LEVERAGE
Leverage essentially means that our broker lends us the money to trade larger positions and we have to put down only a small portion of the investment as collateral known as the margin requirement. Leverage allows us to open larger positions by using a relatively small amount of capital (or margin). This means we can make much bigger gains but also bigger losses.
SPREAD
The spread is called the cost of placing a trade. When you are trading assets like shares, forex or commodities, the spread is dictated by other participants in the market. If you are trading at market price, the offer is the lowest price at which you can buy, and the bid is the highest price at which you can sell. When you are trading derivatives like CFDs, your provider will often add their own spread on top of the market price. This spread represents the fee you are paying to trade the derivative.
Broker receives a spread for providing us with the services of their trading platform, software and access to the market. All instruments will quote two slightly different prices depending on whether we are buying or selling the instrument. When we want to sell an instrument we are offered one price and when we want to buy we are offered another slightly higher price. This difference between the buy and sell price is the spread.
Tighter spreads tend to mean lower trading costs, as long as everything else is equal. This is because a tighter spread means that the market price doesn’t have to move as far from your entry price for your trade to become profitable.
SHORT POSITION – SHORT SELLING
Opening a short position is a way to profit from the declining price of securities by borrowing the underlying asset, selling it in the open market, and expecting that the market price will be lower to buy the securities back at a lower price and replace the securities borrowed. The strategy is known as short selling. Short selling allows traders to benefit from a fall in the market value of an instrument.
LONG POSITION – LONG SELLING
Situation where an investor purchases (or contracts to purchase) commodities, financial instruments, and shares, etc., with the intention of holding them in anticipation of a price increase. An investor with a long position is a bull speculator, and will receive delivery of the actual commodity, instrument, or share if he or she holds the position into the delivery period (instead of offsetting it with a counter-contract).
BULLISH
Term that describes rising security prices.
BEAR MARKET
During bear market periods, investing can be risky even for the most seasoned of investors. A bear market is a period marked with falling stock prices.
BEAR MARKET VERSUS MARKET CORRECTION
A market correction is a period in which stock prices drop following a period of higher prices. The idea behind a correction is that because prices rose higher than they should’ve, falling prices serve the purpose of “correcting” the situation. One major difference between a bear market and a market correction is the extent to which prices fall. Bear markets occur when stock prices drop 20% or more, whereas corrections typically involve price drops around 10%. Furthermore, market corrections tend to last less than two months, whereas bear markets last two months or longer.
