Financial Dictionary

Backtesting means testing a trading strategy on historical data to see how it would have performed. Good past results do not guarantee future performance, especially if the strategy was tuned too closely to old data.

The balance of payments records all transactions between a country and the rest of the world, including trade, investment and transfers. Persistent imbalances can put pressure on a currency.

The balance of trade is the difference between the value of a country's exports and its imports. A surplus can support the currency, while a large deficit can weigh on it.

A balance sheet shows a company's assets, liabilities and shareholders' equity at a point in time. Traders use it to judge how much debt a company carries and how strong its finances are.

The Bank of Canada is Canada's central bank and sets the overnight interest rate to keep inflation near 2%. Its decisions move the Canadian dollar.

The Bank of England is the central bank of the United Kingdom. Its Monetary Policy Committee sets Bank Rate to keep inflation near its 2% target, and its decisions move the pound and UK gilts.

The Bank of Japan is Japan's central bank and sets its short term interest rate and bond buying policy. Its decisions have a strong effect on the yen and on Japanese stocks.

A bar chart shows each period's open, high, low and close as a vertical line with small ticks on either side. It gives the same information as a candlestick chart in a different format.

A barrel is the standard unit for crude oil, equal to 42 US gallons or about 159 litres. Oil prices are quoted in US dollars per barrel.

The base currency is the first currency in a currency pair, such as EUR in EUR/USD. The quoted price shows how much of the second currency one unit of the base currency buys.

Base metals are common industrial metals such as copper, aluminium, zinc, nickel and lead. Their prices are closely linked to manufacturing and construction, especially in China.

A basis point is one hundredth of a percentage point, or 0.01%. Interest rate moves and bond yields are usually quoted in basis points, so a rise from 6.50% to 6.75% is 25 basis points.

A bear flag is a continuation pattern where a sharp fall is followed by a short, slightly rising consolidation. A break below the flag is read as a sign the downtrend will continue.

A bear market is a sustained fall in prices, commonly defined as a drop of 20% or more from a recent high. It often comes with weak economic news and falling confidence.

A bear trap is a false signal that a price is about to fall further, which reverses sharply upwards. It catches traders who sold or went short on the breakdown.

Bearish describes the view that a price will fall. A bearish trader may sell or open a short position.

A bearish engulfing pattern is a two candle reversal where a large falling candle completely covers the body of the previous rising candle. It suggests sellers have taken control, especially after an uptrend.

The Beige Book is a report from the US Federal Reserve that summarises economic conditions across its 12 regional districts. It comes out eight times a year, about two weeks before each policy meeting.

A benchmark index is a market index used as a standard to measure the performance of a fund, strategy or portfolio. The S&P 500 and the FTSE 100 are common benchmarks.

Beta measures how much an asset tends to move compared with the wider market. A beta above 1 means it usually moves more than the market, and below 1 means it moves less.

The bid ask spread is the difference between the price at which a trader can sell and the price at which they can buy. It is a cost of trading, and it tends to widen when markets are thin or volatile.

The bid price is the highest price a buyer will pay, and the price at which a trader sells. It always sits below the ask price, and the difference between them is the spread.

Bitcoin is the first and largest cryptocurrency, running on a public blockchain with a fixed supply of 21 million coins. Its price is highly volatile and reacts to regulation, interest rates and fund flows.

A bitcoin ETF is an exchange traded fund that tracks the price of bitcoin, either by holding coins or through futures. Fund inflows and outflows are now widely watched as a sign of demand.

A bitcoin halving cuts the reward miners receive for each new block by half, and happens roughly every four years. It slows the creation of new coins, and traders watch it for its possible effect on supply and price.

A black swan event is a rare and unexpected event with severe market consequences, such as a sudden financial crisis. These events are hard to predict, which is why traders use stop losses and limit leverage.

A blockchain is a shared digital ledger that records transactions in linked blocks across many computers. Once recorded, entries are very hard to change, which is why cryptocurrencies use it.

Blue chip stocks are shares in large, well established companies with a long record of stable earnings. They tend to be less volatile than smaller companies and often pay regular dividends.

BNB is the native token of BNB Chain, a blockchain created by the Binance crypto exchange. It is used to pay transaction fees on that network.

Bollinger Bands are a volatility indicator made of a moving average, usually 20 periods, with an upper and lower band two standard deviations away. The bands widen when volatility rises and narrow when it falls.

A bond is a loan to a government or company that pays interest, called a coupon, and returns the original amount at maturity. Bond prices fall when interest rates rise, and rise when rates fall.

A bond yield is the annual return a bond pays based on its current price. Yields move in the opposite direction to bond prices and are a key guide to borrowing costs across the economy.

A bonus issue gives existing shareholders extra shares for free, in proportion to what they already hold. The share price adjusts down accordingly, so the total value of the holding does not change.

Book value is a company's total assets minus its total liabilities, as shown on its balance sheet. Comparing it with market value shows whether a stock trades above or below the value of its net assets.

A bracket order opens a position together with a stop loss and a take profit, so both exits are set from the start. When one exit fills, the other is cancelled.

A breakdown is when price falls decisively through a support level or out of the bottom of a chart pattern. Traders often see it as a signal that further declines may follow.

The breakeven price is the level at which a position neither makes nor loses money once trading costs are included. Moving a stop loss to breakeven removes the risk of loss on that trade, barring gaps.

A breakout is when price moves decisively through a support or resistance level or out of a chart pattern. Traders often look for higher volume to confirm that a breakout is genuine.

Brent crude is the main international benchmark for oil prices, based on crude from fields in the North Sea. OPEC+ decisions, global growth and supply disruptions drive its price.

The Brent WTI spread is the price difference between Brent crude and US West Texas Intermediate crude. It reflects differences in transport costs, supply and demand between international and US oil.

The British pound, or sterling, is the currency of the United Kingdom. It reacts strongly to Bank of England decisions and UK inflation and growth data.

A broker is a firm that gives traders access to financial markets and carries out their orders. Brokers earn money through spreads, commissions or other charges.

A budget deficit is when a government spends more than it collects in taxes in a year. It is funded by issuing bonds, so large deficits can push bond yields higher.

Building permits measure how many new homes US authorities have approved for construction each month. Because permits come before building starts, they are an early guide to the housing market.

A bull flag is a continuation pattern where a sharp rise is followed by a short, slightly falling consolidation. A break above the flag is read as a sign the uptrend will continue.

A bull market is a sustained rise in prices, commonly defined as a gain of 20% or more from a recent low. It usually comes with strong economic growth and rising confidence.

A bull trap is a false breakout above resistance that quickly reverses lower. It catches traders who bought on the breakout.

Bullion is gold, silver or other precious metal in bars or coins, valued by weight and purity. Central banks and large funds hold bullion as a reserve asset.

Bullish describes the view that a price will rise. A bullish trader may buy or open a long position.

A bullish engulfing pattern is a two candle reversal where a large rising candle completely covers the body of the previous falling candle. It suggests buyers have taken control, especially after a downtrend.

A Bund is a bond issued by the German federal government. The 10 year Bund yield is the benchmark for borrowing costs across the euro area.

The business cycle is the repeating pattern of expansion, peak, contraction and recovery in an economy. Different sectors and asset classes tend to do well at different stages.

Buy and hold is a strategy of buying an asset and keeping it for a long period regardless of short term price swings. It suits some markets better than leveraged products, where holding costs build up over time.

A buy limit order is an instruction to buy only at a set price or lower, placed below the current market price. It is used to enter a position on a dip.

A buy stop order is an instruction to buy once price rises to a set level above the current price. It is often used to enter a trade on a breakout.