Trading Glossary: 300+ Essential Terms
Trading has its own language. This glossary defines 300+ essential terms in plain English, organized A to Z. Use the search box above to find any term instantly.
A
Absorption: When large resting orders at a price level absorb aggressive buying or selling without the price moving. Visible on footprint charts and DOM as high volume with little price change.
Account Balance: The total dollar value in your trading account, including unrealized (open position) gains and losses.
Accumulation: A phase where informed participants quietly build large positions over time, often appearing as a sideways trading range before a breakout.
Activation Fee: A one-time fee charged by some prop firms to convert your evaluation account to a funded account after passing.
Algorithm (Algo): A set of automated rules that execute trades based on predefined criteria such as price, volume, or timing. Also called a trading bot or automated strategy.
API (Application Programming Interface): A set of protocols that allows trading software to communicate with brokers, exchanges, or data providers programmatically. Used for automated trading and custom integrations.
Ask Price: The lowest price a seller will accept for an instrument. When you buy, you pay the ask. Also called the “offer.”
At the Money (ATM): An options term meaning the option’s strike price equals the current market price. Also informally used to mean “exactly at your entry price.”
Average Down: Adding to a losing position at lower prices to reduce your average entry cost. High-risk technique that can amplify losses if price continues against you.
Average True Range (ATR): A volatility indicator measuring how much an instrument typically moves over a given period. Used to set stop-losses proportional to normal market movement.
Averaging Up: Adding to a winning position at higher prices (for longs) to increase exposure in the direction of the trend. The opposite of averaging down.
B
Backfill: Historical data loaded into a chart when you first connect to a data feed or change timeframes. Quality of backfill varies by provider.
Backtesting: Testing a trading strategy against historical price data to see how it would have performed. A useful tool, but past performance does not guarantee future results.
Backwardation: A futures market condition where near-term contracts trade at a higher price than longer-dated contracts. The opposite of contango. Common in commodity markets during supply shortages.
Bar Chart: A price chart displaying the open, high, low, and close (OHLC) of each period as a vertical bar with horizontal notches. An alternative to candlestick charts.
Basis: The difference between the spot (cash) price and the futures price of the same asset. Basis narrows as a futures contract approaches expiration.
Bear Market: A sustained period of declining prices, generally defined as a 20%+ decline from recent highs. The opposite of a bull market.
Bear Trap: A false breakdown below support that lures short sellers in before price reverses sharply higher.
Bid Price: The highest price a buyer will pay for an instrument. When you sell, you receive the bid. The gap between bid and ask is called the spread.
Blow Up / Blown Account: When a trader loses so much money that the account is essentially worthless or terminated. Common causes: over-leveraging and no stop-losses.
Bollinger Bands: A technical indicator consisting of a moving average with upper and lower bands set at a fixed number of standard deviations. Price touching or exceeding the bands signals potential overbought or oversold conditions.
Breakeven: The point at which total revenue equals total costs. In trading: moving your stop-loss to your entry price after a trade goes in your favor.
Breakout: When price moves decisively beyond a defined level of support or resistance. Breakout traders enter trades when price breaks these key levels.
Bull Market: A sustained period of rising prices. The opposite of a bear market.
Bull Trap: A false breakout above resistance that lures buyers in before price reverses sharply lower.
Buying Power: The total dollar value of positions you can hold simultaneously, based on your account size and leverage available.
Buy the Dip: A strategy of purchasing an instrument after a price decline, expecting the uptrend to resume. Effective in strong uptrends; dangerous in genuine downtrends.
C
Call Option: A contract giving the holder the right, but not the obligation, to buy the underlying asset at the strike price before expiration. Buyers profit when the underlying rises.
Candlestick Chart: The most popular type of price chart. Each “candle” shows the open, high, low, and close of a time period. A green/white candle means price closed higher than it opened; red/black means it closed lower.
Capital: Money in your trading account that you use to take trades. Protecting your capital is the foundation of risk management.
Carry Trade: A strategy of borrowing a currency with low interest rates to buy one with high interest rates, profiting from the interest rate differential.
CEX (Centralized Exchange): A cryptocurrency exchange operated by a centralized company that holds custody of user funds and facilitates trades. Examples: Coinbase, Binance.
Channel: Two parallel trendlines containing price movement. An ascending channel has both lines sloping upward; a descending channel slopes downward. Price tends to bounce between the lines.
Chart Pattern: Recognizable shapes that appear on price charts (head and shoulders, double top, triangle, etc.) that traders use to forecast future price direction.
Circuit Breaker: An exchange-imposed halt on trading triggered when prices move beyond a predefined threshold in a short time. Designed to prevent panic-driven crashes and allow orderly markets.
CL (Crude Oil Futures): CME Group crude oil futures contract. Each contract represents 1,000 barrels. One of the most actively traded commodity futures.
Clearing: The process of reconciling and settling a trade after execution. Clearinghouses (like CME Clearing) act as the counterparty to all trades.
CME Group: Chicago Mercantile Exchange Group, the world’s largest futures exchange, where ES, NQ, CL, GC, and most major futures contracts trade.
Co-location: Placing trading servers physically close to exchange matching engines to minimize latency. Used by high-frequency and institutional traders for speed advantages.
Commissions: Fees charged by your broker for executing trades. In futures, typically $3.50 to $5.00 round-trip per contract. A major cost for frequent traders.
Commitment of Traders (COT): A weekly report published by the CFTC showing the aggregate positioning of commercial hedgers, large speculators, and small speculators in futures markets. Used as a sentiment indicator.
Confirmation: A secondary signal (from a different indicator, timeframe, or data source) that supports your primary trade thesis. Reduces false signals.
Consistency Rule: A prop firm rule limiting how much of your total profit can come from a single trading day. Prevents traders from having one lucky day and immediately withdrawing.
Consolidation: A period of sideways price movement, typically between two price levels, after a trend or large move. Often precedes the next directional move.
Contango: A futures market condition where longer-dated contracts trade at a higher price than near-term contracts. The normal state for most financial futures. The opposite of backwardation.
Contract: In futures, a standardized agreement to buy or sell a specific quantity of an asset at a predetermined price on a future date. “Trading one contract of ES” means one E-mini S&P 500 futures contract.
Correlation: The statistical relationship between two instruments. Positive correlation means they tend to move in the same direction; negative correlation means they tend to move in opposite directions.
CPI (Consumer Price Index): A key economic inflation report released monthly. High-impact news event that causes significant market volatility.
CQG: A data and trading technology provider whose platform and data feed is used by many prop firms and brokers.
Credit Spread: An options strategy where you sell a higher-premium option and buy a lower-premium option at a different strike price, collecting the net premium as income. Limited risk and limited reward.
Cumulative Delta: The running total of delta (aggressive buying volume minus aggressive selling volume) over a session or period. Used in order flow analysis to gauge whether buyers or sellers are in control.
Cup and Handle: A bullish chart pattern resembling a teacup. The “cup” is a rounded bottom, followed by a small pullback (the “handle”), then a breakout to the upside.
Currency Correlation: The tendency of certain currency pairs to move together or inversely. EUR/USD and GBP/USD are positively correlated; EUR/USD and USD/CHF are negatively correlated.
Curve Fitting: Over-optimizing a trading strategy to perform perfectly on historical data, resulting in a system that fails on live markets. Also called “data mining bias” or “over-optimization.”
D
Daily Loss Limit: A maximum loss amount per trading day imposed by prop firms. Exceed it and you are locked out for the rest of the day (or your account is terminated).
Dark Pool: A private exchange where large institutional orders are matched anonymously, away from public order books. Reduces market impact for large trades but decreases transparency.
Day Trade / Day Trading: Buying and selling the same instrument within the same trading session, closing all positions before the market closes.
Dead Cat Bounce: A brief recovery in a declining market before the downtrend resumes. Named because “even a dead cat will bounce if dropped from high enough.”
DeFi (Decentralized Finance): Financial services built on blockchain technology that operate without traditional intermediaries. Includes lending, borrowing, and trading protocols.
Delivery: The physical transfer of the underlying asset when a futures contract expires. Most retail-traded futures are cash-settled instead.
Delta (Options): A measure of how much an option’s price changes for every $1 move in the underlying asset. Delta ranges from 0 to 1 for calls and 0 to -1 for puts.
Delta (Order Flow): The difference between aggressive buying volume and aggressive selling volume at a given price or within a candle. Positive delta indicates net buying; negative delta indicates net selling.
Demo Account: A simulated trading account provided by brokers or platforms for practice. Uses virtual money with real market data. No financial risk.
Depth of Market (DOM): A display showing pending buy and sell orders at each price level, giving traders visibility into order flow and potential support/resistance zones.
DEX (Decentralized Exchange): A cryptocurrency exchange that operates through smart contracts on a blockchain, allowing peer-to-peer trading without a central intermediary.
Distribution: A phase where informed participants sell large positions gradually, often appearing as a sideways range before a breakdown. The opposite of accumulation.
Divergence: When price action and an indicator (like RSI or MACD) move in opposite directions. Often used as a signal of potential trend reversal.
Double Bottom: A bullish reversal chart pattern where price tests the same support level twice and bounces both times, forming a “W” shape. A break above the middle peak confirms the pattern.
Double Top: A bearish reversal chart pattern where price tests the same resistance level twice and fails both times, forming an “M” shape. A break below the middle trough confirms the pattern.
Drawdown: The reduction in your account from its highest point. A drawdown from $50,000 to $45,000 is a $5,000 drawdown (10%). Managing drawdown is central to prop firm rules.
Drawdown, EOD (End-of-Day): A trailing drawdown type where your floor updates only at the end of each trading day based on your closing balance. More forgiving than intraday trailing.
Drawdown, Intraday: A trailing drawdown where your floor updates in real time including unrealized (open position) profits and losses. The strictest type.
Drawdown, Static: A fixed drawdown where your floor does not move regardless of how profitable you become.
Drawdown, Trailing: A drawdown where the floor follows (trails) your highest account balance. As you make money, your floor rises; you can never drop more than X below your highest point.
Drawdown Buffer: The distance between your current account value and your maximum drawdown floor. How much you can lose before violating the drawdown rule.
E
EA (Expert Advisor): An automated trading script on MetaTrader platforms. EAs execute trades based on programmed rules without manual input.
Economic Calendar: A schedule of upcoming economic reports and events (CPI, NFP, FOMC, GDP, etc.) with time, actual/expected values. Essential reference for news-aware traders.
Edge: A statistical advantage in trading, when your strategy produces positive expected value over many trades. Having an edge means you win more than you lose in mathematical terms.
Entry: The price and moment at which you open a trade position. Entry criteria are the specific conditions that must be met before you take a trade.
EOD (End of Day): End of the trading day. Many prop firm rules reference EOD drawdowns and position closing requirements.
Equity: Your current account value including the unrealized PnL of any open positions. Equity = Balance + Open Position Unrealized PnL.
Equity Curve: A graph plotting your account equity over time. A smooth, upward-sloping equity curve indicates consistent profitability. Drawdowns appear as dips.
Equity High: The highest account equity level you have reached. Important in trailing drawdown: your floor trails below your equity high.
ES (E-mini S&P 500): The most traded futures contract in the world, tracking the S&P 500 index. Each full point of ES movement = $50 per contract. Tick size = 0.25 points = $12.50.
Evaluation: The testing phase at prop firms where traders must meet performance criteria to qualify for a funded account.
Evaluation Fee: The cost to access a prop firm’s evaluation program. May be a one-time fee or monthly subscription.
Exchange: An organized marketplace where securities or derivatives are traded. For US futures: CME Group, CBOT, NYMEX, COMEX.
Exchange-Traded Fund (ETF): A fund that trades on an exchange like a stock, tracking an index, commodity, or basket of assets. SPY tracks the S&P 500; QQQ tracks the Nasdaq 100.
Exhaustion: A sharp price move on heavy volume that signals the end of a trend, as the last remaining buyers (or sellers) have entered and no one is left to push price further.
Expectancy: The average dollar amount you expect to win (or lose) per trade, calculated as (Win Rate x Average Win) minus (Loss Rate x Average Loss). Positive expectancy means the strategy is profitable over time.
Expected Value (EV): The average result of a trade (or series of trades) calculated across all possible outcomes. Positive EV strategies are profitable over time.
Expiration: The date on which a futures or options contract ceases to exist. After expiration, the contract is settled either in cash or by delivery of the underlying asset.
Extrinsic Value: The portion of an option’s premium above its intrinsic value. Represents time value and implied volatility. Extrinsic value decays as expiration approaches.
F
Fair Value Gap (FVG): A price range on a chart where only one side of the market (buyers or sellers) was active, creating an imbalance. Often revisited later as price “fills the gap.”
Fibonacci Retracement: A technical analysis tool that uses horizontal lines at key Fibonacci ratios (23.6%, 38.2%, 50%, 61.8%, 78.6%) to identify potential support and resistance levels within a trend.
Fill: When your order executes successfully. “I got filled at 4700.25” means your trade executed at that price.
Fill or Kill (FOK): An order that must be executed immediately and in its entirety, or it is canceled completely. No partial fills allowed.
FIX Protocol (Financial Information eXchange): A standardized messaging protocol used for real-time electronic exchange of trading information between brokers, exchanges, and institutions.
Flag Pattern: A continuation chart pattern where price consolidates in a small rectangle (the flag) after a sharp move (the pole). The breakout from the flag typically continues in the direction of the prior move.
FOMC (Federal Open Market Committee): The Fed committee that sets US interest rates. FOMC meetings and rate decisions are the highest-impact news events in financial markets.
Footprint Chart: An advanced chart type showing buy and sell volume at each price level within each candle. Used for order flow analysis.
FOMO (Fear of Missing Out): The anxiety of watching a market move without being in the trade, often leading to chasing entries at bad prices.
Forex (Foreign Exchange): The global market for trading currencies. The most liquid market in the world, trading $7+ trillion daily.
Forward Contract: A private, non-standardized agreement between two parties to buy or sell an asset at a specified price on a future date. Unlike futures, forwards are not exchange-traded.
Front Month: The futures contract with the nearest expiration date. Also called the “near month” or “lead month.” Typically the most liquid contract.
Fundamental Analysis: Analyzing the intrinsic value of an asset based on economic data, financial statements, industry trends, and macroeconomic conditions. Contrasted with technical analysis.
Funded Account: A trading account where you use the prop firm’s capital (not your own) and share profits according to the firm’s profit split terms.
Funded Trader: A trader who has passed a prop firm evaluation and now trades with the firm’s capital.
Funding Rate: In crypto perpetual futures, a periodic payment exchanged between long and short holders to keep the contract price anchored to the spot price. Positive funding means longs pay shorts.
Futures: Contracts to buy or sell an asset (index, commodity, currency) at a set price on a future date. Key feature: highly standardized, exchange-traded, regulated.
G
Gamma (Options): The rate of change in an option’s delta for each $1 move in the underlying. High gamma means delta changes rapidly, increasing risk near expiration.
Gap: A price range where no trading occurred, visible on a chart as a space between two candles. Gaps occur when price opens significantly higher or lower than the previous close.
Gas Fee: In crypto, the fee paid to network validators for processing a transaction on a blockchain. Fees vary by network congestion and transaction complexity.
GC (Gold Futures): CME Group gold futures contract. Each contract = 100 troy ounces. Highly volatile and popular with futures traders.
Going Long: Buying an instrument expecting it to increase in value. Being “long the market” means you profit when prices rise.
Going Short / Short Selling: Selling an instrument you do not own (borrowing it first) expecting to buy it back cheaper later. You profit when prices fall.
Good ‘Til Canceled (GTC): An order that remains active until it is either filled or explicitly canceled by the trader. Contrasted with day orders that expire at session end.
Greeks: Collectively, the risk measures for options positions: delta, gamma, theta, vega, and rho. Each Greek measures sensitivity to a different variable.
Grind: A slow, steady price movement in one direction without sharp pullbacks. Also describes the daily routine of a disciplined trader.
H
Harmonic Patterns: Advanced chart patterns (Gartley, Butterfly, Bat, Crab) defined by precise Fibonacci ratios between swing points. Used to identify potential reversal zones.
Head and Shoulders: A bearish reversal chart pattern showing three peaks, where the middle peak (head) is highest, flanked by two lower peaks (shoulders). A break below the neckline signals a potential downtrend.
Heat Map: A visual representation using color intensity to show relative strength or weakness across multiple instruments, sectors, or price levels simultaneously.
Hedging: Taking an offsetting position to reduce risk. Example: a farmer sells wheat futures to lock in today’s price and hedge against price drops at harvest.
Hidden Divergence: A type of divergence where price makes a higher low (in an uptrend) while the indicator makes a lower low, signaling trend continuation rather than reversal. The opposite of regular divergence.
High-Frequency Trading (HFT): Automated trading systems that execute thousands of trades per second, capitalizing on tiny price inefficiencies. Not relevant to retail traders.
Holding Period: The length of time a position is kept open, from entry to exit. Scalpers hold for seconds to minutes; swing traders hold for days to weeks.
I
Iceberg Order: A large order that is only partially visible on the order book, with the hidden portion automatically replenished as the visible portion gets filled. Used by institutions to avoid showing their full size.
Impermanent Loss: In DeFi, the temporary loss that liquidity providers experience when the price ratio of deposited tokens changes compared to simply holding them. Becomes permanent only if you withdraw during the imbalance.
Implied Volatility (IV): A measure of the market’s expectation of future price movement, typically derived from options pricing. High IV means traders expect large moves ahead.
Indicator: A mathematical calculation applied to price or volume data to help traders identify trends, momentum, or overbought/oversold conditions. Examples: RSI, MACD, moving averages.
Inside Bar: A candlestick whose entire range (high to low) fits within the range of the previous candle. Signals consolidation and often precedes a breakout.
Interest Rate Differential: The difference in interest rates between two countries’ currencies. A key driver of forex carry trades and currency pair movements.
Intraday: Within a single trading session. An “intraday trader” opens and closes all positions within the same trading day.
Intrinsic Value: The portion of an option’s premium that represents real, tangible value. For a call, it is the amount the underlying price exceeds the strike price. Out-of-the-money options have zero intrinsic value.
Iron Condor: An options strategy combining a bull put spread and a bear call spread. Profits when the underlying stays within a defined range. Limited risk and limited reward.
Island Reversal: A chart pattern where a group of candles is isolated by gaps on both sides, forming an “island.” A bearish island reversal gaps up then gaps down; a bullish island reversal gaps down then gaps up.
J
Journal (Trading Journal): A record of your trades including entry/exit, rationale, and emotional state. Essential tool for improving your trading performance over time.
K
Kelly Criterion: A mathematical formula that calculates the optimal percentage of your capital to risk on each trade based on your win rate and reward-to-risk ratio. Maximizes long-term growth but is aggressive in practice; most traders use a fraction (half-Kelly or quarter-Kelly).
Key Level: A price area where historical buying or selling has been significant, such as support where buyers appeared, or resistance where sellers appeared. These levels often influence future price behavior.
Knife Catch: Attempting to buy an instrument during a sharp decline, hoping to time the exact bottom. High risk because the decline may continue.
L
Latency: The time delay between sending an order and it reaching the exchange. Lower latency means faster execution. Measured in milliseconds for most retail traders, microseconds for institutional.
Leverage: Using borrowed capital to control a larger position than your account size would otherwise allow. 10:1 leverage means $1,000 controls $10,000 worth of position. Amplifies both gains and losses.
Limit Down: The maximum amount a futures contract is allowed to decline in a single trading session before a trading halt is triggered. The opposite of limit up.
Limit Order: An order to buy or sell at a specific price or better. A buy limit order at $4700 only executes if price drops to $4700 or below.
Limit Up: The maximum amount a futures contract is allowed to rise in a single trading session before a trading halt is triggered. The opposite of limit down.
Liquidation: When your broker or prop firm forcibly closes your positions because you have exceeded your maximum allowed loss. Can happen automatically.
Liquidity: How easily an instrument can be bought or sold without significantly moving the price. High-liquidity instruments (ES, EUR/USD) have tight spreads and fast fills.
Liquidity Pool: In DeFi, a pool of tokens locked in a smart contract that provides liquidity for decentralized trading. Liquidity providers earn fees from trades.
Live Account: A trading account funded with real money where profits and losses are actual. The opposite of a demo or simulated account.
Long: See “Going Long.”
Loss Aversion: The psychological tendency to feel the pain of losses more strongly than the pleasure of equivalent gains. Leads to holding losers too long and exiting winners too early.
Lot: A standardized unit of measurement for a trading position. In forex, a standard lot = 100,000 units of the base currency.
Low Float: A stock or instrument with a small number of freely tradable shares/units, leading to higher volatility because a relatively small amount of buying or selling can move the price significantly.
M
MACD (Moving Average Convergence Divergence): A popular trend-following indicator showing the relationship between two exponential moving averages. Used to identify momentum and potential trend changes.
Margin: The deposit required to open and maintain a leveraged position. In futures, the initial margin to open an ES contract is approximately $12,000 to $15,000.
Margin Call: A broker’s demand that you deposit additional funds to maintain an open position because your equity has fallen below the required margin level.
Market Depth: The quantity of buy and sell orders at different price levels in the order book. Deep markets have large order sizes at many price levels; thin markets have few orders.
Market Hours: ES, NQ, and most US futures trade nearly 24 hours on weekdays (Sunday 6 PM to Friday 5 PM ET). Regular trading hours (RTH) are 9:30 AM to 4:00 PM ET.
Market Maker: A firm or individual that provides liquidity by continuously posting bid and ask prices, profiting from the spread.
Market on Close (MOC): An order type that executes at the market price as close to the closing time as possible. Used by institutional traders to match closing benchmarks.
Market Order: An order to buy or sell immediately at the best available current price. Guarantees execution but not price; during volatile markets, the fill may be significantly worse than expected.
Market Structure: The pattern of swing highs and swing lows that defines the current trend. An uptrend has higher highs and higher lows; a downtrend has lower highs and lower lows. A break in structure signals a potential trend change.
Maximum Adverse Excursion (MAE): The largest unrealized loss a trade experiences before eventually being closed. Analyzing MAE across many trades helps optimize stop-loss placement.
Maximum Drawdown: The largest peak-to-trough decline your account experiences. Prop firms define the maximum drawdown you are allowed before your account is terminated.
Maximum Favorable Excursion (MFE): The largest unrealized profit a trade reaches before being closed. Analyzing MFE helps optimize profit target placement.
Mean Reversion: A strategy based on the idea that price tends to return to its average over time. Traders buy when price is far below the mean and sell when far above.
MES (Micro E-mini S&P 500): One-tenth the size of ES. Each MES point = $5. Ideal for beginner traders or when testing strategies with minimum capital.
Micro Futures: Smaller-sized futures contracts (typically 1/10th of the standard contract) designed for retail traders. Includes MES, MNQ, MCL, MGC.
Micro Lot: In forex, 1,000 units of the base currency (1/100th of a standard lot). Allows traders to take small positions with limited capital.
Minimum Trading Days: A prop firm rule requiring traders to be active on a minimum number of different trading days before qualifying for payouts.
MNQ (Micro Nasdaq): One-tenth the size of NQ futures. Each MNQ point = $2.
Momentum: The rate of price change. Strong momentum means price is moving quickly in one direction. Momentum traders enter in the direction of the existing trend.
Monte Carlo Simulation: A statistical technique that runs thousands of randomized simulations of a trading strategy to estimate the range of possible outcomes, including worst-case drawdowns and probability of ruin.
Moving Average (MA): An indicator that smooths price data by calculating the average price over a set period. Common: 20-period, 50-period, 200-period moving averages.
Moving Average Crossover: A signal generated when a shorter-period moving average crosses above (bullish) or below (bearish) a longer-period moving average. Example: the 50-day MA crossing above the 200-day MA is called a “golden cross.”
N
Naked Option: An options position where the seller does not hold the underlying asset (for calls) or cash (for puts) to cover the obligation. Carries theoretically unlimited risk for naked calls.
NFP (Non-Farm Payroll): The US monthly employment report, released the first Friday of each month. One of the highest-impact economic releases, causing significant market volatility.
NinjaTrader: A popular trading platform used by many futures traders and supported by most prop firms. Known for its advanced charting and automation capabilities.
Noise: Random, meaningless price fluctuations that do not reflect genuine supply/demand changes. Noise makes it difficult to distinguish real signals from random movement, especially on lower timeframes.
Notional Value: The total value of a futures contract at the current market price. For one ES contract at 5000, the notional value is 5000 x $50 = $250,000. Notional value reveals your true market exposure.
NQ (E-mini Nasdaq-100): Futures contract tracking the Nasdaq 100 index. Each point = $20 per contract. Very popular with day traders due to its volatility.
No-Trade Zone: A predefined time, condition, or price area where a trader deliberately avoids taking trades. Common no-trade zones include the first 5 minutes after open or periods around major news releases.
O
Open Interest: The total number of outstanding futures contracts that have not been settled. Rising open interest often confirms a trend; declining open interest may signal it is ending.
Open Position: A trade that has been entered but not yet exited. Your position is “open” from entry to exit.
Order Block: A concept in market structure trading (ICT methodology), a zone where significant institutional orders were placed, which may cause price to react when revisited.
Order Flow: The continuous stream of buy and sell orders flowing into the market. Order flow analysis studies who is buying and selling and at what levels to forecast short-term price direction.
Order Routing: The process by which a trade order travels from the trader’s platform through intermediaries to the exchange for execution. The path affects speed and fill quality.
Oscillator: A type of technical indicator that fluctuates between fixed boundaries (usually 0 to 100). RSI, Stochastics, and CCI are oscillators. Useful for identifying overbought and oversold conditions.
Overbought: A condition where an instrument’s price has risen too far, too fast, suggesting it may be due for a pullback. Identified by oscillators like RSI above 70.
Over-Leveraging: Using more leverage than your risk management rules support. The most common cause of blown trading accounts.
Overnight Position: A trade held past the end of a trading session into the next day. Some prop firms prohibit overnight positions.
Oversold: A condition where an instrument’s price has fallen too far, too fast, suggesting it may be due for a bounce. Identified by oscillators like RSI below 30.
Out of the Money (OTM): An options term. A call option is OTM when the underlying price is below the strike price; a put option is OTM when the underlying price is above the strike price. OTM options have no intrinsic value.
P
Paper Trading: Trading in a simulated environment with no real money at stake. Good for learning mechanics; limited for simulating the emotional reality of real trading.
Payout: The withdrawal of realized profits from a funded trading account. Prop firm payout schedules vary from daily to monthly.
Payout Cycle: The period over which profits accumulate before a payout can be requested. Consistency rules are typically measured per payout cycle.
Pennant: A continuation chart pattern similar to a flag but with converging trendlines forming a small symmetrical triangle. Typically resolves in the direction of the prior trend.
Pip (Percentage in Point): The smallest standard unit of price movement in a forex pair. For most pairs (EUR/USD), 1 pip = 0.0001.
Platform: The software application used to access markets, view charts, and execute trades. Common futures platforms: NinjaTrader, Tradovate, TradingView, Quantower.
Point of Control (POC): In volume profile analysis, the price level with the highest traded volume over a given period. Acts as a magnet for price and a key reference level.
Position: A trade currently held (either long or short). Your position size is the number of contracts or shares you are holding.
Position Sizing: The process of determining how many contracts/shares to trade based on your account size, risk per trade, and stop-loss distance.
Premium (Options): The price paid by the buyer to the seller for an options contract. Comprised of intrinsic value and extrinsic value.
Price Action: The movement of price over time, studied without indicators. Price action traders make decisions based solely on candlestick patterns, support/resistance, and market structure.
Profit Factor: Total gross profit divided by total gross loss. A profit factor above 1.0 means the strategy is profitable. Above 2.0 is considered strong.
Profit Sharing: See “Profit Split.”
Profit Split: The percentage of trading profits paid to the trader vs. the prop firm. An 80/20 split means you keep 80%, the firm keeps 20%.
Profit Target: The price level at which you plan to exit a winning trade. In prop firm evaluations, it is the dollar amount you must earn to pass the evaluation.
Prop Firm: See “Proprietary Trading Firm.”
Proprietary Trading Firm (Prop Firm): A company that provides traders with capital to trade in exchange for a share of profits. Online prop firms sell evaluations that, when passed, grant access to funded accounts.
Psychology (Trading Psychology): The study of how emotions and mental states affect trading decisions. Considered by many professionals to be the most important factor in trader performance.
Pullback: A temporary price decline within an ongoing uptrend (or a temporary rise within a downtrend). Traders often enter on pullbacks to join the prevailing trend at better prices.
Put Option: A contract giving the holder the right, but not the obligation, to sell the underlying asset at the strike price before expiration. Buyers profit when the underlying falls.
Pyramiding: Adding to a winning position in progressively smaller increments as the trade moves in your favor. A controlled form of scaling in that limits risk on later entries.
Q
Quantitative Trading (Quant): Trading strategies developed using mathematical models, statistical analysis, and algorithms rather than discretionary judgment.
Quantower: A professional trading platform supporting multiple data feeds (Rithmic, CQG) with strong DOM and chart capabilities. Supported by several prop firms.
R
Range: The difference between the high and low price of a candle, session, or period. An “inside range day” is a day where price stayed within the prior day’s high and low.
Relative Volume (RVOL): Current volume compared to the average volume for the same time of day. An RVOL of 2.0 means twice the normal volume, indicating unusual activity.
Replication (Sim-Funded): An account type at some prop firms where you trade a simulated account but receive real profit payouts based on your simulated performance.
Reset: Restarting a failed evaluation, usually for a fee. Allows traders to try again without paying full evaluation price.
Resistance: A price level where selling pressure historically outpaced buying, causing price to stall or reverse. The ceiling in a trading range.
Retail Trader: An individual trading their own (or prop firm’s) capital, as distinct from institutional traders (banks, hedge funds).
Retracement: A temporary reversal in the direction of the prevailing trend. Often measured using Fibonacci levels (38.2%, 50%, 61.8%).
Revenge Trading: Trading impulsively after a loss in an attempt to recover the lost money quickly. A destructive behavior driven by emotion rather than strategy.
Reward-to-Risk Ratio: See “Risk-Reward Ratio.”
Risk Management: The systematic process of identifying, analyzing, and responding to trading risks. Includes position sizing, stop-losses, daily loss limits, and risk-reward ratio rules.
Risk of Ruin: The probability that a trader will lose enough capital to be unable to continue trading. Depends on win rate, risk per trade, and reward-to-risk ratio. A key concept in position sizing.
Risk-Reward Ratio (RR): How much potential profit you target relative to how much you risk. A 2:1 RR means your target is twice the distance of your stop-loss.
Rho (Options): The amount an option’s price changes for each 1% change in the risk-free interest rate. Typically a minor Greek for short-dated options but relevant for long-dated positions.
Rithmic: A trading technology provider whose data feed and execution infrastructure is used by many futures prop firms and brokers.
Risk-Free Rate: The theoretical return on an investment with zero risk, typically represented by short-term US Treasury yields. Used as a baseline in calculations like the Sharpe ratio.
Roll / Rolling: The process of closing a futures position in an expiring contract and simultaneously opening the same position in the next contract month. Maintains market exposure across expirations.
RSI (Relative Strength Index): A momentum indicator measuring how overbought or oversold an instrument is on a 0-100 scale. Above 70 = overbought; below 30 = oversold.
RSI Divergence: When RSI moves in the opposite direction of price. Bearish divergence: price makes a higher high but RSI makes a lower high. Bullish divergence: price makes a lower low but RSI makes a higher low.
RTH (Regular Trading Hours): The standard trading session for US equity futures: 9:30 AM to 4:00 PM Eastern Time. Contrasted with the overnight or electronic session.
RTY (Russell 2000 Futures): Futures contract tracking the Russell 2000 small-cap index. Each point = $50.
Runaway Gap: A gap that occurs in the middle of a strong trend, confirming the trend’s strength. Also called a “continuation gap” or “measuring gap.”
S
Scalping: A high-frequency trading style aiming for small profits on many trades throughout the day. Requires tight spreads and fast execution.
Scaling: Incrementally adding to a winning position (scaling in) or reducing a position (scaling out). Also refers to increasing account size over time at prop firms.
Scaling Plan: A prop firm program that increases a funded trader’s account size and/or position limits based on consistent profitable performance.
Session: A defined trading period. For US futures: overnight/Asian session, European session, and US regular trading hours (RTH, 9:30 AM to 4:00 PM ET).
Settlement: The final resolution of a futures contract, either cash settlement (the difference in price is paid) or physical delivery of the underlying asset. Most retail-traded futures are cash-settled.
Sharpe Ratio: A measure of risk-adjusted return calculated as (Strategy Return minus Risk-Free Rate) divided by Standard Deviation of returns. Higher is better. A Sharpe above 1.0 is considered good; above 2.0 is excellent.
Short: See “Going Short.”
Sim Account / Simulated Account: A practice account using simulated (not real) capital. Used for learning and evaluation at prop firms.
Slippage: The difference between your expected fill price and your actual fill price. Higher during fast markets or with illiquid instruments. Stop orders can experience significant slippage during news events.
Smart Order Routing (SOR): Technology that automatically routes orders to the exchange or venue offering the best available price and liquidity at the time of execution.
Sortino Ratio: Similar to the Sharpe ratio but only penalizes downside volatility rather than total volatility. A more precise measure of risk-adjusted return for strategies with asymmetric return profiles.
Spoofing: Placing large orders with the intent to cancel them before execution, creating a false impression of supply or demand. Illegal under US law (Dodd-Frank Act).
Spread: The difference between bid and ask price. Your immediate cost when entering a trade. Lower spreads = lower trading costs.
Staking: In crypto, locking up tokens in a blockchain protocol to support network operations (validation, governance) in exchange for rewards. Similar conceptually to earning interest.
Standard Deviation: A statistical measure of how dispersed price data is from its average. In trading, used to quantify volatility. Bollinger Bands use standard deviation to set their width.
Stochastic Oscillator: A momentum indicator comparing a security’s closing price to its price range over a set period. Values above 80 suggest overbought; below 20 suggest oversold.
Stop-Loss: A predefined price level at which you exit a losing trade to limit the damage. The most important tool in risk management.
Stop-Loss, Hard: A stop-loss order actually placed in the market, executed automatically without manual action. Superior to mental stops.
Stop-Loss, Mental: A stop price you intend to act on but have not actually placed as an order. Susceptible to emotional override. Not recommended.
Stop Order: An order that becomes a market order when price reaches a specified level. Buy stop orders are placed above market; sell stop orders below.
Strike Price: In options, the price at which the option gives the holder the right to buy (call) or sell (put) the underlying asset.
Supply and Demand Zone: Price areas where significant buying (demand) or selling (supply) previously occurred, expected to cause a reaction when price returns.
Support: A price level where buying pressure historically outpaced selling, causing price to bounce or stabilize. The floor in a trading range.
Swap Rate: In forex, the interest rate differential between two currencies applied when a position is held overnight. Can be positive (you receive) or negative (you pay).
Swing High: A candlestick that has lower highs on both sides, a local peak. Used to define resistance and stop-loss levels.
Swing Low: A candlestick that has higher lows on both sides, a local trough. Used to define support and stop-loss levels.
Swing Trading: Holding trades for multiple days or weeks, aiming to capture “swings” in a trend. Requires overnight holding permission at prop firms.
Symmetrical Triangle: A chart pattern formed by converging trendlines where the slope of the highs and lows converge toward a point. Can break in either direction; traders wait for the breakout to determine bias.
T
Take Profit: The price level at which you plan to exit a winning trade and lock in profits.
1-Step Evaluation: An evaluation where you pass a single phase before getting funded. Simpler and faster than multi-step evaluations.
2-Step Evaluation: An evaluation requiring two phases to complete before receiving a funded account. Typically a higher profit target in phase one followed by a lower target in phase two to confirm consistency.
Tape Reading: The skill of analyzing time and sales data (the “tape”) to gauge real-time order flow, identifying large trades, speed of execution, and buyer/seller aggression.
Technical Analysis: Analyzing price charts and indicators to make trading decisions, based on the premise that historical price patterns tend to repeat.
Theta (Options): The rate at which an option loses value as time passes, all else being equal. Also called “time decay.” Theta accelerates as expiration approaches.
Tick: The minimum price movement of a futures contract. For ES: 0.25 index points ($12.50). For MES: 0.25 index points ($1.25).
Tick Size: The minimum price increment for an instrument. Varies by contract.
Tilt: An emotional state where frustration or anger from recent losses impairs decision-making, leading to irrational trades. Borrowed from poker terminology.
Time and Sales: A chronological record of all trades that have executed, showing time, price, and volume. Also called the “tape.”
Timeframe: The duration each candle or bar represents on a chart. Common timeframes: 1-minute, 5-minute, 15-minute, 1-hour, 4-hour, daily, weekly.
Tradovate: A cloud-based futures and options broker/platform with a clean web interface. Supported by multiple prop firms.
Trailing Stop: A stop-loss that moves in your favor as price moves in your favor, but does not move against you. Locks in profits while allowing the trade room to run.
TradingView: A web-based charting and trading platform with an extensive library of community indicators. Supported by several prop firms.
Trend: A directional price movement over time. Uptrend: higher highs and higher lows. Downtrend: lower highs and lower lows.
Trend Following: A trading strategy that enters trades in the direction of an established trend, aiming to ride it until it shows signs of reversal.
Triangle Pattern: A chart pattern where converging trendlines create a triangle shape. Types: ascending (bullish), descending (bearish), and symmetrical (directional breakout pending).
True Range: The greatest of: current high minus current low, absolute value of current high minus previous close, or absolute value of current low minus previous close. The basis for the ATR indicator.
U
Underlying: The asset that a derivative (futures, options) is based on. For ES futures, the underlying is the S&P 500 index.
Unrealized PnL: The paper profit or loss on an open position, what you would receive if you closed right now. Does not become realized until you close the trade.
V
Value Area: In volume profile analysis, the price range where 70% of total volume was traded during a given period. Prices within the value area are considered “fair”; prices outside it often revert back.
Variance: A statistical measure of the dispersion of returns around the average. High variance means outcomes are spread widely; low variance means they cluster near the average. Related to standard deviation.
Vega (Options): The amount an option’s price changes for each 1% change in implied volatility. High vega means the option is sensitive to volatility changes.
Volatility: The degree of price variation over time. High volatility = large swings. Low volatility = small, slow moves. Most traders prefer moderate volatility for day trading.
Volume: The number of contracts traded in a given period. High volume confirms price moves; low volume may indicate a weak or false breakout.
Volume Profile: A chart tool that displays the total volume traded at each price level over a specified period, shown as a horizontal histogram. Reveals where the most trading activity occurred.
Volume Weighted Average Price (VWAP): The average price of an instrument weighted by volume over a session. Institutional benchmark; price above VWAP suggests bullish sentiment, below suggests bearish.
VPS (Virtual Private Server): A remote server used by traders to run trading platforms, algorithms, and EAs 24/7 with low-latency connectivity to exchanges, independent of the trader’s home internet.
W
Wash Trade: Simultaneously buying and selling the same instrument to create the illusion of market activity. Illegal in regulated markets.
Wedge Pattern: A chart pattern where converging trendlines both slope in the same direction. A rising wedge (both lines slope up) is bearish; a falling wedge (both lines slope down) is bullish.
Whipsaw: A rapid price move in one direction followed by an immediate reversal. Common in choppy, range-bound markets and during news events.
Wick (Shadow): The thin line extending above or below the body of a candlestick, showing the high and low prices reached during the period. Long wicks indicate rejection of those price levels.
Win Rate: The percentage of trades that are profitable. A 50% win rate means half your trades are winners. Win rate alone does not determine profitability; the ratio of average win to average loss matters equally.
Walk-Forward Analysis: A backtesting method where a strategy is optimized on one period of data, then tested on the next unseen period, repeated in steps. More realistic than single-period backtesting because it tests out-of-sample performance.
X, Y, Z
Yield Curve: A graph plotting interest rates of bonds with different maturities. An inverted yield curve (short-term rates higher than long-term) has historically preceded recessions.
YM (Dow Jones Futures): E-mini Dow Jones futures contract. Each point = $5.
ZB (30-Year Treasury Bond Futures): CME Group futures contract based on US 30-year Treasury bonds. Heavily influenced by interest rate expectations and FOMC decisions.
Zero-Sum Game: A market where one participant’s gain equals another’s loss. Futures markets are zero-sum (before commissions and fees).
This glossary is updated regularly. If you encounter a term not listed here, contact us and we will add it in the next revision.