Glossary Of Trading

Pip

The smallest possible price change in a currency pair. Usually, the pip is located in the fourth place after the decimal point and is equal to 1/100th of a percent. For Japanese Yen pairs, the pip is located in the second place after the decimal point (1%).

Point

The unit of price change for bonds (1%), futures (0.01%), shares ($1) and mortgage fees (1% of the principal).

Position

An open trade or transaction. A position can be long (a contract to buy the asset) or short (a contract to sell the asset).

Price/Earnings Ratio (P/E)

The ratio between the price of one share and earnings per share, used to evaluate a company’s profitability.

Put option

An option to sell an underlying asset at a predetermined (“strike”) price upon expiration. An option is paid for up front by the option buyer at a rate defined as a “premium”, which is received by the option seller. The premium should not be confused with the asset’s current market price and future strike price.