Disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Derivative
Derivative is a financial contract whose value depends on another underlying asset, rate, or index. The asset is not the derivative per se. It is a contract that references the asset’s performance.
The underlying may be a stock, a bond, a currency, a commodity, an interest rate, or a market index. What the two parties are doing is agreeing on terms today, which will play out in what the underlying will do in the future.
The uses of derivatives can vary widely depending on the person using them. It is through derivatives that a corporation hedging its currency exposure on its overseas revenues reduces its risk. A leveraged position on oil prices, taken by a speculative fund, is being used to exacerbate the move.
Even instruments such as futures, options, swaps, and forwards are neutral. The risk profile will solely rely on the use of the products. The notional values in international derivatives markets are a frightening concept, as they run into the hundreds of trillions, yet notional exposure and actual risk are very different.
Example: A UK pension fund has a large gilt holding and is concerned that rising rates will erode its value. Instead of selling the gilts, it enters into an interest rate swap – paying fixed, receiving floating – hedging the rate risk without selling the underlying gilts.
Descending Channel
A descending channel is a chart pattern in technical analysis characterized by price action moving downward between two parallel, downward-sloping trend lines. The top is a line of lower highs, the lower is a line of lower lows. These two occur together, creating a channel through which price action moves downward.
Descending channels help traders identify the boundaries of a downtrend. The upper line will normally be a level where rallies lose momentum, and sellers take the lead again. The bottom trend seems to play the role of a support level – that is, it’s a point at which buyers place orders before prices fall further.
When the price breaks above the upper trend line, it is typically interpreted as a sign that the downtrend may have ended and that momentum has turned. If it’s below the bottom line, the price is going down.
Example: A commodity has been going down for three months, consitently forming lower highs and lower lows. A trader draws the descending channel, observes that the price gets close to the upper resistance line after making a small bounce, and uses that as a cue to look for short entry signals – treating the channel boundary as a likely turning point unless price breaks convincingly above it.
Descending Trend Line
A downward trendline is a straight line that connects a series of lower price highs on a price chart that is trending downward. It is a basic technical analysis tool but also one of the most useful. The line shows resistance and the price has not been able to close above that line, which means that sellers are winning the battle and that the price is making lower highs over time.
To draw it, there must be at least two swing-highs, preferably 3-5 contact points. The steeper the slope, the more aggressive the downtrend. The longer the price stays in the range without being broken, the more real significance it has, and the more focus traders will turn to it when the price finally crosses back over.
A clean break above a well-established descending trend line is often seen as a significant shift in the trend and a possible change in power dynamics from sellers to buyers.
Example: A stock has been in a downtrend for six months. Each time it bounces back, it drops to a lower high. A trader draws a trend line from those highs downwards.
Once the stock breaks above that line on solid volume, the trader takes it as a sign of an early end to the downtrend and keeps an eye out for a long entry.
Descending Triangle
A descending triangle is a technical analysis chart pattern created by a flat horizontal support line at the bottom and a descending trend line at the top, with price compressing between the two over time. Generally, the pattern is deemed bearish. The logic is simple. The rallies are weakening, the declining upper line shows sellers jumping in at lower and lower prices.
Meanwhile, the bottom support line is holding up, which means buyers are holding a certain range. But continuous failure to climb higher tells you that buying pressure is waning.
Eventually, the support line breaks and when it does the breakdown tends to be severe since the traders holding the line tend to have their stops activated at the same time. The pattern is most reliable in a larger decline and is used as a continuation pattern instead of a reversal pattern.
Example: A currency pair has been going down for weeks. Sellers are capping each bounce at lower levels, while buyers are defending a flat support area at a crucial level, forming a descending triangle. The support fails after a few tests. Volume surges, stops are hit and the pair declines significantly confirming the pattern and extending the existing slump.
Desk
A desk is a group of analysts or traders within a bank, brokerage, or financial institution responsible for a particular asset class or product. This name is derived from the actual trading floor, where different trading groups sat at different desks and dealt with various markets.
The physical desk is no longer as important as the organizational concept. A rates desk handles interest rate products, an FX desk handles currency trading, an equities desk handles stock-related activity, and so on.
Every desk has its own book of positions, risk limits, and profit/loss account. Desks can also be further differentiated within larger institutions; for example, an FX desk could include a spot desk, a forwards desk, and an options desk.
The desk organization also dictates who a client will speak with when calling a bank. One aspect of the complexity of large financial institutions is routing inquiries to the right desk.
Example: A corporate client contacts the bank to hedge against floating-rate (interest rate) risk and currency (revenue) risk on a foreign-currency loan. The call first reaches the rates desk for the swap, then is passed to the FX desk for the forward contract: two desks, two different conversations, and one client’s relationship.
Details
Details are the information required to verify and complete a trade in financial markets. You agree on the price, but that’s not enough to seal the deal. Then the back office has to know where to send the securities, the settlement date, the counterparty’s banking details, and anything else required to guarantee the trade settles correctly.
In the foreign exchange world, confirmation normally comprises an exchange of correspondent bank details and numbers to guarantee that each leg of the currency transaction ends up at the right destination on the right date.
Failure to submit missing or wrong information is one of the most prevalent reasons for settlement failures and can lead to the loss of counterparty relationships, penalty fines, and potentially considerable financial exposure in the event of big transactions.
Example: A fund manager buys a significant number of stock shares via a broker. The trade is completed in seconds. This is followed by a confirmation process where the fund sends settlement information (custodian bank, account number, settlement instructions) and the broker verifies it against their records. If they don’t match up prior to settlement day, the trade doesn’t settle, and there are ramifications for both sides.
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