Popular Trading Terms You Should Know - Basic
Bid/Ask
Bid and Ask are the prices at which Plus500 will either sell a particular instrument to you or buy a particular instrument from you. The Bid/Ask price is based on the value of the underlying physical instrument, plus a spread (i.e., a small difference). In other words, the bid price is what Plus500 is willing to pay or “bid” for an instrument, while the “ask” price is how much Plus500 wants for selling an instrument. The difference between the buy and sell prices can be considered Plus500’s fee and is referred to as the market spread. You can see sell and buy prices of all instruments offered by Plus500 on your trading screen.
Spread
The “Spread” is the difference between the “Buy” price and the “Sell” price on an instrument at a particular time. On the Plus500 platform, you will come across two types of spreads: (1) Dynamic Spread; and (2) Spread. A “Dynamic spread” is constantly adjusted according to the market spread during the period a position is open. A Spread does not typically change in line with general market fluctuations while a position is open, but when the market is volatile and illiquid, may change to a new level so that the underlying market conditions are better reflected. Nevertheless, Plus500 aims to provide the most competitive possible spreads at all times.
You should always check the applicable spread type and make sure you are aware of an instrument’s properties before you start trading. Information regarding the spread for a given instrument can be found on our website or trading platforms in the “Details” link next to the instrument’s name.
Contract Size
The contract size or unit amount shown in the trade window is the minimum size of the CFD contract available on the Plus500 platform. Each instrument has a different minimum unit amount. Oil price is quoted in barrels, while forex pairs such as the EUR/USD are based on the value amount (typically, in thousands) and shares are based on the price of a single share.
What is a Pip?
Price interest point (pip) measures the smallest unit of change in a financial instrument’s price. Typically, it refers to the last decimal or digit of the instrument price.
Pip Examples:
The price of GBP/USD is 1.42630 / 1.42650 (Sell/Buy). If the price of GBP/USD moves to 1.42670 / 1.42690, this is a movement of 0.00040 or 40 pips.
The price of Germany 30 is 12373.58 / 12374.43 (Sell/Buy). If the price of Germany 30 moves to 12373.88 / 12374.73, this is a movement of 0.30 or 30 pips.
Base and Quote Currencies
Base is the first currency in a currency pair, also referred to as the nominator (or top number).
Quote is the second currency in a currency pair, also referred to as the denominator (or bottom number).
For example, in the EUR/USD currency pair, Euro is the base currency and the US Dollar is the quote currency.
Slippage
Slippage is the difference between the price you set for opening or closing a trade/order and the price that it is actually opened or closed at. Slippage usually occurs during periods of high volatility and after major market news - and can be relevant for all financial instruments: stocks, forex pairs, commodities, indices and more. Slippage can work either in your favour (when the price moves higher in your desired direction) or against you (when the price moves lower than your predefined price level).
Long vs Short Position
If you are taking a long position, you are expecting the price of the instrument to rise in value. If you are taking a short position you are expecting the price of the instrument to decline in value. In online CFD trading, we more commonly refer to a buy position, or a sell position, rather than going long or short.
Market Order
There are two kinds of orders that provide instruction to the Plus500 platform to carry out an action on your behalf. A Market order instructs the system to open a buy or sell position on the instrument at the current market price. This will be as close as possible to the buy or sell price quoted at the time of the order. It could be a bit higher or lower depending on immediate availability, however some traders use what is known as a limit order.
Limit Order
A limit order allows you to set the price you wish to enter the market. If the price you have set is not reached, your order will not be filled. You can set a limit order seamlessly on the trade ticket by clicking the ‘Advanced’ tab. You will be given a choice to ‘Only buy/sell when the rate is…...’ Just click on the box and fill in the price you want to set your limit order.
