CFD trading glossary. CFD terms and expressions explained

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Glossary of Important CFD Trading Terms

The following Glossary provides a detailed overview of frequently-used industry terms & phrases – these terms are also widely used throughout the TradeDirect365 website. If you would like to know more, please contact us, we would love to help.

Account

Account refers to the trading account that is held by you with TradeDirect365, for the purpose of trading CFD products.

Base Currency

A base currency is the currency denomination of your account and refers to the first quotes currency in a currency pair, i.e. AUD in AUD/USD.

Bonds

Bonds are debt securities that like any other instrument, can be purchased or sold. Bonds are issued by borrowers who wish to raise money from investors, and therefore when you purchase a bond, you are essentially lending money to the issuer.

In exchange for your purchase, the issuer pays a specified rate of interest throughout the life of the bond, as well as repay the face value of the bond when it is due after a set time period.

Our price quotes for bonds are derived directly from the underlying futures markets of the relevant contracts.

A buy is the process of purchasing a financial instrument. If you were to anticipate a rise in the market, a buy would mean to ‘go long’. A buy is also made when closing out an existing sell position (go short).

CFD Product

CFD products are CFDs (Contracts for Difference) or any other contractual arrangement that is entered into by you and us, including any transaction liable to margin.

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Closing Price

The closing price refers to the value of the CFD transaction as determined by TradeDirect365 based on current and anticipated market conditions.

Commodities

Commodities are markets that are based on raw or primary products such as gold and oil. These products are regularly traded on regulated exchanges, in which they are bought and sold in standardised contract sizes.

Our quoted prices are derived directly from the underlying futures markets of the specific relevant contracts.

Corporate Authorised Representative

A Corporate Authorised Representative is a company that is authorised in accordance with section 916A or 916B of the Corporations Act to provide a financial service or services on behalf of a Australian Financial Services licensee.

Derivative

Derivatives are a financial product whose price is derived from an underlying asset (e.g. a share, currency, commodity or index) and does not give the holder any actual rights to the underlying asset.

Exchange

Exchange essentially has the same meaning as a “financial market” which is defined under section 767A of the Corporations Act and includes any futures, derivatives or stock exchange or any other organised market used for transacting financial products.

Become a master of reading the markets with our 3 part series:

Future CFD

A future CFD is a CFD transaction in which the underlying instrument that relates to it, is a derivative futures contract that is traded on an exchange.

Gapping

As defined in section 7.7.

Going Short

When an investor goes short, they anticipate that the price of a financial instrument will decline. In these instances, a sell position will be opened whereby an investor sells shares in borrowed stock.

Learn more about short selling at Investopedia

Hedging

Hedging is the action of reducing the risk of an outright position in one market, by taking an opposite position in a similar, or derivative market.

If you held a long (Buy) position in the Australia 200 CFD, you may enter a short (Sell) position in the Wall Street CFD. In this case, although the hedge would not be exact, it is unlikely that the Australia 200 CFD will move heavily in the opposite direction to the Wall Street (but, of course, this is not impossible).

Increment Size

The increment by which a trailing stop order moves in your favour in tracking a profitable open position.

Last Trading Day

The last time and date as set out in the Market Information Sheets that you can close an open position in a future CFD.

Leverage

Leverage allows investor to use borrowings or credit to gain a larger exposure to an investment than would typically be possible by investing only equity or other capital. By using leverage, clients can buy or sell a financial product with substantially less money than the actual full market value of that financial product. A position in a contract with high leverage stands to make or lose a large amount from a small percentage movement in the underlying instrument.

Liquidity

The ability of an asset to be converted into cash quickly, without any price discount and any restriction to the size of trade. Liquidity also refers to a market that is regularly traded.

Margin

The amount of trading resources required to open a trade, or to maintain an existing position.

Margin in Use

Represents the aggregate amount of margin being used for all open positions at any one time in your base currency.

Non Professional Investor

A person who is not qualified as a Professional Investor.

Open Position P&L

The aggregate amount of unrealised profit and loss on all of your open positions at any one time in your base currency.

Overnight

The time at which you are deemed to be holding an open position for the purposes of overnight financing.

Point

The general term for the smallest incremental move possible in any market quoted by us. Clients should always be aware of what the underlying stake or unit risk is for all markets in which they wish to trade.

Quote Currency

The second quoted currency in a currency pair, i.e. USD in AUD/USD.

The meaning given by the Corporations Act 2001.

Selling means to ‘go short’ typically in anticipation of a falling market. You would also make a sell to close out an existing buy position.

Settlement Price

The price at which a position is settled on expiry.

Short Position

A client is said to be short if he/she has an open sell position in the market.

Trading Hours

In respect of each CFD product, the hours during which we provide a quote for a particular CFD product as detailed in our Market Information page.

Trading Resources

The amount of cash that you have available at any given time to withdraw from your account or place an order to open a CFD transaction.

Volatility

A term used to describe and quantify the relative movement of a given market in the recent past. A market that experiences significant movement is said to be volatile.

Underlying

The asset or instrument (generally quoted on a recognised exchange or, in the case of some markets, is provided by a quoting liquidity provider) upon which the price of a CFD, which is offered by TradeDirect365 is derived.

Ask Price

The ask price is the specified price at which you can purchase CFDs. It is always the higher of the two prices quoted and is called the ask or the ask price.

Bid Price

The bid price is the price at which you can sell CFDs. It is always the lower of the two prices quoted and is called the bid or the bid price.

Business Day

Business day is any day on which a particular market (CFD) is quoted by TradeDirect365. Due to the nature of global financial markets, TD365 may continue to operate and offer markets on Australian public holidays.

Cash Balance

The cash balance is the net amount of cash you have deposited into your account, less any charges that have been levied (bank fees, commissions etc.), and adjusted for realised profit and loss.

CFD Transaction

A transaction in a CFD or any other contractual arrangement entered into between you and us including any transaction liable to margin.

Commission

The commission, charges or other remuneration in connection with the opening or closing of a CFD transaction.

Contract Period

The contract period for a future CFD as set out in the market information sheets.

Dealer

An employee or officer of TD 365 and a Related Body Corporate who is able and qualified to accept orders and enter into CFD transactions.

Dividend

The payment made to shareholders by a company representing the distribution of company profits. Such payments are usually made on a regular basis. If you have an open buy position on an ASX equity CFD that goes ex-dividend you will be credited with the 100% of the net dividend. If you have an open sell position you will be debited 100% of the gross dividend.

Force Majeure Event

Any cause that prevents TradeDirect365 from performing or delaying performance of any or all of its obligations under the Client Agreement which arises from, or is attributable to, acts or omissions beyond the control of TradeDirect365 including, but not limited to, strikes, industrial action, war, sabotage, terrorist activity, national emergency, blockades or government action, an act of God, a failure of the supply of communications or other infrastructure which prevents an orderly trading market being maintained, or which prevents compliance with the law or the applicable regulatory system, an emergency or exceptional market conditions, the suspension or closure of any index/market/Exchange or the abandonment or failure of such index, market or Exchange.

Futures Contract

A futures contract is an agreement to conduct a trade at a specified time in the future where the price is agreed upon now. Therefore, it means that the expiry date is at some point in the future. Our futures CFDs are cash settled so you will never be required to actually deliver, or take delivery of, the physical product.

Going Long

When a buy position is taken out it is referred to as ‘Going Long’.

Illiquidity

The inability of an asset to be converted into cash quickly, without any price discount and any restriction to the size of the trade. Liquidity also refers to a market that is regularly traded.

Indices

Indices are a customised basket of securities that track a particular market or segment. Each index has its own calculation methodology and its own specific process used to select particular securities. We offer prices on all of the major financial indexes, such as the S&P/ASX 200, UK 100, Germany 30, Wall Street and S&P 500.

Limit Order

An order instruction given to TradeDirect365 to close an open position at a price more advantageous to the client than is available at the time at which the order is placed.

Liquidity Provider

A bank or other financial institution or third party that provides executable two-way quotes in respect of relevant underlying instruments, to which the CFD products relate, on a continuous and regular basis.

Long Position

A client is said to be long if he/she has an open buy position.

Margin Call

The additional margin required to ensure that total margin is sufficient to cover open positions.

Market Information Sheets

The document available on the TradeDirect365 website that details all of the information and specifications pertaining to all CFD products offered by us.

Open Position

A CFD transaction that is active and open and has not been closed by you or us or otherwise in accordance with the Client Agreement.

View the TradeDirect365 Client Agreement.

Order

An instruction to make a Trade at a price that is not currently available in the CFD but might be available at some future time. There are three types of Order: ‘Limit’, ‘Stop Loss’ and ‘New’ Order.

Overnight Financing

A financing adjustment made to your account when an open position is held overnight. This includes positions held overnight on a non-business day, a Saturday or Sunday and any bank or public holiday.

Our Quote

The price quoted by TradeDirect365 via a trading platform or over the telephone. All quotes are based upon an underlying market that is sourced from either a recognised global exchange or from a wholesale counterparty.

Professional Investor

As defined in the Corporations Act 2001.

Roll-over or Rolled-over

The action of closing an open position in a future CFD and then opening a new CFD transaction in the next available contract period.

Roll-over Quote

The Bid Price or Ask Price (as the case may be) quoted by a dealer over the telephone, in its sole and absolute discretion, in order to roll-over an open position.

Settlement Date

The expiry date and time of a future CFD as set out in the Market Information Sheets. If such date is not a business day, it will be the business day immediately preceding the futures settlement date unless otherwise specified in the Market Information Sheet.

Spread

The difference between the Buy and Sell price of TradeDirect365’s quote. A client may Sell at the lower price or Buy at the higher price of the quote.

TradeDirect 365 offers tight 24hr FIXED spreads, so more of your profits stay where they should be, in YOURВ account!

View our Why Us to see why we’re Australia’s Best Value CFD provider

Trading Platform

The electronic trading system TradeDirect365 makes available to the client via the internet to facilitate trading in CFDs, including without limitation, any online or downloadable trading platform.

To access the TradeDirect365 trading platform, open a Live Account, or try out one-click Demo AccountВ

Trading Session

One or more continuous trading periods within the trading hours.

CFD trading is not suitable for all investors. CFDs are leveraged products and carry a high level of risk which means you do not own or have any interest in the underlying asset. TD365 is a trading name of Finsa Pty Limited and does not issue advice, recommendations or opinions in relation to acquiring, holding or disposing of a CFD. TD365 is not a financial adviser and all services are provided on an execution only basis.

The information on our website is for general informational purposes and does not take into account your objectives, financial situation or needs. We recommend that you seek independent professional advice and consider our Product Disclosure Statement, Financial Services Guide and Client Agreement, by clicking here, before you enter into any transaction with us.

The information on this site is not directed at residents of the United States or any particular country outside Australia and is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation

TradeDirect365 is a trading name of Finsa Pty Limited (ACN 158 065 635; AFSL No. 422661).

Common CFD Terms Explained

21 Oct Common CFD Terms Explained

One of the first problems encountered when one starts to deal with Computational Fluid Dynamics is understanding keywords. Here we suggest a list that can be a good starting point for every novice. Feel free to ask for/add more in the comment section!

CFD. It is an acronym for Computational Fluid Dynamics. Fluid Dynamics is the science that describes the motion of a fluid (gas or liquid) by means of mathematical equations. These equations, when solved, give the values of all quantities which describe the fluid motion, like velocity, pressure, temperature. The attribute Computational indicates that these equations are solved by means of numerical methods. So, basically, CFD is a numerical method that can be implemented on a computer that, solving mathematical equations, describes the behaviour of a given fluid in a given condition. CFD is used in a wide set of fields, here some examples: to describe the air motion around a vehicle, the fluid motion inside a valve, the smoke dispersion inside a parking lot. (More CFD Application examples here)

(Computational) Domain. Sometimes also called Bounding Box , it is the portion of space represented in the analysis. The fluid motion described by means of CFD needs to be confined in space. In case the analysis deals with the flow around an object (like a car or an airplane), this one is typically put inside a Box . The box represents the portion of surrounding space that will be taken into account when evaluating interaction between the object and the fluid. It is reasonable to think that a car will influence the motion of surrounding air up to some tens of meters around it. So that the Domain can be chosen consequently, being confident that the analysis will accurately represent all features of the fluid motion.

Grid/Mesh. To describe the motion of the fluid means knowing values of its velocity, pressure, temperature. CFD is used to evaluate these quantities inside the Computational Domain , more precisely in subparts of it. In fact, the Domain is divided in small pieces, called cells , where equations are solved and quantities are calculated. The entire set of cells is what is called the Computational Grid or Mesh . In every cell one single value for each quantity (velocity, pressure, temperature) is stored.

Cell. It is the basic element of the Computational Grid/Mesh . In every cell one single value for each quantity (velocity, pressure, temperature) is stored.

Example of a mesh of a brain

Compressible/Incompressible flow. If in the analysis are involved changes in the fluid density, the flow is said to Compressible , otherwise it is called Incompressible . Incompressible flows are those involving liquid but also air if velocities are small .

Steady/Unsteady Analysis. An analysis is said to be Steady when, after a short amount of time, the quantities describingì fluid motion (velocity, pressure, temperature) reach a constant value, Unsteady otherwise. An example can be the flow of water inside a cylindrical pipe with a constant velocity. When the flow starts the values of water velocity inside the pipe change from their initial value to the final values, but when the water have been flowing for an enough long time, velocity (as well as other quantities) values do not change anymore ( Steady ). Differently, if the value of velocity at which the water enters the pipe changes continuously, the quantities inside the pipe will never reach a constant value ( Unsteady ).

Boundary Condition. In simple terms, they are the values that quantities like velocity, pressure, temperature assumes on the Domain Limits (or Domain Boundaries ). For example, if the analysis involves water that enters a pipe at a given velocity known by the user, one boundary condition will be the water velocity value on the pipe entranc e (that will be one Domain Boundary). In the same way, if the water exits the pipe arriving in a ambient at a given pressure, another boundary condition will be the value of the pressure on the pipe exit (that will be another Domain Boundary). Boundary Conditions must be specified for every variable on every Domain Boundary.

Convergence. The Fluid Dynamics equations are solved by means of numerical methods, that are generally iterative. The number of iterations needed to obtain the correct solution varies. It is possible to measure how far one is from the correct solution, and to use that measure to stop the iterative method when the correct solution is reached. When it happens the analysis is said to be Converged or to have reached Convergence , which simply means that the obtained solution is correct.

Postprocessing. It is the phase when the user looks at the analysis data to extract the information he was looking for, that are the reason he performed the CFD analysis in the first place. Post processing tools are typically used to help the user in this task.

Contour Plot. This is one way to visualize the results of a CFD analysis. It is the representation, typically coloured, of quantities distribution inside the Computational Domain. Usually, it is a two dimensional plot associated with a legend. It can be used to find out zones where pressure spikes or falls below a certain value, spots of velocity peaks or where temperature exceeds safety limits.

Streamline Plot. This is another post processing tool. It is typically used to show the trajectory that a very small particle would trace if immersed in the flow as resulting from the analysis. It is very useful to understand motion features, how fluid particles interact with the geometry and how their path is affected by those interactions.

CFD Trading Explained for Investors

Contracts for Difference, or CFD for short, allow traders to bet on the movement of an investment without having to own the investment. Without the cash outlay of buying a stock or FOREX currency, investors can trade with as little as $50 in markets where options cost $1000’s.

While CFD online trading is popular and offers higher profits for smaller investments, CFDs can also cause a trader to lose more money than invested.

CFDs allow for high margin trading

The primary advantage of CFD trading in FOREX, as well as other markets, is the ability to profit from a small investment using heavy leverage. For example, some CFD brokers allow 2% margin for trading. This means a $200 CFD contract could profit from a $10,000 FOREX tradIt also means the $200 initial margin could be wiped out if the $10k FOREX trade goes slightly negative for the trader. Both the upside and downside of FOREX trading gets magnified with CFD margin rate.

Everything Remains between the broker and the client

Brokers are the middleman between clients and the financial markets in most trading. With CFD online trading, the client is perating directly with the broker and never interacts with the market. This means the broker backs the trade. A financially sound broker will honor trades, but a broker that does not have substantial reserves may find itself unable to honor trade profits. Before trading CFDs with any broker, confirm the broker has a high credit rating.

CFD Online trading involves both higher profits and possible losses than options

Options are similar to CFDs but much more expensive, bid on the open market, and limit losses to only the amount invested. CFDs will yield much higher profits based on the margin levels than options. Investors are, however, exposed to unlimited loss potential with CFDs, similar to with futures. Traders need to keep cash reserves to meet requirements for CFD trades that go negative, or lose money.

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