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.
Web Trader MT5
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Deposit rate
Deposit rate is the rate of interest charged on deposited money, but the term does mean something slightly different when you refer to commercial banking as opposed to central banking.
In normal day banking, it is what a bank pays to customers who leave money on deposit. In monetary policy, it is the interest rate a central bank pays commercial banks for reserves they deposit overnight at the central bank.
The latter definition has much more weight in markets. This is an effective case of anchoring short-term rates across the entire eurozone when the European Central Bank sets its deposit facility rate. All other system rates are priced off it.
The drama started when a few central banks forced deposit rates into negative territory; i.e., commercial banks were being charged rather than paid to keep reserves. This was to inject money into the real economy rather than have it lie idle. It is still controversial as to whether it worked.
Example: When the ECB reduced its deposit rate to below zero in 2014, banks holding excess reserves with the ECB had to pay to maintain the privilege of holding them. The policy was to stimulate lending.
In practice, it strained the bank’s margins over the years, and the question of whether the cure was worth the side effects never quite became obsolete.
Depression
A depression is a prolonged, widespread period of low economic activity, much deeper and longer than a recession. The term depression can be applied in many technical senses. Still, it is usually characterized by dramatic declines in GDP, high unemployment, declines in consumer spending and business investment, numerous bank failures, and deflation.
Recessions are a natural occurrence in the economic cycle. Depressions are not. They are indicative of a breakdown in the normal operation of the economy, and they can do long-term harm – businesses that do not reopen, workers who do not return to the labor force, and confidence that takes years to recover.
That name connects with the Great Depression, which was the worst in the history of the United States and had the worst economic outcomes due to a combination of poor monetary, fiscal, and financial regulatory policies.
Example: In the Great Depression, the unemployment rate in the USA was approximately 25%. The banks collapsed in succession, destroying savings. Farmers were driven off their land as agricultural prices fell. Nearly half of industrial production was lost.
The wreckage was so extensive and enduring that the government adopted a financial policy approach that included deposit insurance, financial regulation, and a much more active central bank role in economic management.
Depth of market (DOM)
A trading tool that displays the current bids and offers for a particular security or asset.
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.
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