CableThe GBP/USD (Great British Pound/U.S. Dollar) pair. Cable earned its nickname because the rate was originally transmitted to the US via a transatlantic cable beginning in the mid 1800s when the GBP was the currency of international trade.
CADThe Canadian dollar, also known as Loonie or Funds.
Call optionCall options are financial contracts that give you the right, but not the obligation, to buy a market at a specified price within a specific time. The buyer of a call option can profit when the underlying market rises in price.
The Canadian dollar is the currency of Canada. Managed and overseen by the Bank of Canada, it is frequently traded as part of pairs such as USD/CAD, GBP/CAD and EUR/CAD.
Although not as popular as its US counterpart, the Canadian dollar is still one of the most commonly traded currencies in forex and is often known as a ‘commodity currency’ due to the correlation between its value and commodity prices.
It was first used in 1858 as a replacement for the Canadian pound, and the Canadian dollar has since become a benchmark currency that is kept in reserve by countries across the world. The nickname ‘Loonie’ is used in trading to refer to the currency, with the deriving from the aquatic bird ‘the loon’ that is featured on the nation’s $1 coins.
What is the symbol for the Canadian dollar?The symbol for the Canadian dollar is $. However, C$ or CAN$ can also be used to distinguish between the US dollar and other dollar currencies that use the $ symbol. One Canadian dollar is made up of 100 cents, and the abbreviation ‘CAD’ is used to denote the Canadian Dollar when shown in forex currency pairs.
Candlestick chart definition
A candlestick chart is a type of chart used to analyse a market’s price in trading. Unlike bar charts, candlestick charts show the market’s high, low, open and closing price within each period.
Its name comes from its candlestick-like appearance, with the body resembling the candle and the lines above and below resembling the wick. Although its origin can be traced back to 18th century Japan, the candlestick chart was adopted and popularised in the US much later.
Candlesticks have now become a staple of trading and are one of the most popular ways to view and track a market’s price. This is due to the extensive amount of information shown and the relative ease with which this can be interpreted. For day traders, candlestick charts are especially useful because of this abundance of information.
as it shows the same information. There are some subtle differences, however, one being the bodies in bar charts are thinner than in candlestick charts.
What do candlesticks mean?
A candlestick is a simple bar that shows the open and close price, as well as the high and low over the period selected.
The candlestick shows the following information:
- Open price
- Close price
- High price for the period
- Low price for the period
Another significant aspect of candlesticks is the colour of the bar. White or green symbolises the price has closed higher, black or red shows the price has closed lower. If the price of the market has closed lower, the close price will be the bottom of the bar and the open price the top.
This helps traders to quickly and easily identify price trends. If a chart shows 20 consecutive red candlesticks, it’s clear that the market is experiencing a heavy downward trend.
The shadow part of the candlestick is a good indicator of volatilityin the period. If the upper shadow is significantly higher than the market open and the lower wick is significantly lower, the market has experienced a wide price range for the period shown.
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CapitulationCapitulation is the act of surrendering or giving up. In financial market trading, the term indicates when investors and traders have decided to stop trying to recapture lost gains or maintain their positions, due to falling or rising prices.
A cash market is a marketplace where securities are immediately paid for and delivered at the point of sale. For example, a stock exchange is classed as a cash market – because investors receive their shares as soon as they have paid for them.
Cash markets are also called spot markets, because the transactions get settled on the spot. They differ from futures markets, where buyers pay for the right to receive goods at a specific future date.
Cash market transactions may take place on exchanges like stock markets or via over-the-counter (OTC) methods.
Regulated exchanges offer institutional and structured protection against counterparty risks. OTC markets, on the other hand, allow the parties involved to customise their contracts.
What is the difference between cash and futures markets?
A cash market is where financial instruments get traded and where, for example, the delivery of stock/shares occurs. The total amount of the transaction value must be paid in cash when buying the shares.
In contrast, a futures market is where only futures contracts are bought and sold on agreed dates in the future and at predefined prices.
Trading in futures doesn’t involve owning shares, and no delivery occurs as the contract expires on the expiration date.
Traders can trade on margin with futures, and they don’t have to pay cash at the point of sale. With futures contracts, settlement takes place on a contract’s expiration date.Futures contracts don’t have dividend pay-outs, and they’re used more for hedging, speculation or arbitrage purposes, unlike buying shares for investment reasons
Central banksA central bank is a financial institution with special authority to issue government-backed currency. It is often responsible for formulating monetary policy and regulating member banks. Examples of central banks include the Bank of England in the UK and the Federal Reserve in the US.
A chartist is a trader that analyses a market’s price history to determine future price trends. A chartist will use a range of analytical tools, as well as indicators, to conduct technical analysis on a market’s price chart.
Chartists look for patterns in a market’s price behaviour. By identifying these patterns, chartists can then try to predict future price movement and make trades to capitalise on them. For example, they might try to identify a trend as it forms, then profit from the resulting move.
A chartist’s trading strategy relies heavily, but not always exclusively, on technical analysis. Sometimes, a chartist can incorporate fundamental analysis along with technical analysis into their trading strategy.
Chartists vs fundamental analysts
The difference between a chartist and a fundamental analyst is that a chartist will look at the history of a market’s price to influence their trading decisions. Fundamental analysts, on the other hand, will attempt to by evaluating a number of factors, including overall economic strength and specific industry conditions.
Let’s say you’re trading Amazon. As a chartist, you might use tools and indicators to try to work out how Amazon’s price will move. As a fundamental analyst, you would look at several factors, such as company management, earnings, future projections, industry performance and company assets to try to determine whether Amazon’s current market price is a true representation of its value.
If you see a discrepancy between Amazon’s stock price and its intrinsic value, you will exploit this imbalance and trade to take advantage of its current stock price.
A choppy market is when an asset’s price shows no clear trend but instead experiences many smaller fluctuations.
A choppy market can occur when buyers and sellers of a market are at an equilibrium. If there is high liquidity (large trading volumes) in a market and neither bears nor bulls can dominate, the result is often a choppy market.
Choppy markets are associated with rectangular price ranges. A rectangular price range is a pattern that occurs on charts that continuously hits the same support (the lower limit) and resistance (the upper limit) levels. This prevents the market from breaking out into a trend, as its price is instead confined between these two levels – creating a rectangle.
Traders often look to profit from price trends, so can find it difficult to successfully trade a choppy market. Those who do trade choppy markets to try take advantage of small price movements over a short-term period, but more volatile markets are likely to present greater opportunities for most traders.
What are good technical indicators for choppy markets?
A good technical indicator to use to identify choppy markets is the Average Directional Index (ADX). The ADX indicator will not only help to identify whether a market is experiencing a price trend, but it will also show the strength of the trend.
The main characteristic of a choppy market is that there is little or no trend, so in this case we can use the ADX indicator to identify the strength of a trend in a market. If it indicates there’s no trend, we know a market is choppy and can trade accordingly.The ADX works by using the positive (+DI) and negative (-DI) direction indicator to help traders determine whether they should go long or short on a market based on the direction and strength of the trend. When the ADX is above 25, this shows that the trend is strong. If the ADX is below 20, this implies a non-existent trend – at which point a choppy market has been identified.
Cleared funds refers to the balance in a trading account and means that these funds are ready to be traded with. Once funds have cleared, they are free from any obligation and can be used to either make a trade or be withdrawn. If funds aren’t cleared, they might be pending, which will limit what a trader can do with them.
On occasion, a deposit of funds can take some time to arrive in a trading account. As a result, a £100 deposit could show up in the account but just not be cleared. At that point, restrictions on how the funds can be used are also likely to apply until the funds are fully cleared.
What is the difference between cleared funds and available funds?
The difference between cleared funds and available funds is that cleared funds carry no further obligations and can be traded or withdrawn freely, whereas available funds often come with certain restrictions.
Let’s say a deposit might be pending. Funds from that deposit might be available to be used to place a trade, but until it has been finalised and the funds have been cleared there might be withdrawal restrictions.In the context of banking, banks are legally obligated to make a certain amount of a deposit available to be used as regular funds.
ClearingThe process of settling a trade.
A clearing house is an organisation, institution or third party that settles a financial obligation between a buyer and seller. It’s the job of a clearing house to ensure that all parties in a financial transaction honour the agreements that they’ve committed to and settle them as such.
Clearing houses ensure that transactions run efficiently. The buyer receives what they paid for, and the seller receives the amount of money agreed on for the sale.
The idea of a clearing house has been around for centuries. Various forms existed in Japan, Italy and France before the first modern-day clearing house as we know them was established in London in 1773.
They make up an integral part of financial ecosystems and play a vital role in instilling financial stability.
What is the role of a clearing house?
The role of the clearing house is to act as the independent third party, or middleman, between a buyer and a seller in a financial transaction. It’s the job of the clearing house to ensure all the necessary steps are undertaken by both buyer and seller for the transaction to be settled.
Clearing houses are particularly important on futures markets because these take time to be filled. The clearing house must ensure that the contract is settled at the time originally agreed by both parties, at the price agreed.Although clearing houses act for their own financial gain, profiting from clearing and transaction fees, they’re a pivotal part of the financial ecosystem. They maintain fairness by upholding any contract or agreement of sale between a buyer and a seller. More significantly they maintain the industry’s integrity and instil confidence for those who may be worried about the opposing party upholding their part of the financial obligation.
A closed position is a trade that is no longer active and has been closed by a trader. To close a position, you need to trade in the opposite direction to when you opened it.
For instance, if you take a long position on a stock, you would have to sell an equal amount of stock to close your position. Once a position is closed, it cannot be reopened. At the point of closure, any profit or loss is realised, and your account balance will be updated accordingly.
Closing a position is not always a manual task. Stop-loss and take-profit orders, for example, automatically close your position if a market’s price falls or rises to a certain level
When should you close a position?
There’s no definitive answer to when you should close a position as it depends on several different factors. Your trading strategy, for instance, could be key in making that decision.
Timing when to close out a trade is a critical aspect of becoming a profitable trader. A common mistake made by inexperienced traders is closing out trades too soon if they start incurring a loss. Fluctuation and, depending on the market traded, volatility are frequent in the markets, so it’s not uncommon for a trade to enter the red. However, closing out too early and taking the loss can be a mistake as there’s no chance for the market to recover.
Equally, it can be difficult to close out a position when it’s up significantly. The mentality shifts and there’s that expectation that if it’s currently in profit, it will continue to rise further. Again, this is not always the case, so closing out positions and securing that profit is crucial to being successful.
ClosingThe process of stopping (closing) a live trade by executing a trade that is the exact opposite of the open trade.
A closing price is a market’s final price level before it closes for the day. A market’s closing price is used as the price level shown on a typical line chart.
Closing prices are the benchmark used to measure a market’s daily performance. A market’s price can fluctuate during the day, but a close price is a fixed number that can not only be compared with previous close prices, but also compared with close prices of other markets.
Close prices will very occasionally be adjusted retrospectively after events like stock splits. Stock splits involve the issuing of extra shares and can be a way to make a company’s share price more affordable. For instance, in August 2020 . Its price fell to a quarter of what it was pre-split, but anyone holding Apple at the time had the number of their shares quadrupled. As a result, the close prices of Apple before the split have been adjusted to now show the relative price to make it easier to compare to its current price.
Why is closing price important?
Closing prices are important as they used as the benchmark to identify price trends and evaluate a market’s performance over a set period.
By taking away the open price from the close price, you can calculate exactly how much a market has risen or fallen in a day. This can be valuable in identifying market sentiment and predicting price trends.
For line charts, the close price is the only information shown – in contrast to candlestick and bar charts that also show open, high and low prices for the day. Therefore, closing prices are the only information used to show trends and highlight whether the market is bearish or bullish.
CollateralCollateral is something pledged as security for the repayment of a loan, which can become forfeited in the event of loan default. Examples of collateral include real estate, vehicles, cash, and investments.
Commodity trading advisors
A commodity trading advisor (CTA) is a type of financial advisor that only supplies advice on commodities trading: typically the buying and selling of futures contracts, commodity options or swaps.
US commodity trading advisors must be certified. Registration requires CTAs to advise on all forms of commodity investments.
To register as a CTA, the applicant must pass proficiency requirements, such as the Series 3 National Commodity Futures Exam – although alternative tests can also prove proficiency.
CTA finance explained
Investments in commodities can involve significant leverage, requiring a high level of expertise. Regulations came in from the 1970s onwards to help avoid the potential of substantial losses for firms and individuals, including moves to regulate CTAs.
A CTA fund is a hedge fund that uses futures contracts to reach its investment targets. CTA funds typically use various trading strategies to meet their investment goals, such as automated and trend-following systems.
Some fund managers might apply discretionary strategies, such as fundamental analysis, combined with systematic trading methods.
These fund managers run different strategies using futures, options on futures contracts and FX forwards. CTA funds were originally commodity-focused, but they’ve now expanded their expertise to invest in all futures markets: including commodities, equities and currencies.
ComponentsThe dollar pairs that make up the crosses (ie EUR/USD and USD/JPY are the components of EUR/JPY). Selling the cross through the components refers to selling the dollar pairs in alternating fashion to create a cross position.
COMPXSymbol for NASDAQ Composite Index.
ConfirmationA document signed by counterparts to a transaction that states the terms of said exchange.
In technical analysis, a consolidating market is a market that is neither continuing nor countering a long-term trend. Instead, its price is only experiencing rangebound price activity.
This is also seen as market indecisiveness. A market’s price during a period of consolidation will still fluctuate, but it won’t break out of a certain price range.As soon as the market breaks out and moves either above or below the stagnant trading pattern, the period of consolidation ends.
Sometimes a market’s trend will reverse after a continuation. This is known as a transition. For example, if EUR/USD consolidates after an uptrend then experiences a selloff, it has transitioned from bullish to bearish.
Many successful trading strategies involve identifying and capitalising on consolidation periods. The aim is not necessarily to trade the consolidation itself, but rather anticipate the market’s next move and benefit from entering the market early before the next move comes. One way to do this is by identifying
How to identify a consolidating market
To identify a consolidating market, look at the longer-term trend of the market and compare that with its short-term price movement. If a market has been consistently rising or falling over a long period (showing an upward or downward trend) but its price is now moving laterally, it’s likely the market will be going through a period of consolidation.
It’s important to allow for fluctuation when identifying a consolidating market. A market can fluctuate while consolidating, but it’s the size of the fluctuations that are significant. While a market is consolidating, it typically only trades between a certain price range and struggles to break away from the bound upper and lower price ranges.
Trading opportunities at this time can be limited. The range-bound price activity means that there are no significant price moves to take advantage of. However, scalpers will often trade consolidation periods despite the lack of strong price movement, as they look to profit in the short-term off smaller fluctuations.
ConsolidationA period of range-bound activity after an extended price move.
Construction spending is the amount of money the government or businesses have spent on construction, labour and materials over a monthly period. This can refer to either residential and non-residential construction and also includes engineering costs.
Residential construction refers to the construction of housing and other forms of accommodation. This is significant to traders as the housing market can often reflect the economic health of a country.
Non-residential construction refers to businesses and corporations spending money on infrastructure like new factories, offices or branches. Non-residential construction has an even stronger correlation with economic performance as gross domestic product (GDP) is derived from the output of these businesses, which is a direct measure of economic strength.
Although construction spending is not the strongest economic indicator, its relation to GDP makes it significant to traders. If construction spending is high, this implies economic growth as new infrastructure is being built – increasing the capacity of an economy.
How do changes in government spending impact construction?
Changes in government spending should indirectly impact construction in an economy. This is because there’s a relation between spending and economic strength.
The purpose of the government increasing spending is often to stimulate demand in the economy. If done successfully, an economy will grow as consumer spending also increases. This rise in demand can cause the need to raise economic capacity. One way this is facilitated is by increases construction. If government spending leads to an increase in wages, people will have more money and might be more likely to spend rather than save. For example, high consumer confidence off the back of an increase in government spending could subsequently increase the demand for housing[PF4] .
This is because, in theory, consumers are more financially stable and in a better position to purchase a home. If the demand for housing rises, the construction industry will benefit as more houses will need to be built.Alternatively, a fall in government spending could have an adverse effect on construction, as the fall in demand would take away the need for new infrastructure. In a weaker economic environment, businesses are less likely to invest in new branches or factories, consumers will be more hesitant with making substantial purchases like buying houses and the construction industry could contract.
ContagionThe tendency of an economic crisis to spread from one market to another.
Contract size is the deliverable amount of a market that makes up a futures or options contract, spot forex or CFDs. These vary between markets and assets.
For instance, in forex the standard size of one contract is typically 100,000 units of the currency. Whereas for stocks, the typical size of a futures contract is 100 shares.
A benefit of having contract sizes is that traders and investors know how much of a market they are trading. The size of the contract is a definitive quantity that is often standardised across the board, meaning regardless of the broker, the size of one contract for a market is usual the same.
It’s crucial to know the size of the contract you are trading as this will help you know exactly how much exposure you have. This is also significant when thinking about risk management, as you’ll need to know how much you might potentially lose based on the amount you are trading.
How do you determine contract size?
To determine the total contract size, all you need to do is simply look at the market information for the market you’re trading. This information will be available directly from your trading platform.
You can then use this to work out the total size of your trade. Let’s use an Apple CFD as an example. One Apple CFD is equivalent to one stock of Apple. If Apple’s price is $120 and you purchase 100 CFDs on Apple shares, the total cost of the trade is $12,000 ($120 x 100 CFDs).
With this long position, if Apple’s stock rises to $130, you would make a profit of $1,000 ($10 x 100) by closing out the position.
Contract sizes are standardised across the industry. For instance, a standard contract size for forex is 100,000 units of the base currency. However, ‘mini’ and ‘micro’ contracts are also available. In forex, a mini contract is 10,000 units and a micro contract is 1,000.
Contracts for difference (CFD)A contract for difference (CFD) is a financial contract in which you agree to exchange the difference in the settlement price between the open and closing trades on a particular asset. CFDs enable traders and investors to speculate on whether a market will go up or down, and profit from the price movement without owning the underlying asset.
Controlled riskControlled risk is where the amount of risk on a trade is capped at a certain level, typically through a guaranteed stop-loss order. This enables you to set the maximum possible amount you can lose on a trade, giving you full control of your risk.
Convergence of masA technical observation that describes moving averages of different periods moving towards each other, which generally forecasts a price consolidation.
CorporatesRefers to corporations in the market for hedging or financial management purposes. Corporates are not always as price sensitive as speculative funds and their interest can be very long term in nature, making corporate interest less valuable to short-term trading.
Counter currencyThe second listed currency in a currency pair.
CounterpartyOne of the participants in a financial transaction.
Country riskRisk associated with a cross-border transaction, including but not limited to legal and political conditions.
CPI (Consumer Price Index)CPI stands for Consumer Price Index. It is the most popular reference for day-to-day inflation. CPI gets calculated as a measurement of price change using a weighted average basket of consumer goods and services purchased by households.
CraterThe market is ready to sell-off hard.
Crown currenciesRefers to CAD (Canadian dollar), Aussie (Australian dollar), Sterling (British pound) and Kiwi (New Zealand dollar) – countries off the Commonwealth.
CurrencyCurrency is the money underpinned by the legal tender system unique to a particular country or economic area. Currency gets used as a medium of exchange for goods and services.
Currency in the form of paper or coins gets issued by governments and central banks and is usually accepted at face value as a payment method.
Currency pairA currency pair is a price quote of the exchange rate for two different currencies traded in FX markets: known as the base currency and the quote currency. The exchange rate of a currency pair indicates how much of the quote currency is needed to purchase one unit of the base currency.
Currency risk is the danger of losing capital due to changes in forex prices. In the context of trading, this is the risk to a trader’s portfolio if currency markets experience strong price changes.
Trading forex itself can be risky, but it’s not just the forex markets that can be directly affected by currency risk.
Due to the interconnectivity of the financial markets, a significant price change in one currency can impact several other currencies, or even other markets such as shares, indices or gold. Imagine you’ve bought gold in USD. If a Federal Reserve interest rate decision causes a depreciation of the dollar, you will lose money on your position as a result of currency risk.
How to hedge against currency risk
To , you need another position that will earn you a profit if currency risk causes an existing trade to lose money.
This could mean opening an opposing position for the same value on the same market. This will cancel out your initial trade and mean any loss suffered will be recouped in profit made from your hedged position.
Alternatively, you could trade a forex pair that will earn you profit if a particular currency moves a certain way. For example, if you’re worried about a rising US dollar hurting your long gold position, you could open a short position on GBP/USD. If USD goes up, any losses in your gold trade may be offset by profits from your GBP/USD trade.
One popular way that traders hedge against market risk is to invest in safe-haven assets. These are markets that don’t typically experience heavy volatility and tend to hold an intrinsic value over a long-term period. Traders will invest in safe-haven assets, such as Gold, during market instability to protect their funds.Additionally, you can protect against currency risk by applying stop-loss orders to your open positions. These automatically close out your trades if the market price falls below a certain level set by you. You will make a loss on the trade, but it protects you from incurring more substantial losses caused by a sudden or drastic change in currency value.
Currency symbolsA three-letter symbol that represents a specific currency. For example, USD (US dollar).
Current accountThe sum of the balance of trade (exports minus imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as foreign aid). The balance of trade is typically the key component to the current account.