A NOTE ON THESE DEFINITIONS
The definitions in this glossary are technically accurate—you could use them on an exam or to explain concepts to a curious friend. However, they're also infused with the hard-won emotional wisdom of traders who've experienced both triumph and disaster.
We believe that understanding what something IS matters less than understanding what it FEELS like to experience it. A stop loss isn't just an order type—it's the thing that might save your account or make you question your existence, sometimes both in the same day.
Ask Price
The price at which the market is willing to sell you an asset. Also known as 'the offer price' or 'the number that's always slightly higher than you hoped.' The ask price exists in eternal tension with the bid price, like two siblings arguing over who gets the last slice of pizza.
Automated Trading
The practice of delegating your financial decisions to algorithms, because surely a computer program written in three sleepless nights by a caffeinated developer couldn't possibly make the same emotional mistakes a human would. Also known as 'algorithmic trading,' 'algo trading,' or 'hoping math will save us from ourselves.'
Average True Range (ATR)
A technical indicator that measures market volatility by calculating the average range between high and low prices over a period. Essentially, it tells you how dramatically the price has been dancing around. High ATR means 'hold onto your hat'; low ATR means 'maybe take a nap.' Invented by J. Welles Wilder Jr., who apparently had strong opinions about price ranges.
Backtesting
The practice of applying trading strategies to historical data to see how they would have performed. A beloved ritual that allows traders to feel confident about strategies that worked perfectly in the past but will somehow fail spectacularly in the future. The financial equivalent of using your ex's dating profile to predict your next relationship.
Balance
The total amount of money in your trading account, including your deposits and realized profits or losses. This number will haunt your dreams. It represents both your achievements and your failures, your hopes and your fears. Some traders check their balance obsessively; others avoid looking at it like it's a scary email from their bank.
Bear Market
A market condition characterized by falling prices and pessimistic sentiment, named after bears because they swipe downward when attacking. This is the opposite of a bull market. During bear markets, traders who bet on falling prices feel smug, while everyone else contemplates taking up gardening as an alternative income source.
Bid Price
The price at which the market is willing to buy an asset from you. It's always lower than the ask price, because the market has to make money somewhere, and that somewhere is between these two numbers. The difference is called the spread, and it's how brokers afford those fancy offices.
Broker
A company that provides access to financial markets in exchange for spreads, commissions, and the occasional surprise fee. Brokers range from highly regulated institutions to entities that may or may not exist in a physical sense. Choose wisely. Your broker is like your landlord: they provide a necessary service, but their interests aren't always perfectly aligned with yours.
Bull Market
A market condition where prices are rising and optimism abounds, named after bulls because they thrust upward with their horns. During bull markets, everyone feels like a genius, regardless of whether their success is skill or luck. This feeling lasts until the bear market arrives.
Buy Stop
An order to buy once the price rises above a specified level. You're essentially telling your broker: 'I think this thing is going to keep going up, so please buy it for me after it's already gotten more expensive.' This sounds paradoxical but makes sense in the context of momentum trading.
Candlestick Chart
A type of price chart that displays the high, low, opening, and closing prices as visual 'candles.' Invented by Japanese rice traders in the 18th century, proving that humans have been obsessing over price movements for centuries. Each candle tells a story; together, they form a narrative that traders spend entire careers trying to interpret.
Carry Trade
A strategy involving borrowing in a low-interest-rate currency to invest in a higher-interest-rate currency, pocketing the difference. Works beautifully until it doesn't. When it stops working, it stops working very quickly and dramatically, like a Jenga tower finally giving up.
Central Bank
The governmental institution responsible for managing a country's money supply and interest rates. Central bankers speak in carefully crafted statements that traders analyze like ancient prophecies. A misplaced comma can move markets. These are the people who pull the monetary strings, and they're terrifyingly powerful.
CFD (Contract for Difference)
A financial derivative that lets you speculate on price movements without actually owning the underlying asset. You're essentially betting on whether something will go up or down, with leverage making your wins bigger and your losses absolutely catastrophic. Banned or restricted in several countries for reasons that become obvious once you use them.
Commission
A fee charged by brokers for executing trades. Some brokers charge visible commissions; others hide their fees in the spread. Either way, someone is getting paid every time you click a button. This is fine. This is how businesses work. But still, that money could have been yours.
Consolidation
A period when prices move sideways within a range, neither trending up nor down. The market is essentially catching its breath, deciding what to do next. Traders find consolidation boring or exciting depending on their strategy. Breakout traders stare at consolidation like cats watching a mouse hole.
Currency Pair
The quotation of two different currencies, with the value of one being quoted against the other. For example, EUR/USD tells you how many US dollars one euro can buy. The first currency is the 'base currency,' and the second is the 'quote currency.' This naming convention exists to confuse beginners and give experienced traders something to feel superior about.
Day Trading
The practice of opening and closing positions within the same trading day, holding nothing overnight. Day traders believe they can predict short-term price movements consistently enough to profit after transaction costs. Statistically, most of them are wrong, but hope springs eternal. Coffee consumption among day traders is reportedly 400% higher than the general population.
Demo Account
A practice trading account with virtual money that lets you test strategies without risk. Demo accounts are where traders feel invincible before real money humbles them. The psychological difference between trading fake money and real money is approximately the same as the difference between playing pretend and actual skydiving.
Divergence
A condition where price is moving in one direction while an indicator is moving in the opposite direction. Divergence suggests that the current trend might be weakening—or it might be a false signal that leads you to exit a perfectly good trade early. Technical analysis is fun like that.
Drawdown
The peak-to-trough decline during a specific period for a trading account. In simpler terms: how much money you lost before things got better. Maximum drawdown is the worst this ever got. Every trader has a drawdown story. Most of them involve a lesson learned too late and a promise to 'never let that happen again.'
ECN Broker
Electronic Communication Network broker—a type of broker that provides direct access to other market participants. ECN brokers typically charge commissions instead of marking up spreads. They're generally preferred by serious traders who want transparency and don't mind knowing exactly how much they're paying in fees.
Equity
The current value of your trading account, including unrealized profits or losses. Unlike balance, equity fluctuates with your open positions. Watching your equity in real-time during volatile markets is not recommended for cardiac health. It's a number that tells you what your account is worth right now, this second, assuming you closed everything.
Expert Advisor (EA)
An automated trading program for MetaTrader platforms that can analyze markets and execute trades without human intervention. Also known as 'trading robots' or 'that thing running on your VPS while you sleep.' EAs range from brilliantly designed systems to thinly veiled gambling scripts with fancy marketing.
Execution
The completion of a trade order. 'Execution speed' refers to how quickly your order gets filled. In fast markets, the difference between good and bad execution can be significant. This is why serious traders care about their broker's infrastructure and why they get upset about slippage.
Fibonacci Retracement
A technical analysis tool based on the idea that markets tend to retrace a predictable portion of a move before continuing. The key levels are 23.6%, 38.2%, 50%, 61.8%, and 78.6%. These numbers come from the Fibonacci sequence and are believed by many traders to have special significance. Whether this is mathematical truth or collective self-fulfilling prophecy remains a topic of debate.
Floating Profit/Loss
The unrealized gains or losses on open positions. 'Floating' because it hasn't been locked in yet—it could go up or down until you close the position. Traders often experience emotional attachment to floating profits, which is why they sometimes let winning trades turn into losing trades.
Forex
Foreign Exchange—the global marketplace for trading national currencies. With over $6 trillion in daily trading volume, it's the largest and most liquid financial market in the world. Also one of the most accessible, which is both its appeal and its danger. Anyone with an internet connection can participate; whether they should is a different question.
Fundamental Analysis
Analyzing economic, financial, and other qualitative and quantitative factors to determine an asset's intrinsic value. Fundamental analysts care about GDP growth, interest rates, employment data, and political stability. They're the people reading central bank minutes while technical analysts are drawing lines on charts.
Gap
A price gap occurs when there's a significant difference between the closing price of one period and the opening price of the next. Gaps are common at market opens after weekends or holidays. They can create opportunities or disasters depending on which side you're on. 'Gap risk' is why some traders close positions before weekends.
Going Long
Buying an asset with the expectation that its price will rise. The traditional approach to investing—buy low, sell high. If you're long EUR/USD, you want the euro to strengthen against the dollar. This is the approach most beginners understand intuitively.
Going Short
Selling an asset you don't own with the expectation that its price will fall, allowing you to buy it back cheaper. This concept confuses many beginners. 'How can you sell something you don't have?' In forex, it's straightforward: you're simultaneously buying one currency and selling another, so going short is just the mirror image of going long.
Grid Trading
A strategy that places multiple buy and sell orders at set intervals above and below a predefined price. The grid catches profits from price oscillations. Works wonderfully in ranging markets; can get absolutely destroyed in trending markets that move beyond the grid's boundaries. Use with caution and appropriate risk management.
Hedging
Opening positions to offset potential losses in other positions. Think of it as financial insurance. If you have a large long position and you're worried about short-term downside, you might open a smaller short position as a hedge. Some traders hedge constantly; others consider it a sign of lacking conviction.
High-Frequency Trading (HFT)
Trading strategies executed by algorithms at extremely high speeds, often measured in microseconds. HFT firms compete for physical proximity to exchange servers because even light takes too long to travel. As a retail trader, you cannot compete with HFT on speed. Don't try. They have fiber optic cables that cost more than your house.
Indicator
A mathematical calculation based on price, volume, or open interest that traders use to identify patterns and make decisions. There are hundreds of indicators, each with devoted followers who believe they've found the secret sauce. Most indicators show the same information in different formats. They're tools, not magic.
Interest Rate
The cost of borrowing money, set by central banks. Interest rates are among the most powerful drivers of currency movements. When rates rise, currencies typically strengthen as higher yields attract foreign capital. Traders obsess over interest rate decisions and the hints central bankers drop about future moves.
Japanese Candlestick
See: Candlestick Chart. Called 'Japanese' because they were developed by Japanese rice traders, specifically a man named Munehisa Homma in the 1700s. He used candlestick patterns to trade rice futures and supposedly became extraordinarily wealthy. His legacy is that traders now argue about whether 'doji' patterns are significant.
Key Level
A price level that is considered significant due to historical price action. Support levels, resistance levels, and round numbers often become key levels. Traders watch these levels for reactions, which means they often become self-fulfilling prophecies. 'The market remembered that level' is a phrase you'll hear often.
Leverage
The use of borrowed capital to increase potential returns. Forex brokers commonly offer leverage of 50:1, 100:1, or even higher in some jurisdictions. Leverage is a double-edged sword that multiplies both gains and losses. It's what allows you to control $100,000 with $1,000. It's also what allows you to lose everything very quickly if you're not careful.
Limit Order
An order to buy or sell at a specified price or better. Unlike market orders, limit orders aren't guaranteed to fill because the price might never reach your specified level. Limit orders prevent you from getting worse prices than you want, but they might also prevent you from entering trades that would have been profitable.
Liquidity
The ease with which an asset can be bought or sold without significantly affecting its price. Major currency pairs are highly liquid—you can trade large amounts without moving the market. Exotic pairs are less liquid, leading to wider spreads and potential slippage. Liquidity matters most when you're trying to enter or exit large positions quickly.
Lot
A standardized trading unit. In forex, a standard lot is 100,000 units of the base currency. A mini lot is 10,000 units; a micro lot is 1,000 units. The lot size determines how much each pip movement is worth in your account currency. This terminology exists to confuse beginners and is actually quite logical once you understand it.
Margin
The collateral required to open and maintain leveraged positions. It's not a fee—it's money set aside as a good-faith deposit. If your positions move against you, your margin requirement increases. If it exceeds your account equity, you'll face a margin call.
Margin Call
A broker's demand for additional funds when your account equity falls below the required margin level. It's the trading equivalent of a failing grade warning. If you don't add funds or close positions, the broker may liquidate your positions at whatever price is available. Not fun. Avoid through proper risk management.
Market Maker
A broker or institution that provides liquidity by quoting both buy and sell prices. Market makers 'make a market' by always being willing to trade. They profit from the spread. Some traders distrust market makers for potential conflicts of interest; others appreciate the guaranteed liquidity they provide.
Market Order
An order to buy or sell immediately at the best available price. Market orders guarantee execution but not price. In fast-moving markets, you might get a different price than you saw on your screen. This is called slippage, and it's why some traders prefer limit orders.
MetaTrader
The world's most popular retail forex trading platform, available in MT4 and MT5 versions. Developed by MetaQuotes, MetaTrader has become the industry standard due to its charting capabilities, Expert Advisor functionality, and the fact that every broker seems to offer it. If you're reading this glossary, you're probably using it.
Moving Average
An indicator that calculates the average price over a specified number of periods, 'moving' as new data becomes available. Simple moving averages weight all periods equally; exponential moving averages weight recent periods more heavily. Traders use moving averages to identify trends and potential support/resistance levels. Entire trading careers have been built around moving average crossovers.
News Trading
Trading around scheduled economic announcements and news events. News traders try to profit from the volatility that accompanies major releases like employment data, GDP figures, or central bank decisions. It's exciting and dangerous—prices can move dramatically in milliseconds, and brokers often widen spreads during high-impact news.
Open Position
A trade that has been entered but not yet closed. Open positions represent active exposure to the market. They can be profitable or unprofitable, but until you close them, the result isn't final. Some traders check their open positions compulsively; healthier traders set alerts and live their lives.
Order
An instruction to your broker to execute a trade. Orders come in various types: market orders, limit orders, stop orders, and more exotic varieties with names like 'OCO' (one-cancels-other). Understanding order types is fundamental to executing your trading strategy as intended.
Overbought
A condition where an asset's price has risen rapidly and may be due for a pullback. The RSI indicator above 70 is commonly considered overbought. However, 'overbought' assets can remain overbought for extended periods, frustrating traders who sold too early expecting a reversal.
Oversold
A condition where an asset's price has fallen rapidly and may be due for a bounce. The RSI indicator below 30 is commonly considered oversold. Like overbought conditions, oversold conditions can persist longer than traders expect. Markets can remain irrational longer than you can remain solvent.
Pip
The smallest price move in most currency pairs, typically the fourth decimal place (0.0001). For yen pairs, it's the second decimal (0.01). Pips are how forex traders measure movements. 'I made 50 pips today' is how traders might describe a successful day, leaving out whether those 50 pips on their lot size actually equals meaningful money.
Position Sizing
Determining how much to risk on each trade, typically calculated as a percentage of account equity. Proper position sizing is arguably the most important aspect of trading. You can have a winning strategy and still blow your account through improper position sizing. Most experts recommend risking 1-2% per trade maximum.
Price Action
Trading based on the movement of price itself, rather than indicators derived from price. Price action traders read candlesticks, chart patterns, and support/resistance levels directly. They often consider their approach more 'pure' than indicator-based trading. The philosophical debates between price action and indicator traders are endless.
Prop Firm
Proprietary trading firm—a company that provides capital to traders in exchange for a share of profits. Modern retail prop firms typically require passing evaluation challenges before funding. They've grown enormously popular as a way for skilled traders to access more capital than they could fund themselves.
Range
A market condition where price oscillates between defined support and resistance levels without establishing a clear trend. Range-bound markets are ideal for mean-reversion strategies and frustrating for trend-followers. 'The market is ranging' is trader-speak for 'nobody knows what's happening.'
Resistance
A price level where selling pressure historically prevents prices from rising further. Resistance is like a ceiling the market keeps hitting. When resistance breaks, it often becomes support. Traders draw resistance lines with varying degrees of precision and confidence.
Risk Management
The practice of identifying, analyzing, and limiting potential losses. Includes position sizing, stop-loss placement, and portfolio diversification. Risk management won't make you money directly, but it will keep you in the game long enough for your strategy to work. Most blown accounts result from poor risk management, not poor strategy.
RSI (Relative Strength Index)
A momentum oscillator that measures the speed and magnitude of price changes on a scale of 0 to 100. Developed by J. Welles Wilder Jr. (the same person who gave us ATR), RSI is used to identify overbought and oversold conditions. Default setting is 14 periods. Every trader has an opinion on the best RSI settings.
Scalping
A trading style that aims to profit from small price movements by entering and exiting positions rapidly, often within minutes or seconds. Scalpers make many trades per day, each targeting a few pips of profit. It requires intense focus, low transaction costs, and a personality that thrives on constant activity.
Slippage
The difference between the expected price of a trade and the actual execution price. Slippage occurs in fast-moving markets when prices change between order placement and execution. It can work for or against you, but traders mostly remember negative slippage because humans focus on losses.
Spread
The difference between the bid and ask prices. Spreads represent transaction costs and vary by broker, currency pair, and market conditions. Major pairs like EUR/USD have tight spreads; exotic pairs have wide spreads. When people talk about 'broker costs,' they're often talking about spreads.
Stop Loss
An order to close a position when price reaches a specified level, limiting potential losses. Stop losses are arguably the most important risk management tool. They can be hit due to normal volatility before price moves in your direction—a frustrating but accepted cost of limiting downside.
Support
A price level where buying pressure historically prevents prices from falling further. Support is like a floor holding up the price. When support breaks, it often becomes resistance. Support and resistance are the bread and butter of technical analysis.
Swap
The interest paid or earned for holding a position overnight, also called rollover. Swap rates depend on the interest rate differential between the two currencies in a pair. Carry traders specifically seek positive swap; short-term traders mostly ignore it.
Swing Trading
A trading style that holds positions for days to weeks, aiming to capture larger price movements than day trading. Swing traders have time to analyze markets between sessions and don't need to monitor positions constantly. It's a middle ground between day trading and position trading.
Take Profit
An order to close a position when price reaches a specified profitable level. Take profits lock in gains automatically, which is psychologically easier than manually deciding when to exit. The eternal trader's dilemma: set take profit too close and leave money on the table; set it too far and watch profits evaporate.
Technical Analysis
Analyzing price charts and indicators to predict future price movements. Technical analysts believe price patterns repeat because human nature is consistent. Fundamental analysts think technical analysis is astrology for traders. Technical analysts point to their wins. The debate continues.
Timeframe
The period represented by each candlestick or bar on a chart. Common timeframes include M1 (1 minute), M15, H1 (1 hour), H4, D1 (daily), and W1 (weekly). Different trading styles use different timeframes. What looks like a strong trend on the 5-minute chart might be noise on the daily chart.
Trailing Stop
A stop loss that automatically moves to lock in profits as price moves in your favor. It trails behind price at a set distance. Trailing stops let winners run while protecting gains. They can also get hit by normal retracements that would have continued in your favor.
Trend
The general direction in which a market is moving. An uptrend has higher highs and higher lows; a downtrend has lower highs and lower lows. 'The trend is your friend' is one of the oldest trading adages. It's also true until the trend ends without warning.
Volatility
A measure of how much prices fluctuate over a given period. High volatility means large price swings; low volatility means calm markets. Volatility creates both opportunity and risk. Some traders love volatility; others prefer stable, predictable movements. Neither is wrong.
VPS (Virtual Private Server)
A remote server that runs your trading platform 24/7 without depending on your home connection or computer. VPS hosting is considered essential for serious automated trading because it provides consistent execution regardless of what happens to your local setup.
Whipsaw
A condition where price moves in one direction, triggering stop losses, then immediately reverses. Getting 'whipsawed' is frustrating because you were right about the eventual direction but got stopped out on a temporary movement. Whipsaws are more common at support and resistance levels.
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