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Trading terms

The words traders use, explained without the fancy.

• Backtest
  Testing a trading rule on old price data to see what would have happened.
• Win rate
  The share of trades that end with a profit.
• Slippage
  The gap between the price you wanted and the price you actually got.
• Random entry (random twin)
  A fake trade that enters at a random moment, used as a fair comparison.
• In-sample vs out-of-sample
  Practice data versus fresh data the rule has never seen.
• Bid, ask and spread
  The bid is what buyers offer, the ask is what sellers want. The gap between them is the spread.
• Liquidity
  How easily you can buy or sell something quickly without moving its price much.
• Volatility
  How much and how fast a price moves up and down.
• Leverage
  Trading with borrowed money, so a small deposit controls a bigger position. Gains and losses both get bigger.
• Margin
  The money you must put up to open and keep a leveraged position.
• Pip
  A tiny standard step in a currency price, used to count forex moves.
• Lot
  A standard bundle size for a trade, common in forex.
• Candlestick
  A chart bar that shows the open, high, low and close of a time period.
• Timeframe
  The time each bar or candle on a chart covers, like 1 minute, 1 hour or 1 day.
• Trend
  The general direction a price has been moving: up, down or sideways.
• Support and resistance
  Price areas where traders say the price often stopped falling (support) or rising (resistance) before.
• Drawdown
  How far your account falls from its highest point before it recovers.
• Expectancy
  The average amount you win or lose per trade over many trades.
• Risk-reward ratio
  How much you might lose compared with how much you hope to win on a trade.
• R-multiple
  A trade result measured in units of the amount you risked (R).
• Overfitting
  When a trading rule fits old data so tightly that it only learned the noise.
• Survivorship bias
  Only looking at the winners that are still around, and forgetting the ones that disappeared.
• Look-ahead bias
  Using information in a test that you could not have known at that moment.
• Sample size
  How many trades or data points a result is based on.
• P-hacking and data snooping
  Trying many tests until one looks good by luck, then only showing that one.
• Fees and commission
  What you pay to trade: commissions, spreads, funding and other costs.
• Funding rate
  A regular payment between buyers and sellers of perpetual crypto futures that keeps the price close to the spot price.
• Long and short
  Long = you profit if the price rises. Short = you profit if the price falls.
• Short selling
  Selling something you don't own yet, hoping to buy it back cheaper later.
• Margin call
  A demand from your broker to add money because your account fell too low.
• Order book
  The live list of all waiting buy and sell orders at each price.
• Market maker
  A firm that keeps posting buy and sell prices, earning from the spread.
• Contango and backwardation
  Whether later futures contracts cost more (contango) or less (backwardation) than nearby ones.

Looking for more? See the glossary or the full A–Z.

Education only, not financial advice. No signals. Backtests are hypothetical: real trading can be worse. Past results don't predict future results.