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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Purchasing Managers Index services (France, Germany, Eurozone, UK)
The services PMI is the version of the purchasing managers index that surveys the service sector, banks, retailers, hotels, IT firms, and the like, rather than factories. It matters enormously in advanced economies, where services dwarf manufacturing as a share of output, so a services reading can say more about overall growth than the factory number.
The releases for France, Germany, the eurozone as a whole, and the UK are watched in sequence, since the two big continental economies drive the eurozone total. The same rule applies: above 50 signals expansion, below 50 contraction.
Example: On PMI day, traders watch the numbers roll out, France first, then Germany, then the combined eurozone figure. If Germany’s services PMI comes in far weaker than expected and drags the eurozone reading below 50, the euro may weaken, as the survey hints the bloc’s dominant economy is losing momentum in the very sector that employs most of its workers.
Purchasing managers’ index (PMI)
The PMI is one of the most closely watched pulse-checks of an economy, and it comes straight from the people running businesses. Each month, purchasing managers at a large sample of companies are surveyed on things like new orders, output, employment, and supplier deliveries, and the answers are boiled into a single number.
The magic is in one threshold: a reading above 50 means the sector is expanding, below 50 means it is contracting. Because it is timely and forward-looking, the PMI often moves markets before the official hard data ever arrives.
Example: A closely watched manufacturing PMI drops from 51 to 48, tipping from expansion into contraction. Traders may interpret it as an early warning that the economy is slowing, and some may respond by selling the currency and pricing in a greater chance of interest-rate cuts, depending on market expectations and other economic data.
Purchasing Power Parity
Purchasing power parity, PPP, is the idea that exchange rates should, in the long run, settle at the level that makes a basket of goods cost the same in different countries. If a basket costs 100 dollars in the US and 100 pounds in Britain, PPP says the exchange rate would be one pound to one dollar.
It rarely holds exactly in the short run, but it is a useful reference point for judging whether a currency is over- or undervalued.
Example: The Economist’s famous Big Mac Index applies purchasing power parity in a light-hearted way, comparing the price of a Big Mac around the world. If the burger costs far less in one country than another once converted at market exchange rates, PPP may suggest that country’s currency is undervalued, a rough-and-ready way to gauge whether a currency is cheap or expensive relative to its implied PPP value.
Put option
A put option is the right to sell. Buy one, and you gain the right, but not the obligation, to sell an asset at a set strike price before the option expires, no matter how far the market has fallen.
That makes puts the classic tool for betting on, or protecting against, a decline: as the underlying drops, the put may gain value. The most you can lose as the buyer is the premium you paid.
Example: An investor worried her shares might tumble buys a put option with a strike near the current price, in effect buying insurance. If the stock crashes, the put may help offset losses on the shares, depending on its terms and cost; if the stock holds up, she may let the put expire and lose the premium paid, the cost of the protection.
Put/Call Ratio
The put/call ratio is a sentiment gauge built from the options market, dividing the volume of put options traded by the volume of calls. Because puts are bets on a fall and calls are bets on a rise, the ratio shows whether traders are leaning bearish or bullish.
A high ratio means heavy put buying and lots of fear; a low one means call buying and optimism. Contrarians often read the extremes as reversal signals rather than confirmations.
Example: The put/call ratio spikes to an unusually high level, showing traders are frantically buying puts to protect against or bet on a crash. A contrarian takes that extreme fear as a bullish signal, reasoning that when almost everyone has already positioned for a fall, the selling may be exhausted and the market is more likely to bounce, since the crowd at its most fearful is so often wrong at precisely the turning point that matters most.
Pyramiding
A trading strategy in which a trader adds to a winning position as it moves in their favour.
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