Trading Glossary
Plain-English definitions. Each entry links to the lessons where the term is used.
A
B
- Backtest
- Applying a rule to historical data to see how it would have performed.
- Basis
- The difference between a contract price and spot.
- Bid price
- The highest price a buyer is currently willing to pay.
- Break of structure
- A failure of the current sequence of highs and lows.
C
- Candlestick
- A chart element encoding open, high, low and close for one interval.
- Carry
- The ongoing cost of holding a position.
- Confirmation bias
- Weighting information that supports a position you already hold.
- Counterparty risk
- The risk that the other side of an arrangement fails to perform.
- Custody
- Who controls the private keys to an asset.
D
- Disposition effect
- Selling winners too early and holding losers too long.
- Divergence
- Price making a new extreme while an indicator does not.
- Drawdown
- The decline from an equity peak to a subsequent trough.
E
- Expectancy
- Average profit or loss per trade over a sample, net of costs.
F
- Funding rate
- A periodic payment between longs and shorts on a perpetual contract.
- Futures contract
- A standardised agreement to transact at a specified price, cleared by a venue.
I
- Initial margin
- The collateral required to open a leveraged position.
- Invalidation
- The market condition that would prove your trade idea wrong.
L
- Lagging indicator
- An indicator whose value depends on data that has already occurred.
- Leverage
- Controlling a notional larger than your capital, using borrowed exposure.
- Limit order
- An instruction to fill at a specified price or better, or not at all.
- Liquidation
- The venue closing a leveraged position because margin has run out.
- Liquidity
- How much can be transacted without moving the price materially.
- Loss aversion
- The tendency to feel a loss more strongly than an equivalent gain.
M
- Maintenance margin
- The minimum equity that must remain before liquidation is triggered.
- Market depth
- How much size rests at each price level in the order book.
- Market order
- An instruction to fill immediately at the best available price.
- Momentum
- The rate of change of price over a lookback window.
- Moving average
- The mean of the last N closing prices, recalculated each period.
N
- Notional value
- Position size multiplied by price — the face value you control.
O
- OHLC
- Open, high, low and close — the four values a candle records.
- Order book
- The list of resting buy and sell orders at each price level.
- Oscillator
- An indicator expressing where price sits within a recent range, usually on a bounded scale.
- Out-of-sample
- Data held back from development and used once, to validate a rule.
- Overfitting
- Tuning a rule until it fits the sample rather than the underlying behaviour.
P
- Perpetual futures
- A futures contract with no expiry, tethered to spot by periodic funding.
- Position size
- The number of units held, derived from risk limit and stop distance.
- Private key
- The secret that authorises transfers from a crypto address.
- Proof of reserves
- An attestation that a venue controlled certain assets at a point in time.
R
- Risk of ruin
- The probability that a normal run of losses ends the account.
S
- Sample size
- The number of observations behind a metric.
- Settlement
- How a contract is resolved at expiry — in cash or by delivery.
- Slippage
- The difference between the price you expected and the price you got.
- Spot market
- A market for immediate ownership of the asset itself.
- Spread
- The gap between the bid and the ask.
- Stop order
- An order that becomes a market order once a trigger price is reached.
- Stop-loss
- An order placed at the level where the trade idea is invalidated.
- Support and resistance
- Price zones where transactions previously clustered heavily.
- Swing high
- A candle whose high exceeds the highs of the N candles either side.
- Swing low
- A candle whose low is beneath the lows of the N candles either side.
T
- Tilt
- A state in which the goal shifts from executing the process to recovering losses.
- Timeframe
- The interval each candle on a chart represents.
- Trading plan
- A written document specific enough that two people would take the same trades.
- Trend
- A sequence of higher highs and higher lows, or lower highs and lower lows.
V
- Volatility
- The magnitude of price variation over a period.
- Volume
- How much traded during an interval.
W
- Win rate
- The proportion of trades that finish profitable.