Financial Market Terminology

Financial Market Terminology 

1. Spread

2. Ask/Sell Price

3. Bid/Buy Price

 

In the following Picture, Ask/Sell price is 1.5430(4) and Bid/Buy Price is 1.5432(5) the price difference between Buy and Sell is called Spread. Where end of the numbers (4)and (5) are called points in the forex. If price move from 1.5430(4) to 1.5431(6) which is 1 pip and 2 points move

 

In the example below current market price for Share A is £11.50. if you want to buy that particular share then you need to Pay £11.55 instead of £11.50 just because of Spread, the price difference between Market Price and Bid price is called spread.  Similarly if you want to sell then you will get £11.45 instead of £11.50, the price difference between Market Price and Ask price is called Spread.

Types of Order

In the Financial Market, the terms Buy, Sell, Buy Stop, Sell Stop, Buy Limit, Sell Limit are come to use. In this section, These terms will be explained.

Buy/ Buy Stop/ Buy Limit:

Buy price normally assume the Market Price. In the example below, market price is £11.50 (Red Line). If you want to buy the Share A at Market Price you will have to pay £11.50.

If you want to buy Share A when the price will be at £11.80 by hoping the price will go up then you need to place Buy Stop order. Let’s say your market price is at £11.50 and have placed Buy Stop Order at £11.80 by hoping the price will rally. If it does not reach £11.80 then your order will not execute. Only your order will execute once it reaches the level £11.80.

If you want to buy Share A when the price will be at £11.00 by hoping the price will retrace and go up then you need to place Buy Limit order. Let’s say you have place Order at £11.50 (Market Price) hoping the price will retrace the level £11.00 and would like to buy at that price, is called Buy Limit Order. If it does not reach level £11.00 then your order will not execute. Only your order will execute once it reaches the level £11.00.

Sell/ Sell Stop/ Sell Limit

Sell price normally assume the Market Price. In the example below, market price is £11.50 (Red Line). If you want to sell the Share A at Market Price you will get £11.50.

If you want to Sell Share A when the price will be at £11.20 by hoping the price will down (or to protect further losses) then you need to place Sell Stop order. Let’s say your market price is at £11.50 and have placed Sell Stop Order at £11.20 by hoping the price will down (or to avoid more losses). If it does not reach £11.20 then your order will not execute. Only your order will execute once it reaches the level £11.20. 

If you want to Sell Share A when the price will be at £12.00 by hoping the price will retrace and go down then you need to place Sell Limit order. Let’s say you have place Order at £11.50 (Market Price) hoping the price will retrace the level £12.00 and you would like to sell at that price, is called Sell Limit Order. If it does not reach level £12.00 then your order will not execute. Only your order will execute once it reaches the level £12.00.

 In the Financial Market, Buy Stop order, Buy Limit Order, Sell Stop Order, Sell Limit Order are used for opportunity to get the best price and protect the losses. These Orders are automated once you filled which can execute without presence in the market.