Glossary of terms
Scalpers are the kind of traders that hold their trades for a few seconds to a few minutes at most.
A Forex scalper’smain aim is to capture small profits repeatedly during the busiest times of a trading day and can place anywhere between 10 to 100 trading positions in a day. Scalping is an expert skill that requires someone who can think quickly and focus intensely. It is best suited for a trader with enough time to spend several hours analysis the charts with undivided attention. Often, they will use Expert advisors (EA’s) or other trading plug-ins to help them increase the amount of trades they can place in a short period of time.
Scalpers often use high levels of leverage to place larger sized trades because their strategy consists of achieving greater profits from small price changes.The key thing to remember when trading leveraged or margined financial products is that while leverage increases your total profits, it works the same the other way around as well, so losses are also amplified.
Scalpers typically use the one- and five-minute charts to when trading. They may also purchase s market scanning software to support them in finding new trading opportunities. Most scalpers engage in high volume trading and use online brokers that offer low spreads and low or no commission to keep their trading costs low.Key Takeaways
- Scalpers enter and exit the financial markets quickly, usually within seconds.
- Scalpers often use EA’s (Expert Advisors) to help them execute their trades.
- Scalpers must be highly disciplined, competitive and fast decision makers.
What are tradingsignals and how do they work?
Trading signals are trading ideas or suggestions for financial instrumentsthat are used to identify the right trading opportunities at the right time.
There are different ways traders can receive trading signals, often they will be sent through SMS, email or push notifications. It is also possible to install platform add-ons that generate trading signals directly on the trading platform. Using trading signals can save you a lot of time and energy, but they can also be used to help to teach you new trading strategies, especially if you are new to forex and CFD trading. Signals also help you decide where to place a [take profit] and [stop loss] to ensure you lock in some profit or close a position to limit your losses.
CFI has partnerships with third-party signal providers who deliver signals market commentary and analysis free-of-charge to traders on a daily and weekly basis.Trading Signal Examples
- Manual trading signals - generated by a professional, seasoned traders, market analysts or strategy providers
- Computer generated signals - software that tracks, and analyses market price action based on algorithms
- Paid trading signals – provided by a signal service providers, usually a company that charges a one-time fee or a subscription model
- Free trading signals – some companies offer free signals or offer free trials for their signals package
- Entrytrading signals - some signal providers may provide only entry signals, which is a signal to open a trade position in the market
- Exittrading signals -some signal providers provide only exit signals, which indicate when to close an open trade position
- Trading signal are alerts that inform traders of new trading opportunities and help make the decision of when to close a trade easier.
- Implementing trading signal in your trading strategy is a good way to try new strategies and see how other traders make their decisions.
- Trading signal can be human generated using technical indicators, or using mathematical algorithms.
Slippage is the difference between the price at which you expect your order to be filled at and the actual price it is filled at. Slippage occurs due to execution speeds and market volatility and can work either in your favour or against you.
Slippage can happen at any time but is mostly experienced during times of high volatility. Market prices can change quickly, meaning slippage can occur during the delay between when a trade is being opened and when it is being closed.
Slippage happens when there is a sudden shift in the bid/ask spread. A trade may get executed at a better or worse price than originally expected when this occurs. When positive slippage occurs, the ask price has decreased in a long trade or the bid price has increased in a short trade. The opposite is true when negative slippage happens, the bid has decreased in a short trade or the ask price has increased in a long trade. Slippage can be positive or negative for a market participants trades. Placing a limit order can prevent negative slippage from occurring.Key Takeaways
- Slippage occurs due to execution speeds and market volatility.
- Slippage describes the condition when a trader receives a different trade execution price than what has been intended.
- Slippage can occur for all financial products including, Forex, commodities, indices, and equities
The spread is one of the most common and most important terms used when discussing trading terminology. The spread is the difference between the sell (bid) and the buy (offer) prices of a financial instrument like currency pairs, indices, equities, and commodities. Sometimes this is also referred to as the bid-ask spread.
Brokers such as CFI quote their prices in the form of a spread. The price to buy a financial instrument therefore will always be slightly higher than the underlying market, whereas the price to sell will be slightly lower.The spread for financial instruments can be impacted by a range of factors, including:
- [Liquidity] – meaning how much demand there is for an asset and how easily it can be bought or sold. As the liquidity of an asset increases, the spread for a product usually reduces.
- [Volume] – meaning the quantity of an asset that is traded. Products that have high trading volumes tend to have tighter spreads.
- [Volatility] - is a representation of how much a market price changes in a set period. When markets are very volatile, prices can change very quickly, and spreads increase.
If the underlaying market price was $1339.20 – this would be the price a trader would be opening their position at.
Let’s say the spread for the product the trader is looking to trade has a spread of 0.3 [pips], so 0.15 pips have been applied to either side of the underlying price. If a trader wanted to open a long (buy) order, they would buy the asset at $1339.35, and if they wanted to open a short position, they would sell the asset at $1339.05.Key Takwaysea
- The spread is the difference between the sell (bid) and the buy (offer) prices.
- When markets are very volatile, prices can change very quickly, and spreads increase.
- As the liquidity of an asset increases, the spread for a product usually reduces.
A stock market index, also known as a stock index, is a way of measuring the performance of the stock market or a section of it. It helps investors to gauge the overall performance of the market by comparing past stock prices with current price levels. For example, a national index shows the performance of a nation's stock market, and it reflects the investors’ sentiment on that country’s economy.
Before you consider learning how to trade stock indices, you need to know what the stock market is, and how you can measure its performance to determine the best time to buy or sell. The stock market is a marketplace where investors buy and sell shares. Shares, stocks, or equities are assets that transfer fractional ownership of a company to an investor. The stock market provides a platform where the company can issue shares to the public for investors to buy and sell the shares. The stock market is essential to economic development because it is a way for companies to access capital easily from the public, while allowing investors to make profits in the form of dividends.Example of a Stock Market Index
Different countries have different stock exchanges, and a new trader needs to understand them so that they can determine how to trade stock indices in those stock markets. Today, it is estimated that over 630,000 companies are traded publicly in the world. Let’s look at the names of some of the largest stock exchanges from different countries by market capitalization.
- New York Stock Exchange (NYSE): The NYSE is the largest stock exchange in the world, with over 2,400 listed companies. It represents nearly 40% of the world’s total stock market value, and by 2018 it had a market capitalization of $23.23 trillion.
- Tokyo Stock Exchange (TSE): The TSE is the largest stock exchange in Japan and has over 3,575 listed companies. It has a market capitalization of $6.22 trillion.
- Shanghai Stock Exchange: (SSE): The SSE is the fourth largest in the world, and the largest in the People's Republic of China, with a market capitalization of $5.01 trillion.
- London Stock Exchange (LSE): LSE is the largest stock exchange in Europe, and the sixth largest in the world, with over 3,000 listed companies, and a market capitalization of $4.38 trillion.
- Toronto Stock Exchange (TSX): TSX is the largest stock exchange in Canada. It has over 1,500 listed companies, with a market capitalization of around $2.29 trillion. Key Takeaways
- A stock market index is a way of measuring the performance of the stock market or a section of it.
- It helps investors to gauge the overall performance of the market by comparing past stock prices with current price levels.
- To measure market movement, investors follow different market indexes such as Nasdaq Composite, Dow Jones, and S&P 500.