Welcome to Day 1 of the 10 days of trading course from BlackBull Markets. We will be starting your trading journey by introducing the language that you will encounter every day as a trader.
There are six major terms that you should become familiar before opening your first live trade. If you don’t understand what these words mean, you may find yourself in hot water.
Six trading terms to memorise:
- CFD: CFD’s (or contracts for difference) allow investors the opportunity to trade assets without having to purchase or handle the underlying asset. A CFD is essentially a contract between a buyer and seller who both agree to compensate the other the difference between the current price of an asset and its future price. CFDs are what you trade with BlackBull Markets.
- Pips: The movement in the price of an asset can be measured in something called a ‘pip’. A 1-pip change in the price of an instrument would be observed when a change occurs at the fourth decimal place. For example, if the exchange rate of the USDEUR moves from 1.0500 to 1.0501.
- Lots: In trading, contract sizes are designated in ‘lots’. A lot is the equivalent number of physical units of an asset. For example, one lot of gold is equal to 100 ounces of physical gold. The number of physical units associated with one lot is different for different instruments. For example, one lot of a share CFD is equivalent to one physical share, while one lot of a forex CFD is equivalent to 100,000 of the base currency.
- Leverage: Leverage allows you to take a position in an instrument with a relatively small deposit by utilising borrowed funds. Leverage helps you magnify the profit or loss you make on a trade.
- Margin: Margin is the funds required in a trading account to enter a leveraged trade. Think of Margin as the collateral required to open a leveraged position.
Swaps: A swap is a fee incurred or earned for holding a forex trade overnight on Wednesday and Friday night. The swap is calculated as the difference between the interest rates of the two currencies being traded. This fee can either be debited or credited to your account depending on whether you are selling or buying a certain forex pair. Crucially, BlackBull Markets is not the recipient of the Swap fee.