CFD Glossary of Terms, definitions, acronyms, common terms

A

ADR: American Depository Receipt.
Aim Stocks: Alternative Investment Market. AIM is a smaller sub market of the London Stock Exchange allowing smaller companies to float their shares.
Arbitrage: The process where a gap between two market makers' prices is exploited by buying from one while simultaneously selling to the other to lock in a profit.
Ask: The quoted offer at which someone can buy; also called the offer.
Auction: This occurs from 1630 to 1635 on the FTSE 100 and where the official settlement for the day is calculated.

B

Backwardation: This occurs when the bid price exceeds the offer price of the stock. This usually occurs when a stock is suspended.
Base Rate: The interest rate at which the Bank of England provides liquidity to the Money Markets.
Bear Market: A market distinguished by declining prices.
Bid Price: The price at which a stock, index or commodity can be sold.
Bid-Ask Price: The difference between what buyers are willing to pay and what sellers are asking for in terms of price.
Blue Chip Stock: Blue Chip companies are large, well established and usually conservatively managed.
Bonus Issue: An offer of free additional shares to existing shareholders at no charge and pro rata to shareholding.
Broker Ratings: Buy, sell or hold recommendations or ratings given to individual company stocks by securities analysts, depending on how the stock will perform in the short or long-term.
Bull Market: A market distinguished by rising prices.

C

Capital Gains Tax: A tax on investment profits.
Cash price: The price of an asset for immediate delivery. In other words, the actual price of an instrument right now; this term is often used for stock indices, whereas the synonymous term of 'spot' is more often applied to forex and commodity prices.
Central Bank: A government organisation that manages a country's monetary policy. For example, the US Central Bank is the Federal Reserve, and the German Central Bank is the Bundesbank.
CFD: Contract for Difference
Closing Price: The price at which a product was traded to close the open position. Also refers to the price of the last underlying market transaction in a days trading session.
Collateral: Stock lodged as collateral can be used to fund CFD positions in the market. A haircut is normally applied to the total value of the collateral lodged.
Contingent if done order: Instructions you give us to attach a stop loss and/or limit order to your opening order if it is triggered and filled
Corporate Action: Means any event initiated by a corporation which impacts its shareholders. Examples include stock splits, consolidations, mergers and spinoffs.
Contingent order: Instructions you give us to attach a stop loss and/or limit order to your opening order if it is triggered and filled.

D

Derivatives: Financial contracts, such as futures and options, whose value is derived from an underlying asset, rate or index.
Discount: The amount by which a price for one instrument is less than that of another instrument. The term is also used in forex markets to describe the amount by which forward currency rates are less than spot rates.
Dividend: That part of a company's after-tax earnings that is distributed to shareholders. Dividends are paid at the company's discretion. They may be distributed as cash or by scrip dividend.
Dow Jones Industrial Index: The benchmark US stock market index that tracks the performance of a selection of thirty US blue-chip stocks.

E

Economic Indicator: Statistical data about a country's economy such as figures on unemployment, the Consumer Price Index (CPI), Gross Domestic Product (GDP), money supply and housing starts. They give clues about the future direction of output and demand in an economy, prompting reaction from consumers, governments, companies and financial markets.
European Central Bank (ECB): The Central Bank for the new European Monetary Union.
EX Date: The date that a company actually pays a dividend to those holding stock.
Ex-dividend: A share bought without the right to receive the next dividend which is retained by the seller.

F

Free equity: The amount of money available in your account to withdraw or use for further transactions after open position valuations and margin requirements have been deducted.
FSA: Financial Services Authority. The governing body that regulates the financial services industry.
FTSE: Financial Times Stock Exchange. These firms are jointly responsible for the compilation and maintenance of the main stock indices reflecting the performance of the UK's top shares.
FTSE 100: The index that highlights the performance of the UK's top 100 companies, as ranked by their market capitalisation. We refer to this as UK100 in our literature.
FTSE ALL SHARE: An index covering about 800 shares representing 98% of UK market value. There are indices for business sub-sectors as well.
FTSE MID 250: The index of the next 250 companies, after the top 100.
FTSE 350: The index of the top 350 companies by market capitalisation. It is a combination of the FTSE 100 and FTSE 250 stocks.

G

Gap: The market trades through the level specified in your order, without actually trading at that given level.
Gearing: The relationship between potential profit or loss and the initial outlay. A position with high gearing or leverage stands to make or lose a large amount from a small initial outlay.
Good For The Day (GFD): An order, which if not filled, expires at close of business on the day it is received.
Good Till Cancelled (GTC): An order that will be carried forward indefinitely until it is either filled or cancelled by you.

H

Haircut: The percentage reduction applied to collateral lodged with a broker to fund new or existing CFD positions.
Hedging: A strategy to reduce the risk of an open position.

I

Iceberg Orders: A large single order that has been divided into smaller lots, usually by the use of an automated program, for the purpose of hiding the actual order quantity.
Index: A statistical indicator that represents the total value of the stocks that constitute it e.g. the FTSE or the Dow Jones. It often serves as a barometer for a given market or industry and acts as a benchmark from which financial or economic performance is measured.
Illiquid Market: In an illiquid market, a small amount of business often moves prices by a disproportionate amount, and bid and offer prices can be far apart.
Initial Margin: deposit required to open a CFD position.
Interbank Rates: Foreign Exchange rates at which large international banks quote other large international banks.
Interim Dividends: A company's distribution of profits to shareholders halfway through the financial year.
Interim Report: All companies quoted on the London stock exchange must release an interim report after the first 6 months of their financial year. It tends to concentrate on profitability, and may be used to justify an interim dividend.
IPO: Initial Public Offering. The offering of shares making their market debut.
ISIN: The International Securities Identification Number uniquely identifies a security.

L

Level 2: Also known as market depth. Allows traders to view, in real time, all trades and orders on the London Stock Exchange
Leverage or gearing: Leverage or gearing allows traders to gain a large exposure with a relatively small outlay.
LIBOR: London Interbank Offered Rate. The rate used to calculate overnight financing charges if holding a long position.
LIBID: London Interbank Bid Rate. The rate used to calculate overnight financing charges if holding a short position.
Limit orders: An order placed to buy or sell a market at a specified price or better.
Liquid Market: A liquid market has a sufficient volume of two-way business for a trade to occur without moving prices unduly. The market will normally exhibit narrow bid-offer spreads.
LSE: London Stock Exchange.

M

Margin Call: Means a request or deemed request for funds to bring a Client's account back into a positive position.
Market Order: A CFD trade that is executed at the current market price.
Mid-Price: The price half-way between the buy and sell prices.
MOC Orders: A market order that is submitted to execute as close to the closing price as possible.

N

NASDAQ: The National Association of Securities Dealers' Automated Quotations System is an electronic stock exchange based in New York listing many leading high-tech companies.
Normal Market Size (NMS): A system that categorizes the size of transactions that is normal for a particular security and forces market makers to deal within these sizes.

O

Offer Price: The price at which a stock can be bought.
Opening Auction: This occurs between 07.50 and 08.00 on the London Stock Exchange where traders and market makers enter bids and offers for shares to determine the opening price for each stock.
Opening Level: Means the price or market level at which a position was initiated.
Open Position: Trades that are currently running within a portfolio.
Order: A pending order that is only executed as a trade when the client's conditions are met.

P

Parked Orders: Facilitates frequently placed orders and allows users to place multiple orders simultaneously.
Power of Attorney: Authorising someone to trade on your behalf.
Resistance: A term used in technical analysis indicating a price level at which analysis suggests a predominance of selling and hence a greater likelihood that the price will fail to break through the level.
Rights Issue: A privilege allowing existing shareholders to buy shares shortly before they are offered to the public at a specified and usually discounted price and usually in proportion to the number of shares already owned.

S

Scrip Dividend: A scrip dividend is a scrip or bonus issue of shares made at no charge to shareholders in proportion to their holdings in lieu of a cash dividend.
SETS: Stock Electronic Trading Service. The order driven system used to trade FTSE 100, ex-FTSE 100 and reserve shares.
Shares: Shares represent ownership of part of a company. They are also known as equities.
Shorting: Refers to selling an asset that you do not own with the aim of buying it back cheaper at a later date.
Slippage: The difference between the level of an order and the actual price at which it was executed. Can occur during periods of higher volatility when market prices move rapidly or gap.
Smart Orders: Achieving best execution of trades while minimising market impact.
Small Cap Stocks: Stocks, often traded on AIM or other smaller exchanges, with a small market valuation, typically below £1 billion.
Stamp Duty: Tax levied on physical share transactions at a rate of 0.5% of the total value of the trade. CFD trades are exempt from this tax.
Stop Entry: Orders to enter the market at a less favorable price.
Stop Exit: Orders to exit the market at a less favorable price.
Stop Loss: A pre-determined level at which you would like to close your bet to limit your loss if the price moves against you.
Stop Order: Stops are orders to sell below, or buy above, the current price. Stop orders can be used to close or open a new position if the price breaks through a perceived support/resistance level.
Support Level: A technique used in technical analysis to indicate a price floor at which you would expect the price to 'bounce' off. Opposite of this is resistance.

T

Trading Platform: The system used by traders wishing to place online orders and trades.
Trailing Stop: Designed to allow an investor to specify a limit on the maximum possible loss, without setting a limit on the maximum possible gain.

V

Volatility: A statistical measure of a market's price movements over time.

W

Watch List: A list of markets selected for surveillance. Watch lists can be created in your account online.
Working an Order: The process of having an order that has not yet been executed.

CFD Glossary

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W

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