Frequently Used Terms

This Glossary of terms explains some of the terms Tradestone Markets uses across FX, Equity, Index and commodity products.

What is Spot?

A Spot FX trade is an immediate execution of one currency against another at an agreed rate, settlement of which traditionally takes place two business days later. Tradestone Markets offers spot trading on streaming real-time prices for over 25 different currency crosses, with deep liquidity on the most liquid currency pairs.

In the FX Trade module, if the Bid/Ask fields are highlighted in green, then the platform is delivering a live-tradable price.

What is a Forward Outright?

A Forward Outright is a trade that will commence at an agreed upon date (in the future). There is no centralized exchange for Forwards and forward trading is often customized to meet the needs of the buyer and seller. Forward Outrights are expressed as a price above (premium) or below (discount) the spot rate. The forward FX price is the sum of the spot price and the margin. This price is a reflection of the FX rate at the forward date where if the trade were executed at that rate there would be no profit or loss.

Trading on Margin

Defining Margin

Trading on margin means that an investor can buy and sell assets that represent more value than the capital in their account. Forex trading is typically executed on margin, and the industry practice is to trade on relatively small margin amounts since currency exchange rate fluctuations tend to be less than one or two percent on any given day.

Margin, or leverage, implies that the investor is “gearing” his or her funds.  What this means is that a margin of 4.0% enables one to trade up to CAD 250,000 even though there is CAD 10,000 in the account. In terms of leverage this corresponds to 25:1, because 25 times CAD 10,000 is CAD 250,000, or put another way, CAD 10,000 is 4.0% of CAD 250,000.

Margin is a powerful accelerator

Using leverage opens the possibility to generate profits quickly, but increases the risk of rapidly incurring large losses. It is important to review the margin thresholds and limitations in your trading agreement to determine the range of trading activities you can undertake.

Net Equity for Margin

This term is the absolute indicator of the extent of margin capability in your account. If your Margin Required exceeds your Net Equity for Margin you must close or reduce positions, or send additional funds to cover your positions.

Trading on Unrealized Profits

You can trade on unrealized profits in your account. Margin calculations are based on the Net Equity for Margin which includes such unrealized profits and losses as are current in your account.

Margin call

Traders must maintain the margins listed in their account at all times. If funds in an account fall below the margin requirement, a margin call is issued. A margin call requires the trader to immediately deposit more funds to cover the position or to close the position.

Trade size

The amount of the trade size is limited by the margin position. For example, a trader with CAD 10,000 in funds and 4% margin, can trade as much as CAD 250,000; however taking a single position in this amount would be extremely unwise and generate a margin call if the trade were to drift offside slightly.

Majors, Minors and Exotics

Margin rates vary according to the liquidity (available inventory) of different currency crosses. Lower rates apply to Majors, higher rates to minors, and then highest margin terms for exotics.

FX Order Types

The basic landscape in FX trading involves a number of order types that facilitate efficient transactions. Below, we have defined several of the most common terms.

  1. Limit
    A limit order is commonly used to enter or exit markets at a specified price or better than the market price. In addition, a limit order allows the trader to manage the length of time that the order is current or outstanding before it is cancelled.
  2. Stop if Bid
    A Stop if Bid order is used to buy or sell a currency is the Bid price breaches the specific level in the price field. Typically, Stop if Bid orders are used to buy a FX position in order to make sure a certain level is broken.
  3. Stop if Offer
    A Stop if Offer order is used to buy or sell a currency is the Ask price breaches the specific level in the price field. Typically, Stop if Offer orders are used to sell a FX position in order to make sure a certain level is broken.
    Linking orders offers traders a logical aggregation of order types that outline contingencies in market participation, making it much easier to trade in moving markets.
  4. One Cancels Other (OCO)
    This most common linked order, OCO, stipulates that if one part of the order is executed, then the other part is automatically canceled. In FX trading, OCO often refers to a buy order and sell order linked together so that when one of the orders is executed, the other is canceled. Consider the OCO as follows: the trader protects an existing position from loss (stop order) and ensures that profits are taken (limit order).
  5. If Done (ID)
    These contingent trade orders, also known as slave orders become active only if the primary order is executed first. An example would be a working order to buy EURUSD at 1.2500 and a contingent order to sell at 1.2400 Stop if Bid – if the first order is done.
  6. Trailing Stop
    A Trailing Stop Order is a stop order that has a trigger price that changes with the spot price. As the market rises (for long positions) the stop price rises according to the proportion set by the user, but if the market price falls, the stop price remains unchanged. This type of stop order helps an investor to set a limit on the maximum possible loss without limiting the possible gain on a position. It also reduces the need to constantly monitor the market prices of open positions.