Forex, Stock & Crypto Terms Explained

This trading glossary collects the words that appear most often in our guides and in market coverage, from ask and bid to yield. Definitions are written to be exact rather than exciting, and many include a small worked example. Where a topic deserves more than a paragraph, the definition links to the full guide.

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Ask

The lowest price at which a seller is currently offering, and therefore the price you pay if you buy immediately. It is always at or above the bid. On a quote screen it is sometimes labelled 'offer'. Buying at the ask and selling at the bid is the round trip that makes the spread a cost.

Bear market

A long and broad fall in prices. Commentators often use a decline of 20% or more from a recent high as an informal marker, but there is no official definition. Bear markets can last months or years, and they are usually visible only in hindsight. The opposite is a bull market.

Bid

The highest price a buyer is currently willing to pay, and therefore the price you receive if you sell immediately. The difference between the best bid and the best ask is the spread. In a busy, liquid share the two are often a cent apart; in a thinly traded one the gap can be much wider.

Blockchain

A shared ledger of transactions, grouped into blocks that are each linked to the previous one by a cryptographic fingerprint. Because thousands of computers hold copies and check each new block, past entries cannot be quietly altered. It is the record-keeping system behind Bitcoin and other crypto-assets. See how crypto works.

Bull market

A sustained, broad rise in prices across a market. Like a bear market, it has no official threshold; the term describes the character of an extended period rather than a single day. Bull markets include plenty of down days and short falls along the way.

Capital gain

The profit made when an asset is sold for more than it cost. Illustration: buying a share at $40 and selling it at $52 is a gain of $12 per share before fees and tax. A capital loss is the reverse. Many countries tax gains and dividends under different rules.

CFD (contract for difference)

A contract with a provider that pays the change in an asset's price between opening and closing the trade, without transferring the asset itself. CFDs are usually leveraged. For retail clients in the UK and EU, leverage is capped by asset class, and accounts are protected from going below zero.

Compounding

Earning returns on returns you have already earned. $10,000 growing 3% a year for 10 years becomes about $13,439 rather than $13,000, because each year's growth is added to the base for the next year. Costs compound in the same way, which is why small annual fees matter over decades.

Custody

Safekeeping of assets on behalf of their owner. Stockbrokers usually hold client shares through a nominee or custodian, separate from the firm's own assets. Crypto exchanges typically hold the keys to customer coins in their own wallets, which is a much weaker arrangement in most countries.

Diversification

Spreading money across many holdings, sectors or regions so that the failure of any single one does limited damage. It reduces company-specific risk very effectively, but it does not protect against the whole market falling at once. A broad index fund is diversification in one purchase.

Dividend

A cash payment a company makes to its shareholders, usually out of profits. US companies commonly pay quarterly and many UK companies twice a year. Dividends are decided by the board and can be raised, cut or suspended at any time. See the dividend guide.

Dividend yield

Annual dividends per share divided by the current share price. $2.40 a year on an $85 share is a yield of about 2.8%. Because a falling price raises the yield, an unusually high figure can signal that the market expects the dividend to be reduced.

ETF (exchange-traded fund)

A fund whose units are listed on a stock exchange and trade throughout the day like a share. Most ETFs track an index, such as the S&P 500, and charge an annual fee that is taken from the fund's value rather than billed to you.

Ex-dividend date

The first trading day on which buying a share no longer entitles you to the next dividend. The share price usually drops by roughly the dividend amount at that day's open. With US shares settling T+1, the ex-dividend date normally falls on the record date.

Expense ratio

The annual running cost of a fund, expressed as a percentage of its assets and also called the ongoing charge. 0.20% on a $10,000 holding is $20 a year. Over 20 years, the gap between a very cheap and an expensive fund can reach thousands of dollars. See trading fees explained.

Free float

The shares of a company that are available for public trading, excluding large blocks held by founders, governments or strategic owners who are unlikely to sell. Many indices, including the S&P 500 and Nifty 50, weight companies by free-float market value rather than total market value.

Futures contract

An exchange-traded agreement to buy or sell an asset at a fixed price on a future date. Each contract has a multiplier that turns price points into money, and gains and losses are settled every day. Futures are held in a futures account and are leveraged by design.

Halving

The scheduled event, roughly every four years, when the number of new bitcoin paid to miners per block is cut in half. The reward has been 3.125 BTC since April 2024, and the next halving is expected around 2028. See Bitcoin explained.

Index

A single number that tracks the combined value of a basket of shares or other assets, such as the S&P 500, the FTSE 100 or the Nikkei 225. The weighting method, by market value or by share price, decides how much each member counts and can make indices behave quite differently.

Index fund

A fund that holds the members of an index in the same proportions, so that its return follows the index minus its costs. Index funds require no stock picking and usually have low charges, which is why they are a common core holding for long-term investors.

IPO (initial public offering)

The first sale of a company's shares to the public, after which the shares trade on an exchange. The money raised in an IPO goes to the company and any selling shareholders; later trading between investors does not raise money for the company.

Leverage

Using borrowed money or a margin deposit to control a position larger than your own capital. At 30:1, a 1% price move equals 30% of the margin behind the position, in either direction. Leverage changes the size of outcomes, not the odds of being right. See the margin calculator.

Limit order

An instruction to buy or sell only at a stated price or better: no higher when buying, no lower when selling. It gives control over price, at the cost that the order may never be filled if the market does not reach your level.

Liquidity

How easily an asset can be bought or sold in size without moving its price much. Large company shares and major currency pairs are highly liquid, with narrow spreads and deep order books. Small shares and minor tokens can be illiquid, so selling quickly may mean accepting a much lower price.

Lot

The standard unit of size in forex trading. A standard lot is 100,000 units of the base currency, a mini lot 10,000 and a micro lot 1,000. On a pair quoted in US dollars, one pip on a standard lot is worth $10. For gold, one lot is commonly 100 ounces.

Margin

The collateral a broker holds while a leveraged position is open, calculated as the position's value divided by the leverage. It is not a fee, but it can be lost. If your equity falls too far below the margin in use, the broker can close positions.

Market capitalisation

Share price multiplied by the number of shares issued, giving the value the market places on the whole company. 50 million shares at $30 is a market value of $1.5 billion. It decides a company's weight in market-cap-weighted indices.

Market order

An instruction to buy or sell immediately at the best price currently available. It is fast and almost always filled, but the final price is not guaranteed and can be noticeably worse than the last quote in a fast or thin market.

Nominee account

An account in which a broker or custodian holds shares on your behalf in its own name, while keeping them legally separate from the firm's property. It makes dealing simple, and client-asset rules protect the holdings if the firm fails.

Order book

The live list of buy orders (bids) and sell orders (asks) for an asset at each price level. Trades happen where the two sides meet. A deep book, with many orders close to the current price, means larger trades can go through without moving the price much.

P/E ratio (price-to-earnings)

Share price divided by earnings per share over a year. A $30 share with $2 of annual earnings has a P/E of 15. The ratio is most useful for comparing similar companies; a high figure usually reflects expectations of faster growth, a low one doubts about the future.

Payout ratio

The share of a company's profit that it pays out as dividends. Paying $1.60 per share from earnings of $4.00 per share is a 40% payout ratio. A ratio above 100% means the company is paying out more than it earns, which cannot continue indefinitely.

Pip

The standard unit of movement in a currency price: 0.0001 for most pairs and 0.01 for pairs quoted in Japanese yen. A move in EUR/USD from 1.1000 to 1.1025 is 25 pips. See the pip calculator for what a pip is worth in money.

Seed phrase

A list of 12 or 24 words that backs up the private keys of a crypto wallet. Anyone who has the words can move every coin the wallet controls, from any device. Legitimate services never ask for it, so any request for a seed phrase is a sign of fraud.

Settlement

The moment when ownership and money actually change hands after a trade has been agreed. US shares settle one business day after the trade date (T+1). Spot currency trades between banks traditionally settle two business days after the trade.

Spread

The difference between the bid and ask prices. It is a cost paid on every round trip, even when commission is zero. A spread of four cents on 200 shares costs $8; a 1.2-pip spread on one standard lot of EUR/USD costs $12.

Stablecoin

A crypto token designed to hold a steady value, usually one US dollar, backed by reserves held by its issuer. Its stability depends on those reserves and on the issuer honouring redemptions. It is not a bank deposit. See what USDT is.

Stop-loss

An order that closes a position automatically once the price reaches a set level, to limit the loss. In a fast market or after a price gap it can be filled at a noticeably worse level than the one set, so the planned loss is not a guaranteed maximum.

Swap (rollover)

The overnight financing charge or credit on a leveraged forex or CFD position, booked at the daily rollover at 17:00 New York time. It reflects the interest-rate difference between the two currencies plus the provider's mark-up, and it is usually tripled on Wednesdays.

Total return

The full result of an investment: price change plus dividends or interest received, usually assuming the income is reinvested. It is the fairest way to compare two investments, because a high income can hide a falling price and a rising price can hide a lack of income.

How to use this trading glossary

If a term in a news story is missing here, the beginner FAQ may cover it, and the markets overview puts many of these words into context. Suggestions for new entries are welcome through the contact page.