Trading glossary
Every term is explained simply and linked to the lesson that covers it in detail.
A
- AMF (France)The AMF (Autorité des marchés financiers) is France's financial markets regulator. It publishes blacklists of unauthorised sites and protects investors.
- Ask priceThe ask is the best price at which the market will sell: it is the price you pay to buy. It is always higher than the bid.
- ATR (Average True Range)The ATR measures the average range of candles, gaps included, over a period, often 14. It is used to size stops and positions.
B
- BacktestA backtest applies a strategy to historical data to measure how it would have performed: gains, losses, drawdown.
- Base currencyThe base currency is the first currency in a pair. It is the one you buy or sell, and the quote shows its price in the second currency.
- Bid priceThe bid is the best price the market will pay to buy: it is the price at which you sell. It is always lower than the ask.
- Bollinger BandsBollinger Bands surround a 20-period moving average with two bands set 2 standard deviations away. They widen and narrow with volatility.
- Break-even stopMoving to break-even means shifting your stop loss to your entry price so the trade can no longer end in a loss, before costs and slippage.
- BreakoutA breakout happens when price clears a key level, such as support, resistance or a pattern boundary, and holds beyond it.
- BrokerA broker is the intermediary that gives you market access: it receives your orders, executes or passes them on, and holds your trading account.
C
- CandlestickA Japanese candlestick shows price action over a period using four values: open, high, low and close.
- Carry tradeA carry trade means buying a high-interest currency against a low-interest one to collect the rate differential through the swap.
- Central bankA central bank issues a country's or region's currency and sets its monetary policy, especially policy rates. Fed, ECB, BoE, BoJ…
- CFD (contract for difference)A CFD is a contract that pays you, or charges you, the change in an asset's price between opening and closing, without you owning the asset.
- CommissionCommission is a fixed fee your broker charges on each order, on top of the spread. It is mostly found on ECN or raw spread accounts.
- CommodityA commodity is a raw good traded on markets: energy (oil, gas), metals (gold, silver, copper) or agricultural products (wheat, coffee).
- Confirmation biasConfirmation bias pushes you to seek out and remember information that supports your idea, while ignoring what contradicts it.
- Consensus forecastThe consensus is economists' average forecast for an upcoming data release. The market mostly reacts to the gap with the published figure.
- CorrelationCorrelation measures how closely two assets move together, from −1 (opposite directions) to +1 (same direction). It reveals hidden risks.
- COT report (Commitments of Traders)The CFTC's COT report details each week the positions of the main groups of participants in US futures markets.
- CPI (Consumer Price Index)The CPI tracks changes in the price of a basket of goods and services bought by households. It is the most closely watched inflation gauge.
- Cross currency pairA cross pair combines two major currencies without the US dollar, such as EUR/GBP, EUR/JPY or GBP/JPY.
- CryptocurrencyA cryptocurrency is a digital asset built on a blockchain, such as bitcoin or ether, traded 24 hours a day, 7 days a week.
- Currency pairA currency pair shows how many units of the second currency you need to buy one unit of the first, for example EUR/USD at 1.0850.
D
- Day tradingDay trading means opening and closing positions within the same day, holding nothing overnight, over a few minutes to a few hours.
- Demo accountA demo account lets you trade with virtual money in real market conditions. It is for learning the platform and testing a method.
- DivergenceA divergence occurs when price and an oscillator move in opposite directions, for example a new price high without a new RSI high.
- DojiA doji is a candle whose open and close are almost at the same level. It reflects indecision between buyers and sellers.
- Double bottomA double bottom is formed by two similar lows separated by a bounce. A break above the intermediate peak signals a possible bullish reversal.
- Double topA double top is formed by two similar highs separated by a trough. A break of that trough signals a possible bearish reversal.
- DovishA dovish stance puts support for growth and jobs first, with low or falling rates. It generally weighs on the currency.
- DrawdownDrawdown is the drop in your capital from a peak to the trough that follows, as a percentage. It measures how painful a strategy is.
E
- Earnings (quarterly results)Earnings are the figures a listed company publishes each quarter: revenue, earnings per share and outlook.
- ECNAn ECN (Electronic Communication Network) matches orders from many participants directly. The broker earns a commission rather than a markup.
- Economic calendarThe economic calendar lists upcoming data releases and central bank decisions, with their time, consensus forecast and expected impact.
- Effective leverageEffective leverage is the ratio between your total exposure and your capital: the leverage you really use, not the one your broker offers.
- Elliott Wave TheoryElliott Wave Theory describes markets as alternating between five waves in the direction of the trend and three corrective waves.
- Engulfing patternAn engulfing pattern is made of two candles: the second, of the opposite colour, has a body that completely covers the body of the first.
- EquityEquity is your balance adjusted for the open profits and losses of your positions: what your account would be worth if you closed everything.
- ESMAESMA is the European Securities and Markets Authority. It set the maximum leverage and retail client protections for CFDs in the EU.
- Exotic currency pairAn exotic pair combines a major currency with that of an emerging or smaller economy, such as USD/TRY, USD/MXN, EUR/PLN or USD/ZAR.
- ExpectancyExpectancy is the average profit or loss your strategy makes per trade over a large number of trades. Positive, it wins; negative, it loses.
- Expert advisor (EA)An expert advisor is a program that runs inside MetaTrader and can analyse the market and open, manage and close positions automatically.
- Exponential moving average (EMA)The EMA is a moving average that gives more weight to recent prices. It reacts faster than a simple average to changes in direction.
F
- Fakeout (false breakout)A fakeout happens when price clears a key level and then quickly snaps back, trapping those who traded the breakout.
- Fibonacci retracementFibonacci retracements draw levels at 23.6%, 38.2%, 50%, 61.8% and 78.6% of a move to spot where a pullback might stop.
- Financial regulatorA financial regulator is the public authority that licenses, supervises and sanctions market firms, such as the FCA in the UK or ASIC in Australia.
- Flag patternA flag is a short consolidation sloping against the trend, after a fast move (the pole). It often signals continuation.
- FOMOFOMO (fear of missing out) is the fear of missing a move. It pushes you to enter too late, without a plan, often at the worst price.
- ForexForex (foreign exchange) is the global market where currencies are traded against each other. It is the most active financial market in the world.
- Forward testA forward test runs a strategy in real time, on demo or in small size, to check that its results confirm the backtest.
- Free marginFree margin is the capital still available to open positions or absorb losses: equity minus used margin.
- Fundamental analysisFundamental analysis studies the economy, monetary policy and company results to understand what moves prices.
- Futures contractA future is a standardised, exchange-traded contract that fixes today the price of an asset for delivery at a set future date.
G
- GapA gap is a jump in price between one candle's close and the next one's open, with no trading in between, often after a weekend.
- GDP (Gross Domestic Product)GDP measures the value of all goods and services produced in a country over a period. Its growth shows the health of the economy.
- Golden cross and death crossA golden cross occurs when the 50-period moving average crosses above the 200; a death cross when it crosses below. Long-term trend signals.
H
- HammerA hammer is a candle with a small body at the top of its range and a long lower wick. After a decline, it signals a possible bounce.
- Harmonic patternsHarmonic patterns (Gartley, bat, butterfly, crab) are XABCD structures whose legs follow precise Fibonacci ratios.
- HawkishA hawkish stance puts fighting inflation first, even if that means raising rates or keeping them high. It generally supports the currency.
- Head and shouldersA head and shoulders pattern lines up three peaks, the middle one highest. A break below the neckline signals a possible bearish reversal.
L
- LeverageLeverage lets you control a position larger than your capital. At 30:1, €1,000 of margin gives you €30,000 of exposure.
- Limit orderA limit order is filled at a set price or better: a buy below the current price, a sell above it. It guarantees the price, not the fill.
- LiquidityLiquidity measures how easily you can buy or sell an asset quickly and in size without moving its price. The higher it is, the tighter the spread.
- Long positionGoing long means buying an asset to profit from a rise. You make money if the price climbs above your entry, after costs.
- Loss aversionLoss aversion makes a loss feel stronger than a gain of the same size. It pushes you to hold losers and cut winners.
- LotA lot is the unit used to size a position. In forex, 1 standard lot equals 100,000 units of the base currency.
M
- MACDThe MACD measures the gap between two exponential moving averages (12 and 26). Its signal line and histogram track the trend's momentum.
- Major currency pairsThe majors pair the US dollar with another big currency: EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD, USD/CAD and NZD/USD.
- MarginMargin is the deposit your broker sets aside to keep a leveraged position open. It is collateral, not a fee.
- Margin callA margin call is your broker's alert when your margin level drops below a set threshold: your capital barely covers your positions any more.
- Margin levelMargin level is the ratio of your equity to your used margin, as a percentage. It is what triggers the margin call and the stop out.
- Market makerA market maker constantly quotes a buy price and a sell price and takes the other side of its clients' orders.
- Market orderA market order is filled immediately at the best available price: at the ask for a buy, at the bid for a sell.
- Market structureMarket structure describes the sequence of highs and lows: rising highs and lows in an uptrend, falling ones in a downtrend.
- Maximum drawdownMaximum drawdown is the largest peak-to-trough drop recorded over the whole life of a trading history.
- MetaTrader (MT4 / MT5)MetaTrader 4 and MetaTrader 5, made by MetaQuotes, are the most widely used trading platforms at forex and CFD brokers.
- Micro lotA micro lot is 0.01 lot, or 1,000 units of the base currency. It is the smallest size offered by most brokers.
- Mini lotA mini lot is 0.1 lot, or 10,000 units of the base currency. On a dollar-quoted pair, one pip is worth about $1.
- Moving averageA moving average calculates the average price over the last N periods and updates with every new candle. It smooths out noise and shows the trend.
N
- Negative balance protectionNegative balance protection guarantees that a retail client cannot lose more than the money deposited in their CFD account.
- NFP (Non-Farm Payrolls)NFP measures US job creation outside farming. It is usually released on the first Friday of the month at 8:30 a.m. New York time.
O
- OCO orderAn OCO (One Cancels the Other) order links two orders: as soon as one is filled, the other is cancelled automatically.
- OptionAn option gives the right, but not the obligation, to buy (call) or sell (put) an asset at a set price until a given date, in exchange for a premium.
- Overbought and oversoldA market is called overbought when it has risen fast and far, and oversold when it has fallen fast and far, according to an oscillator such as the RSI.
- Overfitting (curve fitting)Overfitting means tuning a strategy so precisely to the past that it captures noise rather than a real edge, and then fails live.
- OvertradingOvertrading means taking too many positions, or positions that are too big, outside what your plan allows.
P
- PCE (Personal Consumption Expenditures)The PCE is the price index of US household consumer spending. Its core version is the Fed's preferred measure of inflation.
- Pending orderA pending order is a pre-set order that only executes if price reaches a chosen level: limit or stop, to buy or to sell.
- Pin barA pin bar is a candle with a very long wick on one side and a small body on the other, showing a clear rejection of a price level.
- PipA pip is the standard unit of movement in a currency pair: 0.0001 on most pairs and 0.01 on yen pairs.
- PipetteA pipette is one tenth of a pip: the fifth decimal on EUR/USD and the third on USD/JPY. It gives brokers finer price quotes.
- PMI (Purchasing Managers' Index)The PMI is an index built from surveys of purchasing managers. Above 50, activity is expanding; below 50, it is contracting.
- PointA point measures price movement on an index, a stock or a commodity: one whole unit of the price, for example 1 point on the DAX.
- Policy rate (interest rate)The policy rate is the interest rate a central bank sets to steer the cost of money in the economy. It has a strong influence on currencies.
- Position sizingPosition size is the volume you take on a trade. It is calculated from your risk in money and the distance to your stop.
- Price actionPrice action is analysing the market from the movement of price itself: candles, structure and key levels, with few or no indicators.
- Price channelA channel is formed by two parallel lines that frame price: a trendline and its parallel. It can be rising, falling or horizontal.
- Professional clientProfessional client status lets you go beyond retail leverage caps, in exchange for losing several protections reserved for retail clients.
- Profit factorProfit factor is the ratio of total gains to total losses. Above 1, the strategy makes money; below 1, it loses.
- Prop firmA prop firm lets you trade capital it funds after you pass a paid challenge, in exchange for a share of the profits and strict rules.
- PullbackA pullback is a temporary move against the trend, or back to a level price has just broken, before the main move resumes.
Q
R
- Real cost of a tradeThe real cost of a trade adds up spread, commission, swap, slippage and any conversion fees. It is what you actually pay to trade.
- ResistanceResistance is a price area where sellers have already halted a rally, and where supply may exceed demand once more.
- Revenge tradingRevenge trading means jumping straight back into a trade after a loss to “win it back”, often with bigger size and no valid setup.
- Risk managementRisk management is the set of rules that limit your losses: risk per trade, position size, stops, daily limits and total exposure.
- Risk of ruinRisk of ruin is the probability that a losing streak shrinks your capital to the point where you can no longer trade, or below a threshold you set.
- Risk-on / risk-offRisk-on describes a market buying risky assets (stocks, high-yielding currencies); risk-off describes a market fleeing to safe havens.
- Risk-reward ratio (R:R)The risk-reward ratio compares what you risk to your stop with what you target to your objective. 1:2 means aiming for twice your risk.
- RolloverRollover is the carrying of a position from one settlement day to the next, or from one futures expiry to the next.
- RSI (Relative Strength Index)The RSI is a 0 to 100 oscillator that measures the strength of recent gains against recent losses, usually over 14 periods.
S
- Safe-haven assetA safe haven is an asset sought in times of stress, expected to hold its value: gold, the yen, the Swiss franc, US Treasuries.
- ScalpingScalping is a very short-term trading style, with positions held from a few seconds to a few minutes to capture small moves.
- Sharpe ratioThe Sharpe ratio divides the return earned above the risk-free rate by the volatility of returns: the return per unit of risk.
- Shooting starA shooting star is a candle with a small body at the bottom of its range and a long upper wick. After a rally, it signals rejection of higher prices.
- Short positionGoing short means selling an asset you don't own to profit from a fall, then buying it back lower.
- SlippageSlippage is the gap between the price you ask for and the price your order is actually filled at. It can be negative or positive.
- Spot marketThe spot market is where assets trade at the current price for near-immediate delivery, as in spot forex or spot gold.
- SpreadThe spread is the gap between the ask (buy price) and the bid (sell price). It is a cost you pay every time you open a position.
- Stochastic oscillatorThe stochastic is a 0 to 100 oscillator that places the close within the high-low range of the last N periods, often 14.
- Stock market indexA stock index tracks the performance of a basket of shares, such as the S&P 500, the Nasdaq 100, the FTSE 100, the DAX or the CAC 40.
- Stop lossA stop loss is an order that automatically closes your position at a loss level set in advance. It caps your maximum risk on the trade.
- Stop orderA stop order becomes a market order when price reaches your level: a buy above the current price, a sell below it.
- Stop outA stop out is the automatic closure of your positions when your margin level hits the minimum threshold, at the latest 50% in the EU and UK.
- STPSTP (Straight Through Processing) describes a broker that automatically routes your orders to liquidity providers, with no manual dealing desk.
- SupportSupport is a price area where buyers have already halted a decline at least once, and where demand may win out again.
- SwapA swap is the cost or credit applied to a leveraged position held open past your broker's daily cut-off time.
- Swing tradingSwing trading aims to capture moves lasting a few days to a few weeks, using analysis on H4, daily and weekly charts.
T
- Take profitA take profit is a limit order that closes your position automatically when price reaches your profit target.
- The 1% ruleThe 1% rule means never risking more than 1% of your capital on a single trade, with the loss measured to your stop loss.
- TickA tick is the smallest price change allowed on an instrument, mostly used on futures. Each tick has a fixed cash value.
- TimeframeThe timeframe is the period each candle on a chart represents: M1, M5, M15, H1, H4, daily (D1), weekly (W1), monthly.
- Track recordA track record is the performance history of a trader or strategy: return, drawdown and number of trades over a given period.
- Trading journalA trading journal records every position: date, market, reasons for entry, stop, exit, result, emotions. It is the basis of all progress.
- Trading planA trading plan is the written document that defines your markets, hours, entry and exit criteria and risk rules.
- Trading rangeA range is a phase where price moves sideways between support and resistance, with no clear trend. It is also called consolidation.
- Trading scamA trading scam promises high, risk-free returns to get you to deposit money on an unauthorised platform or into a fake investment.
- Trading sessionA trading session is the active period of a major financial centre: Sydney, Tokyo, London or New York. Forex passes from one to the next.
- Trailing stopA trailing stop is a stop loss that automatically follows your position as price moves in your favour, at a set distance.
- TrendA trend is the dominant direction of price. An uptrend makes higher highs and higher lows; a downtrend does the opposite.
- TrendlineA trendline connects at least two lows (uptrend) or two highs (downtrend) to show the slope of the market.
- Triangle patternA triangle is a consolidation pattern where price moves between two converging lines. It often comes before the prior move resumes.
U
V
W
- Wedge patternA wedge is formed by two converging lines sloping the same way. A rising wedge leans bearish; a falling wedge leans bullish.
- Wick (shadow)The wick, or shadow, is the thin line above or below a candle's body. It shows prices reached and then abandoned during the period.
- Win rateWin rate is the percentage of winning trades out of the total. It is never enough to judge a strategy without the size of wins and losses.