Glossary

It is important to understand the basic terms used before trading the market

Account (Zero Account or Account Number

Account with Zero established under the Account Terms, including all Trading Accounts and all Transactions recorded in them.

Ask

The lowest seller in the market at that time. Also known as offer.

Bid

The highest buyer in the market at the time.

Commission (Comms or Transaction Fees)

Amount payable by you to the service provider in respect of each Transaction.

Contract

An agreement between two or more parties. (disclaimer: this is not legal advice).

Contract for Difference (CFD)

An agreement between buyer and seller to exchange the difference in value of a particular instrument between when the contract is opened and when it is closed.

Contract Size

Number of units for a security in one standard contract. An indication of the standard transaction sizes for the Zero OTC contracts is available on Zero Markets MT4. If you have more questions, contact our email ([email protected])

Currency Pairs

Pair of currency that are compared when trading Forex – e.g. a contract of Australian Dollars vs US Dollar would be expressed as AUDUSD.

Derivative

A security with a price that is dependent upon or derived from one of more underlying assets.

Direct Market Access (DMA)

Model of pricing and execution where an order is placed directly, or virtually directly, into an Exchange without any broker intervention. In practice, there are many variations to the general model and brokers always retain the right to filter orders for regulatory or compliance reasons.

Drawdown

The gap between the peak and trough decline of a specific recorded period of an investment.

Electronic Communication Network (ECN)

Model of pricing and execution where an order is placed directly, or virtually directly, via a Hedge Counterparty without any broker intervention. In practice, there are many variations to the general model and brokers always retain the right to filter orders for regulatory or compliance reasons.

Entry/Opening

To execute an order in the market. The price is known as the entry or opening price.

Exit/Closing

To create an order that is the opposite of a position that is currently held

Exposure / Market Exposure

Amount in dollar, or percentage of capital that is being invested in a particular type of security, market sector or industry.

Fees

Cost associated to products and services of the broker, but not the trade.

Finance

Financing is applicable on all CFD positions held overnight. The financial rate is applied to the full value of your position. If you hold a long ‘buy’ position you will be charged a financial interest, if you hold a short ‘sell’ position you may receive interest.

Free Equity

Free equity refers to your available funds that can be used to place new positions in your account

Futures

Contract between two parties to buy or sell a specified asset of standardized quantity and quality for a price agreed today.

Going Long

Going long refers to opening a buy CFD position to profit from a price increase.

Going Short

Going short refers to opening a sell CFD position to profit from a price decrease.

Gross Liquidation Value (GLV)

Your GLV is the total value of your account if you closed out all positions at the current market price minus any transaction charges or adjustments. If your GLV goes below 0, you will be in debt.

Hedge

An investment to reduce the risk of adverse price movement in another investment or an asset, normally consisting of taking an offsetting position in a related security.

Indicies

An aggregate statistical measure of a particular market. E.g., the ASX S&P200 seeks to measure the value of the top 200 stocks on the ASX.

Initial Margin

Every trader in the ASX CFD market is required to put up an Initial Margin (deposit) for each contract they trade. This applies to both buyers and sellers. This Initial Margin is returned when the contract is closed out. The amount is normally set at a level designed to cover reasonably foreseeable losses on a position between the close of business on one day and the next. The amount of Initial Margin for each contract varies according to the price volatility.

Instrument

A tradeable asset or negotiable item – such as security, commodity, derivative, index or any item that underlies a derivative.

IRESS

Trading platform used primarily to trade equity CFDs.

Leverage

When trading with borrowed capital, you are trading with leverage.

Liquidity

A liquidation is forced closure of positions due to the equity in your account not being able to support the margin requirements of the open positions – A position can also be Auto liquidated, your GLV is 50% of your margin requirement.

Lots

A lot is the term used to describe the amount for a standard contract. For example, 1 lot of gold refers to 100 troy ounce of gold. 1 lot of AUDUSD refers to $100,000 AUD worth of US Dollar.

Margin Call

When your free equity drops below 0. Your position can be liquidated at any point when you are in margin call.

Market-to-Market

A system whereby the value of an open position is revalued against the current market for the purpose of calculating variation margins.

Market Maker

Where the ASX CFD provider acts as principal, providing a two-way spread based which may not be the same as the market price. Market makers are price markers and make money when clients lose money.

MT4/Metatrader 4

Trading platform used primarily to trade FX.

Over the Counter Contract (OTC)

Contract for a financial product, including options and contracts in respect of foreign exchange or metals. OTC contracts are not traded or settled with any Exchange.

P&L

Profit and Loss.

Pip/Points

The smallest increment by which a unit of currency (such as for an FX FPM OTC contract) changes and is quoted depending on the number of decimal places in which the currency is quoted. For example a USDJPY margin FX is quoted with only two decimal places (meaning one Pip Value (or “Point”) = JPY 0.01).

Position / Open Position

Transaction which has not been Closed Out, or settled prior to the time agreed for settlement.

Position Size

The size (e.g., number of shares) or the dollar amount of an particular investment placed.

Risk Management

A system that identifies, measures, seeks to reduce and reports/monitors risk to avoid losses.

Rule Based Trading

A system of rules for evaluating stocks and identifying trading opportunities.

Security

Another term for a financial instrument.

Slippage

Difference between the price of trade and actual execution. Often occurs at the stage of high volatility, where the fluctuation of price is high.

Spread

Difference between the bid and ask price.

Stop-loss Order

An order placed which becomes activated when the market price reaches a designated level. Stop-loss orders are used to close out losing positions to prevent further loss.

Swap/Roll Over

An agreement between 2 parties to exchange financial instruments. Brokers may undertake a swap agreement with Prime Brokers to take positions on financial markets.

Trading Plan

A strategy on what, and how you will place a trade.

Trailing Stop

A water mark stop loss that tracks the movement of the underlying security.

Underlying Assets

The asset which a derivative’s price is based on. E.g., an equity CFD on BHP has an underlying asset of a of share of BHP.

Variation Margin

Refers to the payment of profits or losses following revaluation of a CFD contract. For this purpose, open positions are revalued (or marked-to-market) daily.

Volatility

Indication of the movement of price in the instrument in question. Highly volatile instrument fluctuates rapidly in price, while low volatile instrument is (relatively) stable in price.

Virtual Private Server (VPS)

A virtual private server (VPS) is a virtual machine sold as a service by an Internet hosting service. Traders use this to host their MT4 platform so that their trading strategies i.e. EAs can run 24 hours 5.5 days a week.