A plain-English glossary of trading terms, from ask and ATR to VWAP and wash sale, with links to full guides.
A · B · C · D · E · F · G · H · I · K · L · M · O · P · R · S · T · V · W
A
Ask
The lowest price a seller is currently willing to accept. You pay the ask when you buy at market.
ATR (Average True Range)
A volatility measure showing the average price range per period, often used to size stops.
B
Backtesting
Testing a strategy's rules on historical data to estimate how it would have performed. Read the guide →
Bear market
A decline of 20% or more from a recent high in a broad market index. Read the guide →
Bid
The highest price a buyer is currently willing to pay. You receive the bid when you sell at market.
Break of structure (BOS)
Price breaking a swing high or low in the direction of the trend, signalling continuation.
Breakout
Price moving decisively beyond a support or resistance level, often with rising volume.
Bull market
A sustained rise, often defined as 20% or more from a significant low. Read the guide →
C
Candlestick
A chart bar showing the open, high, low and close for one period. Read the guide →
CFD (Contract for Difference)
A leveraged derivative paying the difference in an asset's price between opening and closing; not available to US residents. Read the guide →
Circuit breaker
A market-wide trading halt triggered by large S&P 500 declines (7%, 13%, 20%). Read the guide →
Consistency rule
A prop firm rule capping how much of total profit may come from a single day. Read the guide →
Contango
When later-dated futures trade above nearer-dated ones; the usual state for VIX futures. Read the guide →
D
Daily loss limit
The maximum a trader or prop firm allows to be lost in one day before trading stops. Read the guide →
Day trading
Opening and closing positions within the same trading session. Read the guide →
Delta
How much an option's price changes for a $1 move in the underlying. Read the guide →
Disposition effect
The tendency to sell winners too early and hold losers too long.
Divergence
When price and an indicator such as RSI move in opposite directions, hinting at weakening momentum.
Drawdown
The decline from an account's peak value to its lowest point before a new peak. Read the guide →
E
Equity curve
A chart of account value over time, showing growth, drawdowns and consistency. Read the guide →
Expectancy
The average amount a strategy wins or loses per trade: (win rate × average win) − (loss rate × average loss). Read the guide →
Extended hours
Trading before the 9:30 a.m. ET open (pre-market) or after the 4:00 p.m. ET close (after-hours). Read the guide →
F
Fair value gap (FVG)
A three-candle pattern where the middle candle's range is not overlapped by the wicks either side. Read the guide →
Fakeout
A breakout that quickly reverses back inside the prior range.
FOMO
Fear of missing out; entering late or without a setup because price is moving. Read the guide →
Funding rate
Periodic payments between long and short holders of crypto perpetual futures. Read the guide →
Futures contract
A standardised exchange-traded agreement to buy or sell an asset at a set price on a future date. Read the guide →
G
Gap
A jump in price between one period's close and the next period's open. Read the guide →
Good faith violation
Selling a security bought with unsettled funds before those funds settle, in a cash account.
H
Hammer
A candle with a small body at the top and a long lower wick, forming after a decline. Read the guide →
I
Implied volatility (IV)
The market's expectation of future volatility, derived from option prices.
Intraday margin
The 2026 FINRA standard that replaced the pattern day trader rule, monitoring margin deficits in real time. Read the guide →
IV crush
A sharp drop in implied volatility after an event such as earnings, reducing option prices.
K
Kill zone
In ICT trading, a time window around a session open when setups are expected. Read the guide →
L
LEAPS
Options with more than a year until expiration. Read the guide →
Leverage
Using borrowed capital or margin to control a larger position than your cash alone allows. Read the guide →
Limit order
An order to buy or sell only at a specified price or better.
Liquidity
How easily an asset can be traded without moving its price; deep liquidity means tight spreads. Read the guide →
Liquidity sweep
A move through obvious highs or lows that triggers stop orders before reversing. Read the guide →
Loss aversion
Feeling losses more strongly than equivalent gains, which leads to holding losers.
Lot
A standard unit of position size in forex: standard (100,000), mini (10,000), micro (1,000). Read the guide →
M
Margin call
A demand to deposit funds or reduce positions when account equity falls below maintenance margin. Read the guide →
Market order
An order to buy or sell immediately at the best available price.
Maximum adverse excursion (MAE)
The largest unrealised loss a trade reached before it closed. Read the guide →
Maximum favorable excursion (MFE)
The largest unrealised profit a trade reached before it closed. Read the guide →
Mean reversion
The tendency of stretched prices to move back toward an average. Read the guide →
Monte Carlo simulation
Reshuffling or resampling trade results many times to estimate the range of possible outcomes.
Moving average
The average price over a set number of periods, used to smooth price and show trend.
O
Opening range breakout (ORB)
A strategy trading the break of the first minutes' high or low. Read the guide →
Order block
In ICT/SMC, the last opposite-colour candle before a strong move, treated as a reaction zone. Read the guide →
Order flow
The real-time buying and selling activity visible in the order book and trades.
Overfitting
Tuning a strategy so closely to past data that it fails on new data.
P
Paper trading
Practising with simulated money on real market prices. Read the guide →
Pattern day trader (PDT) rule
The former FINRA rule requiring $25,000 for frequent day traders in margin accounts, eliminated on June 4, 2026. Read the guide →
Pip
The standard unit of movement for a currency pair, usually 0.0001 (0.01 for yen pairs). Read the guide →
Position sizing
Choosing how much to trade so that a stopped-out trade loses a planned amount. Read the guide →
Pre-market
The trading session before the regular 9:30 a.m. ET US open. Read the guide →
Prediction market
A market trading contracts that pay $1 if an event happens and $0 if not. Read the guide →
Profit factor
Gross profit divided by gross loss; above 1 means a strategy made money. Read the guide →
Prop firm
A firm that funds traders with its capital, usually after an evaluation, in exchange for a profit split. Read the guide →
R
R-multiple
A trade's result expressed as a multiple of its initial risk (1R = the amount risked). Read the guide →
Relative volume (RVOL)
Current volume compared with average volume for the same time of day. Read the guide →
Revenge trading
Trading impulsively to win back losses.
Risk of ruin
The probability of losing enough capital that recovery becomes impossible.
Risk-reward ratio
The potential profit of a trade compared with its potential loss. Read the guide →
RSI (Relative Strength Index)
A momentum oscillator from 0 to 100 measuring the speed of price changes. Read the guide →
S
Scalping
Very short-term trading aiming for small, frequent profits.
Section 1256 contract
US tax category for regulated futures and broad index options, taxed 60% long-term and 40% short-term. Read the guide →
Short selling
Selling borrowed shares to profit from a price decline. Read the guide →
Short squeeze
A rapid rise forcing short sellers to buy back, which pushes price higher. Read the guide →
Slippage
The difference between the expected price of a trade and the price actually filled. Read the guide →
Smart money concepts (SMC)
A price-action approach built around liquidity, order blocks and structure shifts. Read the guide →
Spread
The difference between the bid and the ask.
Spread betting
A UK and Irish leveraged product where you bet an amount per point of price movement. Read the guide →
Stop-limit order
A stop order that becomes a limit order when triggered. Read the guide →
Stop-loss order
An order that exits a position when price reaches a set level, becoming a market order.
Support and resistance
Price zones where buying (support) or selling (resistance) has repeatedly stopped moves. Read the guide →
Swing trading
Holding positions for days to weeks to capture one price swing. Read the guide →
T
T+1 settlement
Trades settle one business day after execution; US stocks since 2024, UK and EU from October 11, 2027. Read the guide →
Theta
The daily loss of an option's value from time decay.
Tick
The minimum price increment of a futures contract, with a fixed dollar value. Read the guide →
Tilt
An emotional state in which a trader abandons their rules after losses or frustration.
Tokenized stock
A blockchain token representing a share; limited US trading was allowed under the SEC's September 2026 Innovation Exemption. Read the guide →
Trade journal
A record of every trade (setup, entry, exit, size, result, emotion) used to find your edge. Read the guide →
Trailing drawdown
A prop firm loss limit that rises as the account's peak balance rises. Read the guide →
Trailing stop
A stop that follows price in your favour by a set distance and never moves back. Read the guide →
Trend
The general direction of price, defined by higher highs and higher lows (up) or lower highs and lower lows (down).
V
VIX
Cboe's index of expected 30-day S&P 500 volatility, often called the fear gauge. Read the guide →
Volatility
How much and how quickly price moves. Read the guide →
VWAP
Volume-weighted average price for the session; a key intraday reference level. Read the guide →
W
Wash sale
A US rule disallowing a loss if a substantially identical security is bought within 30 days before or after the sale. Read the guide →
Win rate
The percentage of trades that are profitable. Read the guide →