Market Terminology
  • Bulls & bears
  • Long, short & square (or flat) 
  • Liquidity
  • Volatility

That’s our introduction to the markets. I just want to make sure you know two sets of terms that I’m going to use in discussing markets from now on. I couldn’t figure out anywhere else to put them, so they get their own little video. 

Bulls & bears

When someone thinks that a market is going up, he or she is referred to as being “bullish” on the market. Conversely, when someone thinks the price is going down, they’re said to be “bearish.”

The whole movement of the market can be described as a fight between the bulls, who think the market is going up and therefore want to buy, and the bears, who think the market is going down and therefore want to sell. 

Long, short & square (or flat) 

When you buy an asset – a currency, or a stock, or some gold – you are said to belongthe asset. Buying is said to be going long the asset.

The opposite of that, going short, is to sell something that you don’t own with the intention of buying it back at a lower rate in the future. In that case, you’re said to be short the asset.

This is difficult to do in stock markets – in many markets, you have to wait until the price goes up a tic in order to go short. Furthermore, you have to find someone to borrow the stock from. It’s messy and difficult for retail investors to do this. It’s easy to do with a contract for difference (CFD), however. You just sell the CFD. 

By contrast, every position in the FX market is both a long position and a short position. Buying EUR/USD is the same as going long EUR and going short USD. You’re hoping that the EUR rises relative to the USD. 

People do talk about “shorting” an asset, but it’s rare to hear someone say “longing” an asset. Mostly they would just say “buying” it or “going long.”

When the investor is long or short and then closes out the position, either by selling the asset (if they’re long) or buying it back (if they’re short), they are said to be square or flat.Position-squaring is a notable phenomenon in the market, particularly towards the end of the day or the end of the week. Trends often reverse temporarily as investors take some profits and close out, or unwind, winning positions. 

So if you’re a bull, you’re likely to go long. If you’re a bear, you’re likely to go short. And at some point you’re likely to square up your position and go to bed. 


Liquidity refers to how easy it is to turn an asset, like a stock, a bond, a house, or a painting, into money. A house isn’t very liquid – you have to list it with a broker, people come to see it, you negotiate the price…it takes a long time. A painting is even harder – you might have to wait for an auction. But for stocks, you just call up and sell at whatever the market price is then. It’s very easy to liquidate your position in a stock.

But even in stocks, there are differences in how liquid a position is. You can easily sell 1,000 shares of most stocks, but what about 10,000 shares? 1mn? 10mn? The bigger the stake is, the harder it is to sell it. In this way, liquidity also refers to how big a transaction you can do without causing the price to change (or, moving the price.)

Currencies have different liquidity too. Selling $10mn of yen or euros probably is no problem at almost any time of day. If you’re a bank trading on the interbank market, you could probably do that without moving the price at all. But selling $10mn of CAD during the Asian day might move the price significantly from what was quoted on your screen. In that case, it’s probably better to wait until the Canadian market opens up and there are more people who want to buy & sell CAD. Then the CAD market becomes more liquid, meaning you can buy or sell more without moving the price.


When people talk about a market being volatile, what they usually mean is “the price is going down.” That’s not correct though. A volatile market means one where the price moves in an irregular fashion. Technically speaking, it’s one where the standard deviation of price changes is high. 

A market that doesn’t move at all is of course not volatile. Everyone can agree on that. But also, a market that moves up by the same amount every day – or down by the same amount – isn’t volatile, either.

On the other hand, a market where the price goes up and down would be considered volatile, even if the price doesn’t go anywhere. 

Most people think of volatility as a bad thing, but for an FX trader, it’s a good thing. Without volatility, without prices moving, we can’t make money.

Of course, what we really want is a strong trend. In that case, the market doesn’t have to be volatile – it just has to keep moving in the same direction all the time.

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