The Essential Guide to

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Jargon Buster


When you want to place a trade on any financial instrument, you are quoted two prices – one at which you can buy (the offer price) and one at which you can sell (the bid price). The difference between the two is called the spread.

Bid and Offer

Every currency pair has a bid and an offer. This is a rate at which one can buy (offer) a currency, and the rate at which one can sell (bid) a currency. The price maker gives you a rate they are willing to buy (bid) or sell (offer) a currency pair. In simple terms you buy high and sell low whereas the price maker gets to buy low and sell high.


Also known as gearing, is the ability to take a position with notional value greater than the cash outlay required. For instance traditional share trading has leverage of 1:1. That is, for every £1 of investment the trader is required to pay £1 in cash. A Share CFD position with a 5% Margin requirement has leverage of 1:20. That means for every £1 of cash invested the profit or loss will be multiplied by factor of 20. Other CFD products such as Index and Sector CFDs have a 1% margin which means leverage of 1:100. Leverage has the effect of magnifying a trader‘s profits and losses.


This is the amount of deposit required to secure and maintain a position. It ranges between 1% for Index and Sector CFDs and from 3 – 50% for individual Australian Share CFDs. The Margin is calculated as a percentage of the notional value of the position and must be held to cover the traders’ account in the event that the position moves against them.

The Share CFD Margin requirement set by a CFD provider is determined by a range of factors including the liquidity of the underlying security and its capitalisation.

Net equity

The sum of all cash balances, realised profits and losses, and unrealised profits and losses on a market to market basis.

Free equity

Free equity is the net equity figure less any funds set aside as margin against a position. So if a client deposited £20000 and established a CFD position in 25000 Vodafone at 180p (margined at 20%) his free equity would be (£20000-£9000) = £11000.

Market maker

A market maker is usually a brokerage firm or a bank who will quote bid and offer prices for specific securities. If any investor wishes to trade at these prices, the market maker will immediately buy or sell from their own accounts. Market makers are particularly important for smaller securities where there is not much trading volume, as in this case there may not be another buyer or seller who is willing to trade with you. The market maker will take your trade, and in doing so they improve the ease of trading.

(brokers or banks who display bid and offer prices for specific securities, and will buy or sell using funds from their own accounts from investors who will meet these prices.)

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