Common Financial Terms that You Need to Know

Financial Terms

What is a Financial Market Maker?

A market maker is a dealer that is tasked with providing prices that help set the liquidity of a given security. Market makers are always willing to purchase on the bid price and sell at the offer prices. Maker makers generally make their revenue by capturing the difference between the bid price and the offer price.

Example: A currency market maker provides the liquidity available for a specific currency pair such as the EUR/USD.

How Does Forex Rollover Work?

A forex rollover is a situation where a position is being settled at some date in the future. Most forex transaction is spot, which means delivered in two business days. To rollover a position to a future date, a dealer would need to unwind the original positions and simultaneously add a new position to a future settlement.

Example: When a dealer or broker rolls a forex positions they are adding or subtraction forward points to the original position.

What is a Margin Call?

When the market value of collateral goes down, the lender asks the investor to deposit additional funds or securities so the account meets the minimum maintenance margin – this is called margin call. In trading, margin refers to cash or securities required to be deposited by the investor to the brokerage firm.

Example: If you borrow loan from a lender, you may have provided a collateral security with the value higher than the loan amount. This margin acts as a safety cushion for the banker.

What Does Financial Default Mean?

Default occurs when a party fails to pay their obligation on a loan. The language that determines if a financial default occurs can be of either interest or principal when it is due. When a default occurs the lending generally has some form of recourse such as collateral.

Example: A trading default can occur when a trader cannot pay his liability from a transaction.

How Do Financial Broker Commissions Work?

Commissions are payments received by brokers for the services they provide. Commissions are generally attached to transactions and are an additional charge that can fluctuate from broker to broker. Some brokers will avoid charging transaction-based commissions by charging a flat fee on a portfolio.

Example: Commissions will vary and in many cases are regulated by an authority.

How to Use Leverage in Financial Markets?

Funds to a company are provided by either shareholders or creditors. The debt-equity ratio is the ratio of long-term debt and shareholders equity. It is a measure of the leverage of a company. Leverage structure Ratio is based on the relationship between borrowed funds and owner’s capital.

Example: Suppose you purchase a house valued at $500,000 by a mortgage loan of $ 400,000 and own fund of $100,000. You are using financial leverage. The leverage ratio is 4:1.

Don't miss a thing!

Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Latest Articles

See All

Expand Your Knowledge

See All

Top Promotions

Top Brokers

IMPORTANT DISCLAIMERS
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
RISK DISCLAIMER
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.
FOLLOW US