Trading Terminology – Understanding the Basics
A look at common CFD trading terms and what they mean…
When it comes to online trading, there is no better platform than MetaTrader4. The award-winning trading software is a favorite amongst newbies and pro-traders alike. This is due to many favorable features however, in order to take full advantage of these features, you need to know and understand the basic language in the industry:
Top 5 Trading Terms Everyone Trader Should Know
The industry is vast with many niche sectors that have their own specific language and vernacular. These five phrases are a great introduction to the industry for any trader, if you understand these, then you are off to a strong start.
Equity:
This refers to the amount of money a trader has available on their account. It is not only their financial balance but it is the balance with any profits and losses of your open trades included, as well as any swap fees*.
*Bonus info: Swap fees are charged for holding a trade open over-night, after the market has closed.
This then gives traders more data with which to deduce their strategies and entry/exit points. It also informs them regarding the required margin in order to keep their account in good standing; a vital tool for any trader of any level.
Margin:
This refers to how much of your equity you have available to open new trades. It also, and more importantly, indicates to traders the amount of funds needed to insure against their potential losses from their open trades. Many brokers will operate a Margin Call, which is a signal from your broker that there are depleting funds and in order to not see your account liquidated, you would be required to top up your margin or close trades that could be affecting your total margin.
CedarFX, the world’s first eco broker, operates on a 100% margin and a 70% stop out. This is a risk management strategy the broker has in place. It simply means that should your
margin fall below 70%, the broker will automatically close your riskiest trades one at a time, in order to prevent your account from falling in to a negative balance, protecting you from liquidation.
Leverage:
Leverage is a powerful trading tool and it is why many investors love to trade with CFD brokers like CedarFX. Leverage gives traders greater exposure to the market while requiring only a small portion of the capital investment.
If you invest $10 with leverage of 1:500 – your trade exposure is equivalent to $5000 ($10 x 500). You still only need $10 to open the trade however, the potential profit is that of a
$5000 position. Leverage does come with risks and should be thoroughly understood before engaging it as a strategy.
At CedarFX, you can trade on over 170 assets, all with leverage. Here’s a list of the leverage
offered by this broker:
Forex – 1:500
Cryptocurrencies – 1:100
Stocks – 1:20
Metals – 1:500
Indices – 1:200
Commodities – 1:200
Take Profit:
A take-profit order refers to a type of limit order. This specifies a particular and exact price at which you want an open trade to close out for a certain profit percentage. The price needs to hit the exact value at which the take-profit is set, in order to trigger the signal to close the trade.
This tool is an effective method of trading, especially for those who are unable to watch the charts for extended periods of time. This signal can assist those in reaching their trading goals without needing to sacrifice exorbitant amounts of time to trading. CedarFX offers this tool and others when you trade with them.
Stop Loss:
This is another form of risk mitigation and is also offered by CedarFX. A stop-loss is a tool used to signal a sell order at a particular price, in order to minimize potential losses. The
price at which a stop-loss is set, is usually pre-calculated based on a trader’s strategy.
Once again, this is a highly effective tool but will only engage upon the price hitting the exactly value at which your stop-loss has been set. You do not need to pay attention to your trades every second of the day when you have tools such as a stop-loss and take-profit, which are designed specifically to assist traders with risk mitigation.
Looking to Trade CFDs? Look No Further!
When it comes to choosing the right broker for you, we recommend CedarFX, the World’s first green broker.
As outlined, CedarFX offers impressive leverage of up to 1:500 on multiple asset classes such as forex, stocks, cryptocurrencies, commodities and metals. They provide rapid deposit and withdrawal processes, 0% commission accounts and 24/7 expert customer support via call, live chat or email.
