your position moves favorably. 

U - Unborrowable stock 

These are the stock or financial instruments that no investor is willing to lend out to short-sellers until the expiration date. 

V - Volatility 

This is the likelihood of a financial market to make major short-term market price movements at any given time and annual percentage.
 
Volume
 
This is the amount of a specific financial instrument that is being traded over a certain period of time. 

W - Working order 

This is a general term used to describe a stop or limit order when it is open. In working order can be used to advise your broker there is a good in trade when the market price of an asset reaches a specific amount or a call option.

Y - Yield 

This is the income that an investor or a trader earns from his or her investment in a blue-chip company until the expiry date.

Why Trade Financial Instruments With PrimeFin? 

PrimeFin is a reputable broker that offers financial services. Our services extend across a wide range of investors and traders, including those residents in South Africa. Regardless of your budget, PrimeFin has a place for you.
 
One of the features that stands out is the fact that there are educational resources that can be used as guides. Trading the market without a robust knowledge of how the market works is an exercise in futility. Without the market knowledge, you may not only lose money to market forces, you could also fall prey to the hands of scammers that are looking for unsuspecting members of the public to scam and flee with their money.
 
The educational resources are specially prepared to assist beginners and those with intermediary knowledge of how the financial market works. The educational resources are in different forms. Including the tutorial videos and readable materials, so one may choose the one that he/she prefers the most. Below are other reasons why traders and investors prefer to use our trading platform to assess the financial markets:
 
  • Regulated Broker: PrimeFin is a regulated broker or stock exchange. The services are authorized to function in South Africa and other countries of the world. If you take a look at the official website of the Financial Sector Conduct Authority (FSCA) of South Africa, you will discover that we have been licensed to operate in all regions of South Africa. However, if you are not a South African trader, you can also check with the financial regulator in your country to determine whether or not PrimeFin is authorized to operate in your region. 
  • Security: Security is one of the key attributes of a good online broker. When a trader or investor does not feel secure, the trader is likely not to deal with a broker. At PrimeFin, there is the use of cutting-edge security measures to protect the deposit and funds of the traders. 
  • Wide Range Of Trading Assets: At PrimeFin, there is a wide range of financial instruments, including cryptocurrencies, foreign exchange (FX), indices, commodities, ETFs, mutual funds, and pure metals. As a matter of fact, there are over 300 financial assets available.

Final Thoughts 

Okay, that's it. The financial instruments market is associated with so many terms and terminologies that every single trader should be familiar with. As a beginner or somebody who is just testing his or her feet in the market, it may be overwhelming to learn all the terminologies at once, you may try to start with the simplest ones and then walk your way through to those ones that are difficult. In the article above, we have meticulously explained these terminologies from A to Y in their simplest terms, so that beginners will be able to understand what each term stands for and the true essence of each term while trading on the market.
 
Your ability to familiarize yourself with each of these terms as market participants may not only make you a proper trader but could help you to set up an academy to train other beginners on the meaning of each of these terms. Even with the full understanding of these trading terminologies, it may be a good decision to trade using a demo account first.
 
A demo account is designed to help you better navigate the financial market without incurring any potential loss. However, you will not make any real profit as you trade with a demo account. When you have better equipped yourself on how the financial market works, you may then upgrade to a live account so that you can start making real potential profits.
 
Additionally, using risk management could measure better control to trade the markets. Failure to use risk management measures could expose you to the inherent risks on the market, you may also lose your trading capital to market forces.
 
There are four (4) training styles that have been identified by expert traders. These trading styles include swing trading, position trading, day trading, and the scalping trading method. You need to identify a particular trading method that best works for you and then develop a risk management measure that will be suitable for such a trading method.

Frequently Asked Questions (FAQs)

What are the terms used in trading? 

There are so many terms or terminologies associated with the financial market. Above, we have explained comprehensively the terms used in trading from A-Y. Since nobody knows it all, especially as a beginner, whenever you are confused, you can always go back to that section to see the meaning of each term. Day traders use these terms to coach the younger ones on how to buy goods and services using the Federal Reserve and the portion of a company's shares.

What is the trading meaning? 

Day Trading means the buying and selling of financial instruments to make a potential profit. It also means the exchange of financial instruments with compensation to a seller from the buyer.

What are the four types of trading? 

The 4 main types of trading include scalping, day trading, swing trading, and position trading. Scalping is a day trading strategy that involves the opening of different trade positions in a short period.
 
Day trading is the practice of opening a trade position in the morning and closing the same trade position before the end of the trading session. A stock exchange guarantees a trade.
 
On the other hand, position day trading is a long-term trading strategy where an investor or a trader will open a trade position and leave it open for as much as 6 months or more.
 
Lastly, swing trading is similar to position trading, only that an investor or trader plans to capture short to medium-term potential profit over a period of a few days. 

What is trading in simple words?

In the simplest term, trading means the buying and selling of financial instruments to make a potential profit or loss. It also means the exchange of financial instruments with compensation to a seller from the buyer.
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