Glossary

Every term, in plain English

56 definitions written the way we wish someone had explained them: one honest sentence, why it matters, and the mistake it usually causes. No jargon defined with more jargon.

Basics

Bid and ask

The bid is the highest price a buyer will pay right now; the ask (or offer) is the lowest price a seller will accept. You sell at the bid and buy at the ask.

Leverage

Borrowed exposure that lets a small deposit control a much larger position - multiplying gains and losses by exactly the same factor.

Limit order

An instruction to trade only at a chosen price or better - certain about price, uncertain about whether it fills at all.

Liquidity

How much can be bought or sold without moving the price - the practical measure of whether you can get in and out at the price you see.

Long and short

Long means you profit when price rises; short means you profit when it falls. Going short borrows the asset or uses a derivative, so it is not simply the mirror image of a long.

Margin

The money you must post and keep as collateral for a leveraged position - not a fee, but a deposit the broker can take if the trade moves far enough against you.

Market order

An instruction to trade immediately at the best available price - certain to fill, uncertain what price you get.

Order book

The live list of resting buy and sell orders at each price, showing where the market is currently willing to transact and in what size.

Spread

The gap between the price you can buy at (ask) and the price you can sell at (bid) - the first cost you pay on every trade, before any commission.

Volatility

How much and how fast price moves - the measure that should set your stop distance, your position size, and whether a strategy fits an instrument at all.

Risk

Correlation

The tendency of two instruments to move together - the reason several open positions can secretly be one bet at several times the intended size.

Drawdown

The fall from an account peak to its lowest point before a new peak - and the measure of what you must be able to sit through to keep a strategy.

Expectancy

The average result per trade, in R: (win rate x reward-to-risk) minus (1 minus win rate). Positive expectancy is the minimum definition of an edge.

Position sizing

Choosing how large a trade to take so that hitting your stop loss costs a fixed, small, pre-decided percentage of the account.

R multiple

A trade result expressed in units of the amount risked: a trade that made twice what it risked is +2R, and a full stop-out is -1R.

Risk of ruin

The probability that a run of ordinary losses destroys the account before the edge has time to show up.

Risk-to-reward ratio

What a trade pays if it works, divided by what it costs if it fails - and therefore the win rate the setup needs merely to break even.

Stop loss

A resting order that closes a position once price reaches a level where your trade idea is proven wrong.

Take profit

A resting order that closes a position at a predetermined favourable price, set before the trade is live.

Win rate

The percentage of trades that end in profit - a number that means nothing on its own, because it only has value next to the reward-to-risk ratio.

Charting

Breakout

Price moving decisively beyond a level that previously contained it - the event that either begins a new move or traps everyone who bought it.

Candlestick

A chart bar showing four prices for a period - open, high, low and close - drawn as a body between open and close with wicks to the extremes.

Fibonacci retracement

A grid of levels - commonly 38.2%, 50% and 61.8% - drawn across a completed move to mark where a pullback has historically found interest.

Moving average

The average price over a chosen number of periods, redrawn each period - a smoothing tool that describes where price has been, not where it is going.

RSI

The Relative Strength Index - a 0 to 100 oscillator measuring the speed of recent gains against recent losses, conventionally read at 70 and 30.

Support and resistance

Price areas where buying or selling has repeatedly appeared - zones where the market has shown it changes its mind, not exact lines.

Timeframe

The period each candle represents - and the single setting that most changes what a chart appears to say.

Trend

A sequence of higher highs and higher lows, or lower highs and lower lows - structure read from price itself, before any indicator is added.

Volume

How much was actually traded in a period - the measure of participation behind a price move.

Crypto

Altcoin

Any cryptocurrency other than bitcoin - a category that covers everything from large, liquid networks to tokens with no users and no float.

CEX vs DEX

A centralised exchange holds your coins and matches trades on its own servers; a decentralised exchange never takes custody and settles on-chain from your own wallet.

Custodial vs non-custodial wallet

In a custodial wallet an exchange holds the private keys and your balance is a claim on them; in a non-custodial wallet you hold the keys and the coins are directly yours.

Funding rate

A periodic payment - usually every eight hours - exchanged directly between long and short holders of a perpetual contract to keep its price near spot.

Gas fee

The network fee paid to have a blockchain transaction processed - paid to validators, not to any exchange, and priced by how busy the network is.

Isolated vs cross margin

Isolated margin risks only the collateral assigned to one position; cross margin backs every position with your entire balance.

KYC

Know Your Customer - the identity verification a regulated venue must complete before you can trade, deposit or withdraw at full limits.

Liquidation

The forced closure of a leveraged position by the exchange when losses have eaten your margin down to the maintenance requirement.

Market capitalisation

Circulating supply multiplied by price - a measure of relative size that is often mistaken for the amount of money invested in an asset.

P2P trading

Buying or selling crypto directly with another person through an exchange escrow, using local bank transfers or mobile money instead of a card or wire.

Perpetual futures

A futures contract with no expiry date, kept close to the spot price by a funding payment exchanged between longs and shorts.

Spot trading

Buying or selling the actual asset for immediate settlement, with no leverage, no funding and no liquidation price.

Stablecoin

A crypto token designed to hold a constant value against a reference asset, almost always the US dollar - the unit most crypto pairs are actually priced in.

Forex

CFD

A contract for difference - a derivative that pays the change in an asset price without you ever owning the asset, which is how most retail brokers offer forex, gold and indices.

Currency pair

Two currencies quoted as a ratio - the base currency first, the quote currency second. The price is how much of the quote currency one unit of the base is worth.

ECN and raw spread accounts

An account type that passes through near-interbank spreads and charges a separate per-lot commission, instead of widening the spread to include the broker margin.

Lot

The standard unit of trade size in forex: one standard lot is 100,000 units of the base currency, a mini lot is 10,000 and a micro lot is 1,000.

Pip

The standard smallest price move in a currency pair: the fourth decimal place on most pairs (0.0001), and the second on anything quoted in Japanese yen (0.01).

Trading session

The hours when a regional market is open - Sydney, Tokyo, London and New York - which determine when a given pair is liquid and cheap to trade.

Costs

Commission

An explicit per-trade or per-lot charge, separate from the spread - the visible half of what trading costs you.

Maker and taker fees

A maker adds liquidity by resting an order in the book and pays the lower fee; a taker removes liquidity by hitting an existing order and pays the higher one.

Slippage

The difference between the price you expected and the price you actually got - the cost of the market moving between your click and the fill.

Swap (overnight financing)

The interest paid or received for holding a leveraged forex position past the daily rollover, set by the interest-rate difference between the two currencies.

Withdrawal fee

What a venue charges to send your money or coins out - frequently the largest single cost for a small account, and the one least often compared.