Glossary

CFD & Financial Spreads Glossary

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

A

B

Base Currency	-	The base currency, or primary currency, is the first quoted currency in a currency pair. For example with EUR/USD, the base currency is Euros.

C

Capital Gains Tax	-	Tax payable at a rate equivalent to the taxpayer's highest rate of income tax on any gains over the CGT allowance from the sale, transfer or disposal of securities or other asset subject to this tax.
Commodities	-	Products such as gold and silver which are traded on margin. Commodities are used in the production of goods.
Contracts for Difference (CFDs)	-	This is an agreement between a client and a provider to exchange the difference between the opening and closing value of the contract.
Cum Dividend	-	Meaning 'with' this is the opposite of 'ex', and is used to indicate that the buyer of a security is entitled to participate in whatever forthcoming event is specified.
Currencies	-	Also known as Foreign Exchange (FX or Forex), you have access to some of the major world currency crosses. Currencies are always traded as one currency against another, for example GBP/USD means you are trading sterling against the US dollar.

D

Derivative	-	Instruments that derive their value from another security (the underlying security), such as a share, index, currency etc. CFDs and Spread bets are a type of derivative, as are covered warrants and futures options.
Diversification	-	Diversification is commonly regarded as a way of reducing risk by being less exposed to movements in any single instrument. You can create different levels of diversification by spreading your risk amongst several shares and other asset classes, mixing long and short positions, trading in sectors and indices.
Dividends	-	With CFDs you receive the dividend if you are long on the day the shares go ex-dividend. If you are short then you will need to pay the dividend. This is the same with rolling spread bets, although dividends are already built into the quote for quarterly spread bets.

E

Ex-dividend	-	Means "without" this is the opposite of Cum, and is used to indicate that the buyer of a security is not entitled to participate in whatever forthcoming event is specified. Ex cap, ex div, ex rights etc. A share sold ex-dividend means the buyer is not entitled to receive the recently declared dividend.
Exchange	-	Generally refers to a recognised stock market, for example, the London Stock Exchange or NASDAQ.

F

Financial Spreads	-	Also known as spread betting. This is an agreement between a client and a provider to exchange the difference between the opening and closing value of the bet at a future date – this date may or may not be specified depending upon what you are trading. You are speculating on the direction of the future price movements in an underlying instrument; you indicate an amount you want to bet on each point movement. Your profit or loss is simply the difference between the opening price and closing price of your bet, times your stake.
Financing	-	Often CFD positions involve some sort of daily financing. If you are long you will be debited interest for every day you hold your position. This rate will be based on the current LIBOR rate which could be different depending on which countries underlying exchange the instrument you are dealing in trades. If you are short you will receive a credit for every evening you hold your position. This could be zero, depending on the current LIBOR rate. Rolling spread bets follow the same rules as CFDs, although financing is built into the quote for quarterly spread bets. See ‘interest rate differential’ for financing on currency CFDs.

G

Gearing	-	Also commonly referred to as leverage. CFDs and spread bets are geared products as you are only required to deposit a proportion of your total transaction size in cash in your account. Some instruments are more highly geared than others e.g. currencies only require 2% margin, whilst shares usually require 10%. The effect of gearing multiplies losses and gains.
Good for Day (GFD)	-	A limit or stop order which automatically expires at the end of the day's standard market trading session if it is not filled or cancelled.
Good ‘til Cancelled (GTC)	-	A limit or stop order which has no expiry date. It will wait to be executed until either the instruments hits the appropriate price or until you cancel the order.
Guaranteed Stops	-	Similar to an ordinary stop order, except that it guarantees that you exit your position at the price you set as opposed to only closing you out of your position at the first available price which could be a long way from the price you placed your stop at. For the benefit of this ‘insurance’ against a sudden movement in the instrument (also known as ‘gapping’) you have to pay a premium to take out a guaranteed stop. Guaranteed stop losses are only available at the time of opening the bet.

H

I

Initial Margin	-	All CFDs and Financial Spreads require only a proportion of the total transaction size to take out the position. For example you may only require £1,000 to take out a £10,000 position in a share. This would be known as a 10% margin requirement / NTR or 10 times gearing. The smaller the margin requirement the more highly geared or leveraged the position would be.
Interest Rate Differential	-	Interest rate differentials are used to calculate the amount of financing you are credited or debited for holding a currency position overnight. It is calculated using the one day differentials for the two currencies concerned. Effectively, you receive the interest on the currency you have bought and pay interest on the currency you have sold, although the financing position/adjustment will be made in one currency.

J

K

L

Level 2	-	Level 2 shows a further depth of insight as to how the price of a share is being made up. This is opposed to level 1 prices which only shows the current quote.
LIBOR	-	(London Inter-Bank Offered Rate) is the bank rate at which banks offer to lend money to each other compiled by the British Bankers Association. This rate is the basis for calculating overnight financing charges for CFD and Financial Spreads positions held overnight.
Limit orders	-	Limit orders are used to trade at a better than current market price. They can be used to either enter or exit a position.
Limited Risk Account	-	Limited Risk Accounts are designed for clients who have less appetite for risk. A limited risk account requires you to have sufficient funds deposited in your account to cover the maximum possible loss before you are able to trade. This is managed by placing a Guaranteed Stop Loss (for which you will be charged a premium). You choose where you want your trade to be closed should the market move against you and we guarantee that your bet will be closed at exactly this price, even if the market gaps the chosen level.
Long	-	Generally refered to as 'Going Long' - you take a long position if you think the price of an instrument is going to rise in value.

M

Margin Call	-	If a CFD or spread bet moves into a loss-making position and you don’t have the minimum funds required to hold the position, then the broker can make what is known as a ‘margin call’. This is where you would be asked to deposit additional funds to ensure that the position remains solvent and is not closed by the broker.
Margin requirements	-	also known as the Notional Trading Requirement, usually calculated as either a percentage of the position or a fixed factor multiplied by your stake.
Margined Instrument	-	An instrument which is margined requires only a proportion of the total transaction size to be deposited to initially take out the position e.g. if the margin rate was 10% and you took out a position for £10,000 then the broker would only require £1,000. Margined positions which go against you will lead to a margin call when you fall below the minimum margin requirement.
Market Capitalisation (Cap)	-	The total value of a company's stock, to be calculated by multiplying the number of shares with the share price. Shares with a very low market capitalisation may not be tradable as CFDs or spread bets or only tradable over the phone. Shares with very high market capitalisation may benefit from decreased margin requirements due to their blue chip status.

N

NTR (Notional Trading Requirements)	-	The deposit requirement in respect of each open bet on your account. When you place a trade you must have enough funds to cover the NTR applicable to that trade. NTR is sometimes known as Initial Margin. You must maintain the NTR deposit level above any profits/losses on your account.

O

OCO orders (one cancels other)	-	This order types allows you to link a stop-loss order and a limit order to an open position. This is generally used to control possible losses with the stop-loss order and take possible profits with the limit order. If one of the orders is executed, the open position is closed and the remaining order is automatically cancelled.
‘our quote’	-	Barclays Stockbrokers Financial Spreads quote. This is not necessarily the same quote as the underlying market due to financing, dividends etc.
OTC	-	CFDs and Financial Spreads are a type of Over the Counter (OTC) product. This is contrast to share dealing where you are trading directly on a recognised stock exchange

P

Q

Quarterly Bets	-	Also know as a future or forward price, is derived from the current underlying market price, but adjusted for the cost of funding until the future date. Funding has two components – financing and dividends. Also see Rolling Bets
Quote	-	The current "spread" relating the bid and the ask for a security. The bid is the highest price at which someone is willing to buy a security. The ask is the lowest price at which someone is willing to sell a security.
Quote Currency	-	The quote currency, or profit/loss currency, is the second currency in a pair. For example with EUR/USD, the quote currency is dollars. When you trade you choose how many dollars you are willing to risk for every tick movement.

R

Rolling Bets	-	based around the underlying share price to which a small spread is applied. Positions open at the end of each day are automatically rolled over into the following day. The existing position is closed at the end of day price and a new position opened at the same level. Also see quarterly bets.

S

Sectors	-	A sector is a combination of shares within one industry e.g. banking. Trading sectors creates greater diversification than trading individual shares, although less than trading indices.
Share Dealing	-	Purchasing the underlying cash equities whether in a nominee account or by receiving certificates. CFDs have some similarities to share dealing, such as buying 10,000 shares is the same as 10,000 CFDs, although differ in other respects, such as being a margined instrument and holders not receiving the same shareholder perks that sharedealers will do, such as voting rights.
Short	-	You take a short position if you think the price of an instrument is going to fall. The intention is to buy back the instrument at a later date at a lower price, although if you close the position at a higher price then you will lose money
Spread betting	-	The name of the product which Barclays Stockbrokers call Financial Spreads.
Stamp Duty	-	Government tax charged on the purchases of shares at the rate of 0.5% in the UK. As no underlying instrument is purchased with CFDs and spread bets, stamp duty does not apply. Tax laws can of course change.
Standard Account	-	With a Standard Account the amount that you deposit will determine the total size of any trade on the account and will not be considered as your ultimate financial liability. If your positions move against you, you may need to make a margin payment to maintain your position. This is because in addition to the initial margin required to create the position, you must also meet the full value of all running losses from your positions.
Stop orders	-	An order to buy/sell shares when the share price rises to or above/falls to or below a specified stop price. When buying, a Stop order is used to make an investment but only when an upward trend in the share price has been established. When selling, a Stop order is used as protection from a sudden fall in the share price or lock-in profits already made. We always recommend you place a stop order on an open position to help control your potential losses.

T

Tick	-	A tick is the smallest possible movement in an instrument, whether that be a quarter point movement on certain share price or a one point movement on a currency.
Touch Prices	-	Touch prices are the prices which are distributed by the exchange which the underlying instrument trades. Barclays Stockbrokers CFDs always quotes touch prices, although some CFD brokers may quote prices which are different to those given by the exchange. Also known as the ‘yellow strip’.

U

V

Variation Margin	-	If your positions go against you and you fall beneath the NTR or margin requirement then you may need to pay additional funds into your account. This is known as variation margin and is requested by the broker through a margin call.
Volatility	-	Volatility represents the magnitude of the price of the underlying security's movements during a specific time period. Trading CFDs and spread bets in highly volatile instruments can lead to rapid gains and losses due to the gearing involved.

W

X

Y

Z