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General Trading Terms
Q: What is an account balance?
A: An account balance is the amount of money currently held in a trading account. It includes all deposits and the results of closed positions, but it does not reflect unrealized profit or loss from open trades.
Q: What does the bid price represent?
A: The bid price is the price at which the market, or your provider, is willing to buy an instrument from you.
Q: How is the ask price defined?
A: The ask price, also referred to as the offer, is the price at which the market, or your provider, is prepared to sell an instrument to you.
Q: What is the spread in trading terms?
A: The spread is the gap between the quoted buy price and sell price of an instrument.
Q: What is a pip in forex trading?
A: A pip is the standard measure of a small movement in a currency pair’s price. For most currency pairs, one pip equals 0.0001.
Trading Orders and Positions
Q: How does a market order work in trading?
A: A market order tells the platform to buy or sell straight away at the price currently quoted. It does not target a specific level, so execution is prioritized over price precision.
Q: What is meant by a limit entry order?
A: A limit order is placed with a chosen price in mind. The trade will only be executed if the market touches that level or better, and it can remain pending until that happens or the order is removed.
Q: How would you describe a stop loss order?
A: A stop loss is a risk control tool that closes a position automatically once price reaches a level you set in advance, helping to prevent a small loss from becoming much larger.
Q: What does opening a buy position, or going long, involve?
A: Going long means opening a buy trade because you expect the asset’s value to rise, with the intention of closing the position at a higher price.
Q: What does opening a sell position, or going short, involve?
A: Going short means opening a sell trade with the expectation that the asset will fall in value, so you can close the position later at a lower price.
Q: What is considered an active or open trade?
A: An open position is any trade that has been entered into and is still running, so its profit or loss is changing with market movement.
Q: What is meant by carrying a position overnight?
A: An overnight position is a trade that stays open beyond the end of the trading day and remains in the account when the next session begins.
Leverage and Margin
Q: How does leverage work in trading?
A: Leverage is a mechanism that lets a trader open positions larger than the cash they commit as collateral. Only a fraction of the full value is set aside, so price movements have a greater impact on profit and loss.
Q: What do we mean by margin in a trading account?
A: Margin is the portion of funds reserved as security for an open leveraged position. It represents the capital required to initiate and keep that trade active while it is exposed to market movement.
Q: What happens when a margin call occurs?
A: A margin call is a notice that the equity in the account is no longer sufficient to support current positions. The trader is asked to add funds or reduce exposure so that the account once again meets the required margin level.
Market Analysis and Indicators
Q: How would you describe fundamental analysis?
A: Fundamental analysis looks at economic conditions, company or country finances and political developments to judge what an asset might be worth. It focuses on factors such as growth, interest rates, earnings and policy decisions to understand the forces behind price movement.
Q: How would you describe technical analysis?
A: Technical analysis focuses on price behavior itself. It uses charts, historical price action and indicators to identify trends, momentum and patterns that may suggest how the market could move next.
Q: What is meant by support and resistance in trading?
A: Support is an area on the chart where selling pressure has previously slowed and buyers have tended to step in. Resistance is the opposite, a zone where upward movement has often stalled and sellers have become more active.
Q: What information does a candlestick chart provide?
A: A candlestick chart presents each trading period as a candle showing the opening price, the highest and lowest prices reached and the closing price, making it easier to see how price has moved within that timeframe.
Forex and CFD Trading Terms
Q: How is a currency pair structured in forex?
A: A currency pair shows the value of one currency in terms of another. For example, in EUR USD, the price tells you how many US dollars are needed for one euro.
Q: How do major, minor and exotic FX pairs differ?
A: Major pairs are the most actively traded and always include the US dollar, such as GBP USD. Minor pairs leave out the US dollar and link other major currencies, for example EUR JPY. Exotic pairs combine a major currency with one from a smaller or emerging economy, such as USD TRY.
Q: What does CFD stand for and what does it do?
A: CFD stands for Contract for Difference. It is a derivative contract that allows you to trade on price movement of an underlying asset without taking direct ownership of that asset.
Q: What is a swap charge on a CFD position?
A: A swap is the financing adjustment applied when a CFD position is kept open overnight. It can result in a cost or a credit depending on the trade and the interest rate environment.
Q: How would you explain the spot price?
A: The spot price is the live market price at which an asset can be bought or sold for near immediate settlement.
Economic Events and Market Influences
Q: What is inflation in simple terms?
A: Inflation refers to the pace at which the cost of goods and services rises over time. As prices increase, each unit of currency buys less, which means purchasing power declines.
Q: What is meant by the NFP release?
A: The Non Farm Payroll release is a key monthly report from the United States that shows how many jobs have been added or lost outside the farming sector. It is closely watched because it can strongly influence expectations for growth and interest rates.
Q: How is GDP defined in economics?
A: Gross Domestic Product is the main gauge of an economy’s output. It sums up the value of all final goods and services produced within a country’s borders over a specific period, such as a quarter or a year.
Q: What role does the Federal Reserve play?
A: The Federal Reserve is the central banking system of the United States. It manages monetary policy by setting key interest rates, overseeing liquidity in the financial system and working to support stable prices and employment.
Trading Execution and Settlement
Q: How do we define a trading position?
A: A trading position is the active exposure a trader holds in a market, whether through a buy order that benefits from rising prices or a sell order that benefits from falling prices.
Q: What does execution price refer to?
A: Execution price is the level at which an order is actually filled in the market. It is the price that becomes the official entry or exit for that trade.
Q: What does settlement mean in trading?
A: Settlement is the stage where a completed trade is formally recorded, account balances are adjusted and any cash or value transfer linked to the transaction is finalized.
Q: What is meant by a two way quote?
A: A two way quote is a price display that shows both the buy side and the sell side for an instrument at the same time.
Risk Management in Trading
Q: How is risk management used in trading?
A: Risk management is the process of setting rules and using tools to limit potential loss on trades, with the aim of preserving trading capital over time.
Q: What does it mean to diversify a portfolio?
A: Diversifying a portfolio means allocating funds across several instruments or asset classes so that results do not depend on the performance of a single position.
Q: How do traders define liquidity?
A: Liquidity refers to how easily an asset can be bought or sold in the market without causing a significant move in its price.
Q: What does slippage mean when placing an order?
A: Slippage is the difference between the price you intended to trade at and the price you actually receive when the order is filled, often due to rapid price changes.
Trading in CFDs carry a high level of risk to your capital due to the volatility of the underlying market. These products may not be suitable for all investors. Therefore, you should ensure that you understand the risks and seek advice from an independent and suitably licensed financial advisor.