CFD-Glossary

Essential CFD Terms Explained

Get familiar with the language of CFD trading. Explore concise explanations of the most relevant terms in one place.

Account

The official record of a trader’s activity, reflecting all executed trades, margin usage, and balance updates in real time.

Account Balance

The current monetary value held in an account, calculated after all completed transactions.

Appreciation

An increase in the value of a currency or asset, typically driven by higher market demand or favorable economic conditions.

Arbitrage

The practice of exploiting price differences for the same asset in different markets by simultaneously buying in one and selling in another to earn from the discrepancy.

Ask/Offer

The price set by the seller for initiating a sale; it reflects the cost to purchase an asset in the market.

Aussie

An informal reference to the Australian dollar, commonly used in forex trading.

Back Office

The division responsible for administrative and support tasks such as trade reconciliation, documentation, and account management.

Balance of Payments

An accounting statement that summarizes all monetary exchanges between residents of a country and foreign entities, covering imports, exports, and capital movements.

Balance of Trade

A key component of the balance of payments that measures the net value of goods and services a country exports compared to what it imports.

Bar Chart

A visual tool in trading that illustrates price movement within a given period. The vertical line indicates the high and low, while short horizontal marks on either side represent the open (left) and close (right).

Base Currency

The currency used for comparison in a currency pair quote. It appears first in the pair and is valued at one unit, with the second currency reflecting its equivalent value.

Basis Point

A standardized unit used in finance to describe percentage changes, especially in interest rates or fees. One basis point equals 0.01%.

Bear

A market participant who expects prices to decline and may take positions to benefit from falling asset values.

Bear Market

A downturn phase in the financial markets characterized by falling prices and a generally negative economic outlook among investors.

Bid

The buying side of a quote, representing the maximum price a market participant is ready to pay for an asset.

Bonds

Debt instruments used by entities to secure funding, where the issuer agrees to pay interest (the coupon) and return the principal at a future date.

Broker

A licensed intermediary that connects buyers and sellers in financial markets without taking a position themselves, unlike a dealer who trades on their own account.

Buba

Short for the Deutsche Bundesbank, Germany’s central bank responsible for monetary stability and part of the European System of Central Banks.

Bull

An individual who takes positions based on the belief that the value of securities or markets will rise over time.

Bull Market

A period during which market prices trend higher for an extended time, often fueled by strong fundamentals and investor enthusiasm.

Candlestick Chart

A technical tool showing the trading range for a selected period. The body is shaded if the asset closed lower than it opened, and unshaded if it closed higher.

Central Bank

The primary financial authority tasked with implementing a nation’s monetary policy, issuing currency, and maintaining control over inflation and financial systems.

Chartist

A market participant who examines historical price behavior through charts to detect signals that may predict future asset movements.

Clearing

The procedure through which trades are finalized, including the confirmation of trade details, calculation of obligations, and preparation for settlement.

Closed Position

A position that is no longer active, achieved by buying or selling the equivalent amount to neutralize the original trade.

Commission

A fee charged by a broker for executing a trade or transaction on behalf of a client, typically calculated as a percentage or fixed amount per trade.

Confirmation

A written document or electronic communication that verifies the details and terms of a completed transaction between counterparties.

Contract

A market unit that outlines the terms and conditions of a trade, including the volume and value of the asset being exchanged.

Counterparty

The participant in a financial transaction with whom a party enters into a contract, including both institutional and retail entities.

Cross Rate

The exchange rate between two currencies that are not directly paired with the domestic currency, often referred to as a non-standard quote in certain countries.

Currency

Any official form of money recognized by a government and used for financial transactions, including physical cash and digital representations.

Currency Pair

A pair of two currencies, quoted together, where the value of the first currency is determined relative to the second currency in the pair. For example, EUR/USD or GBP/JPY.

Currency Risk

The potential for financial loss arising from unfavorable fluctuations in exchange rates that affect the value of a currency position or investment.

Day Trading

A trading strategy where positions are opened and closed within the same trading day to capitalize on short-term price movements.

Dealer

A financial intermediary who assumes the role of buyer or seller in a transaction, maintaining an inventory of assets and profiting from price movements within the market.

Deficit

An economic condition where a country or entity spends more than it earns, leading to a negative balance in its current account or trade.

Delivery

A trade process where both sides fulfill their obligations by transferring ownership or possession of the traded currencies or financial instruments.

Deposit

A transaction involving the borrowing or lending of funds, with the interest rate at which money is borrowed or lent referred to as the deposit rate, or depo rate.

Depreciation

The reduction in the value of a currency over time, typically caused by market dynamics, including changes in investor sentiment and economic conditions.

Derivative

A financial contract whose value is derived from the price movements of an underlying asset, such as a security, commodity, or financial instrument.

Devaluation

A policy action in which a country reduces the value of its currency, often through official channels, to make exports cheaper and reduce trade deficits.

ECB – European Central Bank

The central bank responsible for managing the monetary policy of the Eurozone, overseeing the stability of the euro and coordinating economic policy across European Union member states.

End of Day (Mark-to-Market)

A method of valuing a trader’s positions by adjusting their value at the close of each trading day based on the market’s closing rates or revaluation prices, reflecting any profit or loss.

Euro

The official currency of the European Union’s Economic and Monetary Union (EMU), introduced to replace the European Currency Unit (ECU) and used by 19 of the 27 EU member states.

Execution Date

The specific date on which a trade is carried out, marking the point at which the order is executed and the transaction is completed.

Fed – Federal Reserve

The central banking system of the United States, responsible for implementing monetary policy, regulating financial institutions, and ensuring financial stability.

Fixed Exchange Rate (Representative Rate)

An exchange rate that is set and maintained by a country’s monetary authorities, with fluctuations typically restricted to a predetermined range, allowing for occasional intervention.

Flat (Square, Balanced)

A position where a trader holds no open trades or has an equal number of long and short positions, effectively canceling out any market exposure.

FOMC – Federal Open Market Committee

The branch of the U.S. Federal Reserve responsible for setting and implementing monetary policy, including interest rate decisions and open market operations.

Forex – Foreign Exchange

The market in which currencies are traded, involving the simultaneous buying of one currency and the selling of another, typically in an over-the-counter (OTC) setting.

Forward

A type of foreign exchange contract where the exchange rate is agreed upon in advance for a transaction that will be settled at a future date, influenced by the interest rate differential between the two currencies.

Forward Points

The number of pips added or subtracted to the current exchange rate to determine the forward rate for a currency pair, based on the interest rate differential.

FRA – Forward Rate Agreements

A financial contract that allows the borrowing or lending of funds at a predetermined interest rate for a specified future period, enabling parties to hedge against interest rate fluctuations.

Front and Back Office

The front office is responsible for core business activities, such as trading and client interactions, while the back office handles administrative tasks, settlement, record-keeping.

Fundamental Analysis

The process of analyzing economic, political, and financial data to evaluate the intrinsic value of assets and predict future market movements.

Futures Contract

A standardized agreement to buy or sell a specific asset at a predetermined price on a future date, typically traded on an exchange, in contrast to forwards, which are private, over-the-counter (OTC) agreements.

G5

A group of the five major industrial nations, consisting of the United States, Germany, Japan, France, and the United Kingdom, known for their significant influence on global economic and financial policy.

G7

A group of seven major industrialized nations, consisting of the United States, Germany, Japan, France, the United Kingdom, Canada, and Italy, which coordinate on economic and global policy matters.

GDP – Gross Domestic Product

The total monetary value of all goods and services produced within a country’s borders over a specified period, reflecting its economic output.

GNP – Gross National Product

The total market value of all goods and services produced by a country’s residents, including income earned from investments or work abroad, in a given time period.

GTC – Good-Till-Cancelled

An order placed with a broker to buy or sell a financial instrument at a specified price, which remains active until it is either executed or canceled by the trader.

Hedge

A strategy used to reduce the potential risk of an existing position by taking an offsetting position, often through financial instruments like options, futures, or other derivatives.

High/Low

Refers to the highest and lowest prices at which an asset was traded during a specific trading day, reflecting the range of market movement.

Inflation

A condition where the overall price level of goods and services increases over time, reducing the value of currency and decreasing consumers’ purchasing power.

Initial Margin

The minimum amount of collateral that a trader must deposit with a broker to open a position, serving as a guarantee for future performance and to cover potential losses.

Interbank Rates

The exchange rates at which major international banks trade currencies with one another, typically offering favorable rates due to the large volumes involved.

Intervention

The action taken by a central bank to influence or stabilize the value of its currency, typically by buying or selling foreign exchange in the market.

IRS – Interest Rate Swaps

A financial contract in which two parties exchange interest payments on debt obligations, typically one paying a fixed rate and the other paying a floating rate, to manage exposure to interest rate fluctuations.

Kiwi

A commonly used nickname for the New Zealand Dollar (NZD), reflecting the country’s national symbol, the kiwi bird.

Leading Indicators

Economic metrics that are used to forecast future economic trends, such as the unemployment rate, consumer price index, retail sales, and interest rates, among others.

Leverage

The use of borrowed capital to increase the potential return on an investment, represented as the ratio of the transaction amount to the required margin or security deposit.

Libor – London Inter-Bank Offered Rate

The interest rate at which large international banks lend to one another in the London interbank market, often used as a benchmark for various financial instruments.

Liquidation

The process of closing an open position by executing an opposite trade to offset the original position, thereby ending the exposure to market risk.

Liquidity

The ease with which an asset or market can be bought or sold in large volumes without significantly affecting its price stability.

Long

A trading position in which an investor buys an asset, expecting its value to rise, with the goal of selling it later for a profit.

Long Position

A market position where the value of the asset increases as the market price rises. It occurs when the base currency in a pair is purchased, anticipating an appreciation in value.

Loonie

The informal term for the Canadian Dollar, often used in forex markets, symbolized by the currency code CAD.

Lot

A standardized unit used to measure the size of a transaction in financial markets, with the value always representing an integer number of assets or contracts.

Margin

The minimum amount of capital required by a broker from an investor to open and maintain a position, serving as collateral for the trade.

Market Maker

A financial institution or dealer that continuously provides both buy (bid) and sell (ask) prices for a financial instrument, ensuring liquidity and enabling transactions.

Market Order

An instruction to buy or sell a financial instrument immediately at the best available price in the market, without specifying a price limit.

OCO – One Cancels the Other

A type of order where two orders are placed simultaneously, and the execution of one automatically cancels the other, ensuring only one order is fulfilled.

Open Order

An order that is pending and will be executed once the market price reaches the predetermined price level, often linked to GTC orders for extended validity.

Open Position

An outstanding trade that has not yet been liquidated, leaving it subject to ongoing market fluctuations and unrealized profit or loss.

Options

A financial instrument that grants the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price within a defined time period. There are two types: call options (right to buy) and put options (right to sell).

Order

An instruction given by a client to a broker to buy or sell a financial instrument, which can be placed at a specified price, market price, or for execution by the end of the trading day.

Overnight Position

A trade that remains active and open overnight, with the position held until the following business day for settlement or further action.

Points, Pips

A unit of measurement in the currency markets representing the smallest possible movement in an exchange rate. For most pairs, one pip is typically 0.0001 (such as in EUR/USD), but for pairs involving the Japanese Yen, it is 0.01.

Position

A trader’s exposure in the market, either through buying or selling an asset, which represents the amount of an asset the trader holds or owes.

Premium

The extra amount added to the spot price in the foreign exchange market to determine the price of a forward or futures contract, often based on interest rate differentials.

Profit/Loss (P&L)

The net result of trading activities, which includes both realized profits or losses from completed trades and unrealized profits or losses on open positions marked to market.

Quote

An indicative market price showing the highest bid and lowest ask available for a security, reflecting the current buying and selling prices in the market.

Rally

A period of price increase following a decline, where the market recovers and shows upward momentum in asset prices.

Range

The gap between the highest and lowest price points recorded for an asset during a trading day, providing insight into market volatility and trading activity.

Rate

The exchange value of one currency relative to another, indicating how much of one currency is required to purchase a unit of the other.

Repo – Re-purchase

A short-term transaction in which a security is sold with an agreement to buy it back at a specified future date and price, typically used in the money market.

Resistance

A price level in technical analysis where an asset or currency repeatedly struggles to rise above, often forming a pattern that can be represented by a horizontal or slanted line.

Risk Management

The process of identifying, assessing, and mitigating potential risks in trading or investment, using strategies like hedging, financial analysis, and appropriate trading techniques.

Roll-Over

A process in which the settlement date of a financial transaction is extended to a future date, with the associated cost determined by the interest rate difference between the two currencies involved.

Settlement

The process through which a trade is officially recorded and finalized in the books of the involved parties, which may include the actual exchange of currencies or simply the accounting of the transaction.

Short

A trading strategy where an investor sells an asset they do not own, anticipating that its price will decrease, allowing them to repurchase it at a lower price for a profit.

Short Position

A market position where an investor sells an asset or currency, anticipating a decline in its price, so that it can be repurchased later at a lower price for a profit.

Spot

A financial transaction that is executed immediately at the current market price, with settlement typically occurring within two business days.

Spot Price

The current market price at which an asset or currency is bought or sold for immediate settlement, typically within two business days.

Spread

The difference between the bid and ask prices of a financial instrument, often used as an indicator of market liquidity, with narrower spreads suggesting higher liquidity.

Stop Loss Order

An order placed to automatically buy or sell an asset at a specified price, designed to limit an investor’s loss by closing a position when a predetermined price level is reached.

Support Levels

A key concept in technical analysis that represents a price level at which an asset tends to find support, causing the price to stop falling and potentially reverse direction.

Swap

Is the interest applied—either added or deducted—when a position remains open overnight, as indicated on the Trading Platform.

Technical Analysis

The study of historical market data, such as price trends, volume, and other indicators, to predict future price movements and market behavior.

Tick

The smallest possible price movement, either upward or downward, in a financial instrument during a given trading session.

Tomorrow Next (Tom/Next)

A foreign exchange transaction where a currency is simultaneously bought and sold for delivery on the next business day, typically used for short-term funding.

Two Way Price

A market quote that includes both the bid price and ask price for a currency pair, indicating the price at which a trader can buy or sell an asset.

US Prime Rate

The interest rate charged by U.S. banks to their most creditworthy corporate clients, often used as a benchmark for other lending rates.

Value Date

The agreed-upon date when the parties to a financial transaction settle their obligations, typically involving the exchange of payments. For spot transactions, it is usually two business days after the trade date.

Volatility

A statistical measure of the degree to which the price of a security or market fluctuates over time, typically calculated using standard deviation. High volatility is often linked to increased risk.

Volume

The total number of shares or contracts traded within a specific time period, often used as an indicator of market activity and liquidity.