Trading Glossary: Key Terms Every Trader Should Know

This trading glossary defines the key terms you will meet on charts, trading platforms and prop firm websites, in plain English and in alphabetical order. Where a topic has its own full guide, the term links to it.

If you are new, start with What Is Trading? and come back here whenever a word is unfamiliar. Prices in the examples are illustrative, and contract details such as lot sizes vary by platform, so always check the contract specification on your own platform before you size a trade.

A

Asian session — The hours when Asia-Pacific centers such as Tokyo, Sydney and Singapore are open, roughly midnight to 09:00 UTC, with Sydney opening a few hours earlier. It is often quieter than London or New York.
Ask — The price at which you can buy right now, always slightly above the bid. A market buy order fills at or near the ask.

B

Balance — The value of your account counting only closed trades. It does not change while positions are still open (compare equity).
Base currency — The first currency in a forex pair, such as EUR in EUR/USD. Lot sizes are measured in the base currency, and the price shows what one unit of it costs in the second currency.
Bear market — A market in a sustained decline, with lower highs and lower lows over months rather than days; "bearish" describes any view that expects prices to fall. In stocks, a 20% fall from a peak is a common rule of thumb.
Bid — The price at which you can sell right now, always slightly below the ask. A market sell order fills at or near the bid.
Breakout — A decisive move through a support or resistance level, the edge of a range or the boundary of a chart pattern. Many traders wait for a candle to close beyond the level before treating it as genuine.
Bull market — A market in a sustained rise, with higher highs and higher lows over an extended period. "Bullish" describes any view that expects prices to rise.

C

Candlestick — A chart bar showing the open, high, low and close for one period. The body spans the open and close, and the thin wicks (or shadows) above and below it mark the high and low.
CFD (contract for difference) — A contract to exchange the difference in an instrument's price between opening and closing a position, without owning the underlying asset. CFDs are usually traded on margin, can be long or short, and are not offered to retail traders in every country.
Chart pattern — A recognizable shape that price forms on a chart, such as a double top, a head and shoulders or a triangle. Traders use patterns to anticipate breakouts and reversals.
Contract size — The number of units of the underlying asset in one lot: 100,000 units of the base currency for a standard forex lot, and commonly 100 troy ounces for gold, in which case a $1 move equals $100 per lot. It varies by platform, so check the specification.
Cross pairs — Currency pairs that do not include the US dollar, such as EUR/GBP, EUR/JPY or GBP/JPY. They are often slightly less liquid than the major pairs, so spreads can be wider.

D

Daily loss limit — The maximum amount an account is allowed to lose in one trading day, set by many prop firms and by many traders as a personal rule. How it is measured and when it resets differ from firm to firm.
Day trading — Opening and closing all trades within the same day, so that no positions are held overnight.
Divergence — A disagreement between price and an oscillator, such as price making a higher high while the indicator makes a lower high (bearish divergence). It signals fading momentum, not a certain reversal.
Doji — A candlestick whose open and close are at or very near the same price, leaving almost no body. It shows indecision and carries more weight after a strong move or at a key level.
Drawdown — The fall in account value from a peak to a later low, in money or as a percentage; maximum drawdown is the largest such fall over a period. For example, an account that drops from $50,000 to $46,000 has a $4,000, or 8%, drawdown.

E

Economic calendar — A schedule of upcoming data releases and central bank decisions, with the time, forecast and expected impact of each. Traders check it to know when volatility is likely.
EMA (exponential moving average) — A moving average that gives more weight to recent prices. It reacts faster to new moves than a simple moving average of the same length.
Engulfing pattern — A two-candle reversal pattern in which the second candle's body completely covers the first candle's body and closes in the opposite direction. A bullish engulfing forms after a decline, a bearish engulfing after a rise.
Equity — Your balance plus or minus the unrealized profit or loss of open positions. For example, a $10,000 balance with an open trade showing a $300 loss gives equity of $9,700.
Evaluation (challenge) — A test phase in which a trader must reach a profit target within set risk limits before a prop firm provides a funded account. Evaluations usually carry a fee and may have one or more phases.
Expectancy — The average result per trade over many trades, usually in R: (win rate × average win) − (loss rate × average loss). For example, a 40% win rate with a 2R average win and a 1R average loss gives (0.4 × 2) − (0.6 × 1) = +0.2R per trade.

F

False breakout — A move beyond support, resistance or a range boundary that quickly returns inside, trapping traders who entered on the break. Also called a fakeout.
Fibonacci retracement — A tool that marks levels at 23.6%, 38.2%, 50%, 61.8% and 78.6% of a prior swing, where traders watch for a pullback to pause; 50% is not a Fibonacci ratio but is included by convention. For example, after gold rises from $2,400 to $2,500, the 61.8% level is $2,500 − (0.618 × $100) = $2,438.20.
Forex — The foreign exchange market, where currencies trade in pairs such as EUR/USD. It runs around the clock from the Sunday evening open in Asia-Pacific to the Friday close in New York, and is closed at the weekend.
Funded account — An account a prop firm provides after a trader passes its evaluation, or sells directly as an instant-funded account. At many firms it is simulated at live market prices, and the trader's profit share is paid by the firm.
Funding rate — A periodic payment between long and short holders of a perpetual futures contract that keeps its price close to the spot price. When the rate is positive longs pay shorts, and when it is negative shorts pay longs.
Futures — Contracts to buy or sell an asset at an agreed price on a set future date, traded on margin and either long or short. Perpetual futures are a variant with no expiry date.

G

Gap — A jump in price between one candle's close and the next candle's open, most common after weekends and major news. A stop loss caught inside a gap fills at the first available price, which can be well beyond the stop.

H

Hedging — Opening a position that offsets the risk of another, such as an opposite position in the same or a closely related instrument. It reduces exposure but also limits potential profit and adds costs.
High-impact news — Scheduled releases expected to move markets sharply, such as interest rate decisions, inflation (CPI) figures and employment reports. Around them spreads can widen, slippage can increase and price can move many pips in seconds.
Higher high and higher low — The structure of an uptrend: each swing high tops the previous one and each pullback ends above the previous low. Failing to make a new high, or breaking the last higher low, signals the trend is weakening.

L

Leverage — The ability to control a position larger than the margin you put up; at 100:1, $1,000 of margin controls a $100,000 position. Leverage sets how large a position you can open, while your risk depends on position size and stop distance.
Limit order — A pending order to buy at or below a set price, or to sell at or above it. A buy limit sits below the current price and a sell limit above it.
Liquidity — How easily an instrument can be traded without moving its price. Liquid markets such as EUR/USD usually have tight spreads, while liquidity thins around session changes, holidays and weekends.
London session — The London market's hours, roughly 07:00 to 16:00 UTC in summer and 08:00 to 17:00 UTC in winter. It is often the busiest forex session, especially where it overlaps with New York.
Long — A position that profits if price rises: you buy first and sell later.
Lot — A standard unit of trade size. In forex, a standard lot is 100,000 units of the base currency, a mini lot 10,000 units (0.1 lot) and a micro lot 1,000 units (0.01 lot).
Lower high and lower low — The structure of a downtrend: each rally peaks below the previous high and each decline ends below the previous low.

M

MACD (Moving Average Convergence Divergence) — A momentum indicator with default settings of 12, 26 and 9. The MACD line is the 12-period EMA minus the 26-period EMA, the signal line is a 9-period EMA of the MACD line, and the histogram shows the gap between them.
Major pairs — The most traded currency pairs, each pairing the US dollar with another major currency: EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD, USD/CAD and NZD/USD. They usually have the deepest liquidity and the tightest spreads.
Margin — The money set aside to open and hold a leveraged position; for example, a $100,000 position at 100:1 leverage needs $1,000 of margin. Free margin is the equity left over for new positions.
Margin call — A warning that your equity has fallen close to the minimum needed to keep your positions open. If losses continue, the platform starts closing positions automatically, which is called a stop out.
Market order — An order to buy or sell immediately at the best available price, filling at the ask when buying and at the bid when selling. In fast markets it can suffer slippage.
Moving average — A line plotting the average closing price over a set number of periods, smoothing out noise to show direction. The two main types are the SMA and the EMA.

N

New York session — The New York market's hours, roughly 12:00 to 21:00 UTC in summer and 13:00 to 22:00 UTC in winter. Its overlap with London is often the most active part of the forex day.

O

Oscillator — An indicator that moves between fixed bounds, such as 0 to 100, or swings around a center line. RSI, Stochastic and MACD are oscillators used to measure momentum.
Overbought — A reading near the top of an oscillator's range, such as RSI above 70 or Stochastic above 80. It is not a sell signal on its own; in a strong uptrend an indicator can stay overbought for a long time.
Oversold — A reading near the bottom of an oscillator's range, such as RSI below 30 or Stochastic below 20. Like overbought, it describes momentum rather than predicting a turn.

P

Payout — A withdrawal of the trader's share of profits from a prop firm's funded account. Each firm sets its own conditions, such as timing and minimum amounts.
Perpetual futures — Crypto futures contracts with no expiry date, so a position can stay open as long as margin allows. A funding rate keeps the contract price close to the spot price.
Pip — The standard unit of forex price movement: 0.0001 for most pairs and 0.01 for yen pairs. For example, EUR/USD moving from 1.0850 to 1.0851 is one pip, worth $10 on one standard lot.
Point — On MetaTrader 5 (MT5) and similar platforms, the smallest price step an instrument is quoted in, such as 0.00001 on a five-digit EUR/USD quote, one tenth of a pip. Traders also use it loosely for a one-unit move in an index or in gold.
Position sizing — Choosing your trade size so that hitting your stop loses a set amount. For example, risking $500 with a 25-pip stop on EUR/USD gives $500 ÷ (25 × $10) = 2 standard lots.
Profit and loss (P&L) — The money result of your trading. Realized P&L comes from closed trades and changes your balance; unrealized, or floating, P&L comes from open positions and changes your equity.
Profit target — The price at which you plan to take profit on a trade. In prop firm evaluations, it is also the gain an account must reach to pass a phase, usually set as a percentage of the starting balance.
Prop firm — A proprietary trading firm: a company that gives traders capital, or a simulated account, to trade under its rules and pays them a share of the profits. Many prop firms assess traders through a paid evaluation first.

Q

Quote currency — The second currency in a forex pair, such as USD in EUR/USD. Profit and loss on the pair is naturally calculated in the quote currency.

R

R-multiple — A trade's result expressed as a multiple of the amount risked, called R. Risking $200 and making $500 is +2.5R, and a full loss is −1R.
Range — A sideways market in which price moves back and forth between support and resistance without a clear trend, until a breakout ends it.
Resistance — A price level where selling has repeatedly stopped rallies. Once broken, old resistance often acts as support.
Revenge trading — Taking an impulsive, often oversized trade to win back a recent loss. It usually deepens the loss instead.
Risk per trade — The amount you are prepared to lose on one trade if the stop is hit, often a small fixed percentage of the account such as 0.5% or 1%.
Risk-reward ratio — The potential loss on a trade compared with its potential gain. Risking 20 pips to target 40 pips is a 1:2 risk-reward ratio.
RSI (Relative Strength Index) — Wilder's momentum oscillator, which moves between 0 and 100 with a default period of 14. Readings above 70 are considered overbought and readings below 30 oversold.

S

Scalping — A very short-term style that holds trades for seconds to minutes and aims for small moves. Because targets are small, spreads and commissions take a larger share of each result.
Session — A block of hours when a major financial center is open. Forex has three main sessions, Asian, London and New York, and activity is usually highest when two overlap.
Short — A position that profits if price falls: you sell first and buy back later. Short selling is not available in every market or account type.
Slippage — The difference between the price you expected and the price you actually got. It happens in fast or thin markets and can work for or against you.
SMA (simple moving average) — The plain average of the last N closing prices, each weighted equally. For example, closes of 1.0800, 1.0820, 1.0840, 1.0860 and 1.0880 sum to 5.4200, so the 5-period SMA is 5.4200 ÷ 5 = 1.0840.
Spot — Buying or selling an asset at its current price for immediate settlement, rather than through a contract for a later date. Spot trading usually involves no leverage, and you can only sell what you already hold.
Spread — The difference between the ask and the bid, and the main built-in cost of every trade. For example, EUR/USD quoted at 1.0850 bid and 1.0851 ask has a 1-pip spread.
Stochastic — A momentum oscillator that compares the close with the high-low range over a set period. The default setting is 14, 3, 3, with 80 and 20 marking overbought and oversold.
Stop loss — An order that closes a losing position at a set price to cap the loss. In fast markets or across a gap it can fill at a worse price.
Stop order — A pending order that becomes a market order once price reaches a set level: a buy stop sits above the current price, a sell stop below it. Traders use them to enter breakouts and to exit losing trades.
Support — A price level where buying has repeatedly stopped declines. Once broken, old support often acts as resistance.
Swap — Interest charged or paid for holding a leveraged forex or CFD position past the daily rollover, based on the interest rate gap between the two currencies. Whether it applies depends on the account's terms.
Swing trading — A style that holds trades for days to a few weeks to capture one larger move, or swing, usually working from 4-hour or daily charts.

T

Take profit — An order that closes a winning position at a set price, locking in the gain.
Timeframe — The period each candle on a chart represents, such as 1 minute (M1), 1 hour (H1) or 1 day (D1). Many traders read the trend on a higher timeframe and time their entries on a lower one.
Trading plan — A written set of rules for what you trade, when, how you enter and exit, and how much you risk. It is usually paired with a journal that records every trade.
Trailing stop — A stop loss that follows price at a set distance as the trade moves in your favor and never moves back. For example, a 30-pip trailing stop on a EUR/USD long bought at 1.0850 starts at 1.0820 and reaches 1.0850 when price hits 1.0880.
Trend — The overall direction of price: higher highs and higher lows in an uptrend, lower highs and lower lows in a downtrend. A market doing neither is ranging.
Trendline — A straight line drawn through at least two swing lows in an uptrend, or two swing highs in a downtrend. A third touch that holds adds confidence, and a clear break suggests the trend may be changing.

V

Volatility — How much and how quickly price moves. In volatile conditions stops usually need more room, so position sizes must shrink to keep the same risk.
Volume — The amount traded during a period. Spot forex has no central exchange, so platforms often show tick volume, the number of price changes, instead.

W

Win rate — The percentage of trades that end in profit. It means little unless read alongside the average win and average loss.

Key takeaways

Every price has a bid and an ask, and the spread between them is a built-in cost of each trade.
Pips, points, lots and contract size turn price moves into money, and contract sizes vary by platform.
Leverage and margin decide how large a position you can open, but your risk comes from position size and stop distance.
Thinking in R, through risk per trade, R-multiples and expectancy, lets you compare results across trades and account sizes.

Frequently asked questions

What is the difference between balance and equity?

Balance counts only closed trades. Equity adds the unrealized profit or loss of your open positions, so it changes with every price move while trades are open. When you have no open positions, the two are equal.

What does 1R mean in trading?

1R is the amount you risk on a trade, which is the loss you take if your stop is hit. Expressing results in R, such as +2R or −1R, lets you compare trades of different sizes and calculate your expectancy.

What does it mean to go long or short?

Going long means buying because you expect the price to rise. Going short means selling first because you expect the price to fall, then buying back later. Not every market or account type allows short selling, and spot markets often do not.

Educational content only, not investment advice. Trading involves risk, and leverage magnifies losses as well as gains. All Drift Fund accounts are simulated.