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CFD Trading Glossary

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Ask is the quoted price at which the broker/dealer is willing to sell.
 
Benchmark Rate means the reference rate or "base rate" against which interest charged on borrowing, or paid on short sales, is linked.
 
Bid is the quoted price at which the broker/dealer is willing to buy.
 
Bid/Ask Spread means the difference between the bid and ask prices. In thinly traded markets, this spread can be wide.
 
CFD (Contract For Difference) is a financial instrument (derivative) which is used to trade stocks on margin and has the same price movement as the underlying stock. You do not own the physical stock. The CFD is only a contract with the CFD provider whereby you will be paid when the price moves in your favour and where you will pay the CFD provider when the price moves against you.
 
Closing a Trade means placing a second order of equal size in the opposite direction to your first order on a contract, in order to establish your final profit or loss.
 
Contract Note is a document sent by the CFD provider confirming trades and orders.
 
Credit Allocation means the maximum level to which a client can trade.
 
Currency Futures are futures contracts which are traded on an exchange, most typically the Chicago Mercantile Exchange. Always quoted in terms of the currency value with respect to the US Dollar.
 
Direct Market Access (DMA) means that orders are placed by the client and are executed directly on the relevant exchange - the CFD provider does not act as market maker.
 
Expiry Date is the date at which a contract can no longer be traded.
 
Fill means the execution of an order.
 
Frequent Trader Discounts are fees and commissions which are reduced when trading turnover exceeds a prescribed monthly level.
 
GFD means good for the day order.
 
GTC means good until cancelled order.
 
Gapping Through means when the market falls below a level which is specified by you in a stop loss order, without actually trading at that level. Likewise, when the market rises above a level specified by you in a stop entry order, without actually trading at that level.
 
Guaranteed Stop Loss is a stop loss order with a guaranteed exit price, eliminating the risk of the stop order not being filled. The CFD provider will normally charge an additional fee for this service.
 
Last Day of Dealing means the last day on which the client can open or close a trade in a relevant contract.
 
Leverage is the ability to establish a large exposure with a relatively small outlay. Also known as "gearing".
 
LIBID is the London Interbank Bid Rate (normally one-eight per cent below LIBOR)
 
LIBOR is the London Interbank Offer Rate. The overnight lending rate between major international banks.
 
Limit Order means an order to buy a stock, but with an upper price limit, or an order to sell stock with a lower price limit.
 
Long means take a position where you will benefit from a price rise (Markets covered: Long = long trades only, no short trades).
 
Margin is the minimum cash deposit which you are permitted to hold against an open position, normally expressed as a percentage of the total exposure.
 
Margin Call is the cash amount which is required by the broker in order to maintain an open position if prices move against you. When you do not respond to the margin call, your position will be closed out by the broker.
 
Market Maker is a CFD provider who generates their own quotes, rather than reflecting the market bid or ask. Traders can encounter wider bid-ask spreads than the actual market - an extra cost - unless the market maker guarantees straight through processing.
 
Market Order is an order to buy or sell stock at whatever market price is quoted at the time your order is received.
 
Minimum Distance means the closest distance (normally a percentage) which a guaranteed stop loss can be set to the market price at time of placement.
 
Offer is a price at which broker/dealer is willing to sell. The "Ask" price.
 
Option means the right, but not the obligation, to buy or sell an underlying financial instrument on or before a specific date at a given price (the "strike price").
 
Roll Over is the transfer of a trade which is near to expiry into the next contract period.
 
Settlement means the official expiry level of a market at which any open positions will be closed.
 
Spot Forex refers to currencies which are traded between two counterparties, often major banks, and frequently referred to as the "interbank" market. Spot Foreign Exchange is generally traded on margin and is more liquid and widely traded than currency futures.
 
Spread is the difference between the buy ("bid") and sell ("ask") quotes in a market.
 
Spread Widening means where the CFD provider acts as market maker, bids may be lower and asks may be higher than the actual market. The wider spread is an extra cost of trading.
 
Stop Entry is a buy order set above the current market price that is only triggered when market price rises to the specified buy price.
 
Stop Loss means a sell order which is set below the current market price that is only triggered when market price falls to the specified selling price.
 
Straight Through Processing means that the Market Maker guarantees that bids and asks will match actual market prices.
 
Tick is the minimum price increment in a market.

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