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Trading Glossary

The most important trading terms from A to Z – explained briefly and clearly.

Basics

Bid & Ask: Bid = the price you can sell at; Ask = the price you can buy at. The spread sits between them.
Gap: A gap in the chart when price opens well above or below the prior close – often after news or over the weekend.
Liquidity: How easily an instrument can be traded without moving its price much. High liquidity = tight spreads and fast execution.
Long & Short: Long = betting on rising prices (buying). Short = betting on falling prices (selling short).
Lot: Position size in forex. 1 standard lot = 100,000 units of the base currency; also mini (0.1) and micro lots (0.01).
Pip: The smallest common price move in forex – the 4th decimal (0.0001) for most pairs, the 2nd (0.01) for JPY pairs.
Slippage: The difference between the expected and the actual fill price – mostly during fast markets or thin liquidity.
Spread: The difference between bid and ask price – effectively the cost per trade. Tighter spreads are cheaper.
Tick: The smallest possible price move of an instrument – common with futures. Each tick has a fixed monetary value per contract.
Volatility: The degree of price fluctuation over a period. High volatility means bigger moves – more opportunity and more risk.

Limit Order: An order that executes only at a specified price or better. Guaranteed price, but no guaranteed fill.
Market Order: An order executed immediately at the next available price. Fast fill, but no guaranteed price (slippage possible).
Stop Order: An order that activates once price reaches a trigger level – then usually executed as a market order. Also the basis of the stop-loss.
Stop-Loss: A predefined order that automatically closes a position at a loss level – the most important risk-control tool.
Take-Profit: A predefined order that automatically closes a position at a profit target.
Trailing Stop: A stop-loss that trails price in the direction of profit at a fixed distance, to lock in gains and let trends run.

Drawdown: The decline of the account from its last peak to a trough, usually in percent. Measures how deep a losing phase went.
Leverage: Lets you control a large position with little capital. Magnifies gains AND losses equally – a double-edged sword.
Margin: The capital a broker locks as collateral for a leveraged position. If it runs short, a margin call follows.
Position Size: How much you commit to a trade – derived from account size, risk percent and stop distance. The lever of risk control.
Risk of Ruin: The statistical probability of blowing up the account through a losing streak. Drops sharply with small per-trade risk.
Risk-Reward Ratio: The ratio of potential profit to risked loss (e.g. 2:1). A good ratio allows profitable trading even with a win rate below 50%.

CFD: A derivative that tracks the price difference of an underlying without owning it – tradable with leverage and corresponding risk.
Forex: The global currency market where currencies are traded in pairs (e.g. EUR/USD) – the most liquid market in the world.
Futures: Standardized, exchange-traded forward contracts on an underlying (index, commodity …) with a fixed expiry and contract size.
Pip Value: The monetary value of a one-pip move for your position size. The basis for converting risk and stop distance into euros/dollars.
Swap: The interest credit or charge for holding a leveraged position overnight – resulting from the interest-rate differential.

Indicator: A value derived from price data (e.g. RSI, MACD, moving average) that makes trend, momentum or volatility visible.
Support & Resistance: Price zones where buyers (support) or sellers (resistance) repeatedly step in. Key levels for entries and exits.
Timeframe: The duration a single candle represents (e.g. M5, H1, D1). Higher timeframes give more reliable but rarer signals.
Trend: The prevailing price direction: uptrend (higher highs/lows), downtrend (lower highs/lows) or sideways range.
Volume: The amount traded in a period. Rising volume confirms moves; missing volume weakens their significance.

Education, not investment advice. The explanations are simplified and do not replace your own research.