Glossary Of CFD Terms
Ask
The quoted price at which the broker/dealer is willing to sell.
ASIC
The Australian Securities and Investments Commission.
Benchmark Rate
The reference rate (or "base rate") against which interest charged on borrowing, or paid on short sales, is linked. See LIBOR and the RBA cash rate.
Bid
The quoted price at which the broker/dealer is willing to buy.
Bid/Ask Spread
The difference between the bid and ask prices. In thinly traded markets, this spread may be wide.
CFD (Contract For Difference)
A CFD is a financial instrument (derivative) 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 merely a contract with the CFD provider whereby you will be paid if price moves in your favor and where you will pay the CFD provider if price moves against you.
Closing a Trade
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
A document sent by the CFD provider confirming trades and orders.
Credit Allocation
The maximum level to which a client can trade.
Currency Futures
Futures contracts 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)
Orders placed by the client are executed directly on the relevant exchange — the CFD provider does not act as market maker.
Expiry Date
The date at which a contract can no longer be traded.
Fill
Execution of an order.
Forex Trading
Foreign exchange (or currency) trading.
Frequent Trader Discounts
Fees & commissions are reduced if trading turnover exceeds a prescribed monthly level.
GFD
Good for the day order.
GTC
Good until cancelled order.
Gapping Through
If the market falls below a level specified by you in a stop loss order, without actually trading at that level. Likewise, if the market rises above a level specified by you in a stop entry order, without actually trading at that level.
Guaranteed Stop Loss
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
The last day on which the client can open or close a trade in a relevant contract.
Leverage
The ability to establish a large exposure with a relatively small outlay. Also known as "gearing".
LIBID
London Interbank Bid Rate (normally one-eight per cent below LIBOR)
LIBOR
London Interbank Offer Rate. The overnight lending rate between major international banks.
Limit Order
An order to buy a stock, but with an upper price limit, or an order to sell stock with a lower price limit.
Long
Take a position where you will benefit from a price rise.
(Markets covered: Long = long trades only, no short trades)
Margin
The minimum cash deposit that you are permitted to hold against an open position, normally expressed as a percentage of the total exposure.
Margin Call
The cash amount required by the broker in order to maintain an open position when prices move against you. If you do not respond to the margin call, your position will be closed out by the broker.
Market Maker
A CFD provider who generates their own quotes, rather than reflecting the market bid or ask. Traders may encounter wider bid-ask spreads than the actual market — an additional cost — unless the market maker guarantees straight through processing.
Market Order
An order to buy or sell stock at whatever market price is quoted at the time your order is received.
Minimum Distance
The closest distance (normally a percentage) that a guaranteed stop loss can be set to the market price at time of placement.
Offer
Price at which broker/dealer is willing to sell. The "Ask" price.
Option
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").
RBA Cash Rate (RBA)
The overnight cash rate published daily by the Reserve Bank of Australia: the interest rate at which banks borrow or lend funds to one another on an overnight unsecured basis. Also known as the "interbank overnight rate".
Roll Over
Transfer of a trade that is near to expiry into the next contract period.
Settlement
The official expiry level of a market at which any open positions will be closed.
Spot Forex
Refers to currencies 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
Difference between the buy ("bid") and sell ("ask") quotes in a market.
Spread Widening
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 additional cost of trading.
Stop Entry
A buy order set above the current market price which is only triggered if market price rises to the specified buy price.
Stop Loss
A sell order set below the current market price which is only triggered if market price falls to the specified selling price.
Straight Through Processing
The Market Maker guarantees that bids and asks will match actual market prices.
Tick
The minimum price increment in a market.
