One subject
Trading costs
23 lessons, 64 glossary terms and 23 market guides cover this across the academy. Each one links to its own page, and nothing is repeated here.
Trading involves risk. You could lose more than your deposit.
The curriculum
23 lessons cover this.
In curriculum order, which is the order you would meet them.
- What an ETF CFD isModule 01What you are actually trading7 min
- How a trade works from start to finishModule 01What you are actually trading9 min
- How to read a price quoteModule 02The trade ticket8 min
- What a pip isModule 02The trade ticket7 min
- How to calculate pip valueModule 02The trade ticket8 min
- Contract size across the asset classesModule 02The trade ticket7 min
- What a spread isModule 04What a trade actually costs7 min
- What commission isModule 04What a trade actually costs7 min
- Spread only pricing and commission pricingModule 04What a trade actually costs8 min
- What a swap isModule 04What a trade actually costs10 min
- How financing differs across instrumentsModule 04What a trade actually costs7 min
- What slippage isModule 04What a trade actually costs7 min
- Conversion and your account currencyModule 04What a trade actually costs7 min
- What a round turn actually costsModule 04What a trade actually costs10 min
- How cost moves your break evenModule 04What a trade actually costs7 min
- How to compare trading costs honestlyModule 04What a trade actually costs8 min
- Multiple timeframe analysisModule 07Reading the chart8 min
- What reward to risk describesModule 09Risk, plan and practice8 min
- Standard stops and guaranteed stopsModule 09Risk, plan and practice7 min
- How scaling out of a position worksModule 09Risk, plan and practice8 min
- What the trading styles demandModule 09Risk, plan and practice9 min
- How a trading system is testedModule 09Risk, plan and practice9 min
- Your statements and your recordsModule 10Staying safe and your rights6 min
The glossary
64 terms belong here.
Alphabetical, each defined in one sentence on its own page.
- Account balanceThe cash figure on a trading account after every completed transaction, moved only by deposits, withdrawals, closed positions and posted charges, and unaffected by positions still open.
- Account currencyThe single currency an account is denominated in, into which every result, charge and financing adjustment is converted before it reaches the balance.
- All-in costEvery charge attached to a position added together, spread, commission and financing, stated as one figure for the complete round turn rather than as separate lines.
- Ask priceThe price at which a market will sell an instrument, and therefore the price a buying instruction is filled at, always the higher of the two sides of a quotation.
- Asset classA group of instruments sharing how they are priced, traded and settled, which is why costs, hours and specifications differ far more between two classes than within one.
- Bid priceThe price a buyer is prepared to pay, and therefore the price at which a holder of a long position sells out of it, always the lower of the two sides of a quote.
- Bid-ask spreadThe distance between the bid and the ask on one instrument at one moment, which is the first cost a position carries and is incurred the instant the position opens.
- Break even pointA break even point is the price at which a position's gain exactly covers the cost of opening and closing it, so the position finishes level rather than ahead.
- CommissionCommission is a charge a broker applies for executing an order, quoted per lot or as a percentage of notional value, and charged separately from the spread rather than inside it.
- ContangoContango describes a futures curve in which later delivery months cost more than nearer ones, a shape normally explained by the storage, insurance and financing of holding the physical asset.
- Contract sizeContract size is the quantity of the underlying that one contract covers, such as the units of base currency in a standard lot, or the ounces in one gold contract.
- Cost of carryCost of carry is the net cost of holding something over time: financing, storage and insurance on one side, any income or convenience the holding yields on the other.
- Counter currencyThe counter currency is the second currency written in a pair, the one the rate counts out, and the currency any result on that pair arrives in before conversion.
- Cross rateA cross rate is an exchange rate between two currencies with no US dollar on either side, historically assembled by combining each currency's separate dollar rate.
- Currency swapA currency swap exchanges principal and interest in one currency for principal and interest in another, and the same word names the daily financing on a position held overnight.
- Day tradingOpening and closing positions within a single session so that none is carried overnight, which avoids financing adjustments and pays the spread more often.
- Dividend adjustmentA cash entry a provider applies to an open CFD when the underlying goes ex-dividend, crediting the long side and debiting the short side so the price drop lands on neither.
- Exchange traded fund (ETF)An exchange traded fund holds a defined basket of assets and issues listed shares against it, so a stake in the whole basket changes hands on an exchange throughout the session.
- Exotic currency pairAn exotic currency pair sets a heavily traded currency against one from a smaller or less traded economy, and characteristically quotes with a wider spread and thinner depth than a major.
- Expense ratioAn expense ratio is the annual cost of running a fund, expressed as a percentage of its assets and deducted continuously from those assets rather than billed to the holder.
- Forward contractA private agreement between two parties to exchange an asset on a stated future date at a price fixed today, negotiated directly rather than standardised and listed on an exchange.
- Futures contractA standardised, exchange traded agreement to buy or sell a set quantity of an asset on a stated date, margined daily and cleared through a house that stands between both sides.
- HedgingHolding a second position whose result moves opposite to an existing exposure, so part of the first position's variation is offset while both remain open.
- Hit the bidDealer shorthand for selling at the price a buyer is already showing, so the deal happens at the bid rather than at the higher ask.
- Holding periodThe time between the fill that opens a position and the fill that closes it, which decides how many overnight financing charges it carries on top of its one-off costs.
- Index CFDAn index CFD is a contract settled in cash against the level of a stock index, so a position follows the index without any share, fund unit or futures contract changing hands.
- Interest rate differentialAn interest rate differential is the gap between the interest rates of two currencies, and it is the quantity the overnight adjustment on a currency position is calculated from.
- Inverse ETFAn inverse ETF is a listed fund built with derivatives to return the opposite of its benchmark over one stated period, almost always a single day, and its return over longer stretches is not the mirror of the benchmark's.
- Leveraged ETFA leveraged ETF is a listed fund built with derivatives to return a stated multiple of its benchmark's move over a single day, applied to a fall exactly as to a rise.
- LotA lot is the standard unit in which trading volume is expressed, so an order is sized in lots and the exposure that produces depends entirely on the instrument's contract size.
- Major currency pairMajor currency pairs carry the US dollar on one side and one of a small group of heavily traded currencies on the other, a boundary set by convention rather than by any rulebook.
- MaturityMaturity is the date on which a contract's obligations fall due and the contract ends, after which nothing further is owed under it.
- Minor currency pairMinor currency pairs are actively traded pairs with no US dollar on either side, such as euro against sterling, and are also called crosses.
- Net asset value (NAV)Net asset value is everything a fund holds less what it owes, divided by the fund shares in issue, and it is a calculation struck at a valuation point rather than a quote.
- Notional valueNotional value is the full value of a contract, its price multiplied by the units it covers, and profit and loss are calculated on that figure rather than on the money posted against it.
- Offer priceThe offer price is the price at which a seller is willing to deal, the higher of the two sides of a quote, and therefore the price a buyer pays.
- Overnight financingOvernight financing is the credit or debit applied to a position still open at a provider's daily cut off, covering the cost of funding the contract's full value for one more day.
- OvertradingOvertrading is dealing more often or in larger size than a method calls for, which multiplies transaction costs against a set of positions the method never asked to be taken.
- PipA pip is the conventional increment a currency pair is quoted in, the fourth decimal place for most pairs and the second for pairs quoted against the yen.
- Pip valuePip value is what one pip of movement is worth in money on a given position, found by multiplying the size of one pip by the number of units the position covers.
- PointPoint names the smallest unit a price is quoted in, so its size differs by instrument: a tenth of a pip on a currency quote, one unit on a stock index.
- Position tradingPosition trading holds one view for weeks or months, so financing and the size of the eventual move matter far more to the result than entry timing or the spread paid.
- Profit and lossProfit and loss is the money result of a position or an account, unrealised while a position is open and written to the balance as a realised amount when it closes.
- QuoteA quote is the two prices an instrument is available at right now: the bid, at which it can be sold, and the ask, at which it can be bought.
- Quote currencyThe quote currency is the second currency in a pair, the one a rate is counted in, so pip value and any result on the pair are denominated in it.
- Range tradingRange trading is an approach that treats the edges of a sideways band as its reference points, working on the expectation that price returns towards the middle rather than leaving the band.
- Realised profit and lossRealised profit and loss is the amount written to an account balance when a position is closed, being the difference between the opening and closing prices on the size traded, after the costs charged to that position.
- RolloverRollover carries a position past a date it would otherwise settle on: nightly, by moving a spot position's value date forward and applying a financing adjustment, or at expiry, by replacing an expiring contract with the next delivery month.
- Round turnA round turn counts one complete trade as a single unit, the opening and the closing together, and it is the basis on which commissions and futures volumes are frequently quoted.
- ScalpingScalping is a style of trading that takes many positions in a session for very small price moves, holding each for seconds or minutes, which makes dealing costs the dominant term in the arithmetic.
- Share CFDA share CFD settles in cash the difference between the opening and closing price of one listed company's shares, calculated on the full value of the contract, with no shares delivered and no shareholder rights attached.
- Soft commoditySoft commodities are the grown agricultural markets, among them coffee, cocoa, sugar, cotton and the grains, as distinct from the hard commodities that are mined or drilled.
- SpreadThe spread is the difference between the price at which an instrument can be bought and the price at which it can be sold at the same moment, and it is paid on entering and on leaving a position.
- Standard lotA standard lot is the conventional full unit of dealing size, in foreign exchange one hundred thousand units of the base currency, from which mini, micro and nano lots are stated fractions.
- SwapSwap is the interest adjustment credited or debited on a position held past the daily cut off, derived from the interest rate differential behind the instrument and adjusted by the provider's own charge.
- Tick sizeTick size is the smallest amount an instrument's quoted price is allowed to move, set in the contract specification rather than by the market or by any individual firm.
- Tick valueTick value is the money a position gains or loses when its price moves by one minimum increment, found by multiplying the tick size by the quantity the contract covers.
- Tracking differenceTracking difference is the gap between the return a fund delivered and the return its index reported over the same period, and it arises from structural causes rather than from error.
- Transaction costTransaction cost covers everything a position costs to open, hold and close: the spread crossed at each end, any commission, nightly financing, and slippage between the price requested and the price obtained.
- Two-way priceA two-way price quotes both sides at once, the price at which the quoting firm buys and the price at which it sells, so neither side is set after the direction is known.
- Volume weighted average price (VWAP)Volume weighted average price divides the total value traded by the total volume over a period, so every price counts in proportion to how much dealt at it rather than counting once.
- Ex-dividend dateThe ex-dividend date is the first day a share trades without the right to a dividend already declared, so the price customarily opens lower by roughly the amount being paid.
- XAGXAG is the currency code for one troy ounce of silver, which is why silver is quoted in the grammar of a currency pair, most often against the US dollar.
- XAUXAU is the currency code for one troy ounce of gold, so a quote against the US dollar states dollars per ounce rather than a rate between two currencies.
The market guides
23 guides answer a question about it.
Standalone reference answers, entered laterally rather than worked through.
- The forex marketMarketsWhat the currency market is, who deals in it, how a pair is quoted, and how a CFD on one settles.
- Minor currency pairsMarketsHow the market uses the term minor, and where the label overlaps with crosses and exotics.
- How a currency pair is quotedMarketsWhich currency is the base, what the two sides of the price mean, and how a pip becomes an amount.
- Index dividend adjustmentsMarketsWhy a price return index falls on an ex dividend date, and the cash adjustment that offsets it.
- Contango and backwardationMarketsWhat the two curve shapes mean, the carry and convenience yield behind them, and what the roll costs.
- How an ETF is builtMarketsThe wrapper, the index licence, creation and redemption in kind, and the arbitrage that anchors the price.
- Commodity ETFsMarketsThe two structures behind commodity funds, and why a futures based fund separates from the spot price.
- Contract sizes and lotsMechanicsWhere the number in the volume box comes from, and how contract size turns a price move into money.
- Pip, point and tickMechanicsThree units of price movement used as though they were one, and how each converts into money.
- How a spread is formedMechanicsWhere the bid and the ask come from, what widens the distance, and why a spread is not a fee.
- Commission and how it is chargedMechanicsThe three bases commission is quoted on, and why per side and round turn figures cannot be compared.
- Swaps and overnight financingMechanicsWhy a position held past the daily cut off is credited or debited, and how the adjustment is worked out.
- The triple swap dayMechanicsThe settlement convention that produces a threefold financing entry on one day of the week.
- Execution quality and how it is measuredMechanicsThe four measurements that describe how orders are filled, and what each of them cannot show.
- Liquidity and depth of bookMechanicsWhat the lower rows of an order book describe, and why the best price is only true for a quantity.
- Currency conversion on an accountMechanicsWhich figures on an account are converted and when, and how a conversion differs from a charge.
- Corporate actions on share CFDsMechanicsWhat happens to an open share contract when the company splits, merges, spins off or is taken over.
- Dividend adjustments on shares and indicesMechanicsWhy a dividend produces a cash entry, and the withholding that makes the adjustment smaller.
- ETF tracking difference and total costMechanicsWhy a fund does not return exactly what its index returns, and the four sources of the gap.
- Futures based CFDs and contract rolloverMechanicsWhich instruments are written on futures, what happens on the roll date, and what the curve shape costs.
- Price sources and how a quote is builtMechanicsWhere a CFD price comes from, how an aggregated book is assembled, and the filters in between.
- Statements and trade confirmationsMechanicsWhat each document is for, and the four reasons a hand calculation and a statement line disagree.
- Trading dollar denominated markets from the GulfStructureWhy the account currency question resolves differently in the Gulf, and where a conversion still appears.
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