Glossary of terms
In trading terminology, the term ‘filled’ refers to when an order placed by a trader has been returned as completed. For example, if a trader submits an order to a broker to buy 100 lots of gold at 1728.50, this order would only be successfully completed and therefore classified as filled when the broker has obtained the total 100 lots that the trader requested.
Typically, depending on the order type the transaction will take anything from less than a second to up to a full market session to be executed. The most common order types that can be used to carry out a transaction are:
- Buy stop orders
- Market orders
- [Stop-loss orders]
- [Limit orders]
It is important to understand that if an order or instruction is performed, it does not guarantee that the order will be filled as there are a specific set of criteria that must be met in order for an order to be filled. These are expiration, volume, trading, and targeted price.Expiration
The financial instrument has to, first of all, be open to trading.Volume
There has to be sufficient volume available in the market for the amount of the trade.Trading
The instruments need to be trading currently.Targeted Price
If the trader or broker is intending to utilise a limit order, the targeted price aimed for has to be reached to execute. This can be from both a buying and selling perspective.
If any of these criteria are not met, then the trade will not be filled. It is also important to note that slow execution times can lead to prices fluctuating between trade execution and fulfilment,resulting in the trade being filled at a different price to that requested. This difference is referred to as [order spillage].Key Takeaways
- A filled order status implies that the order was completed, whether this is from a buying or selling perspective.
- Filled orders can take anything from less than a second to the end of a market day to be completed.
- The type of order to be used for a transaction will depend on the desired outcome by the trader.
- Orders must meet a specific set of criteria in order to be filled.
Financial markets, broadly speaking, are any place where governments and organisations can go to obtain finance, or traders can buy and sell [financial instruments]. The financial markets play apivotal role in a country’s economic health, allowing governments and companies to access funding for growth and social policies for over 100 years.
Governments and companies tend to access finance via the bond markets and the stock markets, whereas traders operate within the foreign exchange, or forex, commodities, and derivatives markets.
Bond markets are where investors go to lend sums of money to governments and companies for a pre-determined length of time, at a pre-determined interest rate.
The stock market, probably the most famous of markets, is where companies will go to sell portions of the company’s ownership in order to generate income for the business.
Traders and investors traditionally bought and sold financial instruments via the telephone, initiated through a broker. However, since the advent of the internet, is has become increasingly common that traders can place orders into the market directly via an online digital platform.
The foreign exchange market is the largest of the financial markets with an average daily turnover of more than five trillion US Dollars. This is where traders go to buy and sell currency, making their profits by capitalising on fluctuations in the exchange rate.
Similarly, traders seek to generate profits from the buying and selling of commodities such as gold and oil, buying when prices fall and selling as prices rise.
Another common activity for traders is speculating on the fluctuations of prices of assets like stocks, bonds, commodities, and market indices via the derivatives market.Key Takeaways
- Governments, companies, and traders go to the financial markets to generate funds.
- There are many types of markets, the most common being stocks, bonds, commodities, forex, and derivatives.
- Each market has its own pros and cons, influencing factors and [strategies] for operating successfully.
The term forexis short for foreign exchange and refers to the buying and selling of currency on the foreign exchange market.
Foreign exchange trading originated in Amsterdam, more than 500 years ago and is now the largest traded financial market, with trillions of dollars being traded every day.
The forex market is a [decentralized market] where trading occurs between traders, banks, brokers, and other financial institutions, buying and selling currencies that are coupled as currency pairs. Currency pairs comprise of two different currencies, from two different countries. Most traders make use of about 70 different currency pairs which are classified as either [major pairs], [minor pairs], [exotic pairs] or [commodity pairs].
Pairs will be illustrated as quotes and will have an associated price. For example, GBP/USD 1.28 would represent that the cost to buy 1 GBP is 1.28 USD.
You may well find that a broker will state a [bid price] and an [ask price] on their forex trading platforms. These refer to the price at which the currency pair is available to be sold, bid price, and at which the currency pair is available to be bought, ask price.
The forex market is open 24 hours a day, five days a week, with the largest trading centres being London, Tokyo, New York, and Singapore.
The market owes its popularity largely due to this ease of access, in fact, to get started trading forex, a trader only needs access to a device that has a stable internet connection and a funded trading account.Key Takeaways
- Forex is short for Foreign Exchange.
- Forex is traded by buying and selling currencies from two different countries, know as currency pairs.
- There are four types of currency pairs, major pairs, minor pairs, exotic pairs, and commodity pairs.
- The forex market is the most popular and therefore, liquid of the financial markets.
Fundamental analysis is a market analysis technique for determining the [intrinsic value] of a [financial instrument] and all the components that can influence its price.
Fundamental analysis is used by traders and analysts globally to try and establish the correct value of a financial instrument and in turn establish if the instrument is currently undervalued or overvalued in the market place, to help inform their buying and selling decisions.
The analysis technique utilises a plethora of factors such as a country’s economy data and news about its political climate to determine the country’s currency value along with industry conditions and key company news and data to value stocks and shares.
The contrasting analysis method is [technical analysis] which uses historical price data such as volume and indicators to predict future movements in price. Many traders will however use both; utilising fundamental analysis to obtain a longer-term macro view on the price of an instrument and technical analysis to determine entry and exit points for future trades.
Fundamental analysis will more often than not use a macro to micro perspective to arrive at the intrinsic value of an instrument. This is often referred to as a top down approach where the analyst will start by looking at the overall condition of a specific economy from a long-term perspective and then drill down into shorter time frame data points and economic releases to arrive at the current value of specific instruments.Key Takeaways:
- Fundamental analysis is used to determine the intrinsic value of an instrument to determine if it is currently undervalued or overvalued in the marketplace.
- Fundamental analysis uses a top down approach, starting from a larger macro view and drilling down into shorter-term micro conditions.
- Fundamental analysis will often be used by traders along with technical analysis to determine entry and exit points for future trades.
- Fundamental analysis will utilise a wide variety of data and economic conditions to help the analyst arrive at the intrinsic value of an instrument.
Futures are financial contracts that obligate the buyer and seller of the contract to complete a trade for a [financial instrument] at a set price and date in the future. The price and date are written into the contract and the transaction must occur regardless of the current price of the underlying financial instrument at that specific date in time.
As an example, in January, Trader A may buy a silver futures contract from Trader B to purchase silver in July at $18.50.
In July, if silver is trading at $20.30, Trader A will profit as they will be able to purchase silver from Trader B at $18.50 and sell at the current market value of $20.30.
However, if sliver is trading at $17.20, Trader B will profit as they will be able to purchase silver from the market at $17.20 and then sell to Trader A at the agreed futures contract price of $18.50.
Futures contracts are available to traders on a number of financial instruments such as commodities, currencies, bonds,and stock indices, and in essence, allow traders to lock in the price of a financial instrument at a specific date in time.
Futures are often used by producers of raw materials to lock in future selling prices and reduce the risks related to unfavorable moves in the price of an instrument, this is commonly referred to as [hedging].
[Options]are a similar type of contract, giving the holder the right(option) to buy or sell the underlying instrument at a specific price on a specific date. This differs from a futures contract as the holder of a futures contract is obliged to fulfil the contract at the expiration date.Key Takeaways
- Futures contracts allow traders to lock in the price of a financial instrument at a specific date in the future.
- Futures contracts are often used by producers of raw materials to lock in their future selling price and hedge against unfavorable price movements.
- Futures contracts are available on a large range of financial instruments.
- Futures contracts differ from options contracts in that the holder is obligated to buy or sell at the specified price and date rather than have the option to buy or sell.