Glossary
The trading glossary, in plain English
48 terms across trading basics, risk, prop firm rules, broker safety and psychology. Every entry starts with a short definition and an example.
A to Z
All terms
B
- Balance vs equityBalance is your account's value from closed trades only. Equity is balance plus the floating profit or loss on open positions.
- Break-even win rateThe break-even win rate is the share of trades you must win to cover your losses at a given risk to reward ratio. It is 1 / (1 + ratio), before costs.
C
- CFD (contract for difference)A CFD is a leveraged contract that pays the difference between the opening and closing price of an asset, without owning the asset.
- Clone firmA clone firm is a scam that copies the name, details or reference number of a genuine authorised firm to trick people into depositing money.
- Consistency ruleA consistency rule is a prop firm condition that limits how much of your total profit can come from one day or one trade, to discourage a single big win.
- CPI (consumer price index)The consumer price index measures the change in prices paid by consumers for a basket of goods and services. It is the most widely used gauge of inflation.
- CySEC Investor Compensation FundThe Investor Compensation Fund (ICF) covers eligible clients of investment firms licensed by the Cyprus Securities and Exchange Commission (CySEC), up to 20,000 euros per person.
D
- Daily loss limitA daily loss limit is a prop firm rule capping how much an account may lose in a single trading day. Breaching it usually fails the challenge or closes the funded account.
- DrawdownDrawdown is the fall in an account from a peak to a later low, shown as a percentage or an amount. It measures how much you are down from your best point.
E
- Economic calendarAn economic calendar lists upcoming scheduled data releases and central bank events, with the time, country, expected impact, forecast and previous figure.
- Evaluation phase (challenge)An evaluation, or challenge, is the paid test a prop firm sets: reach a profit target within its rules to qualify for a funded account.
- ExpectancyExpectancy is the average amount you expect to make or lose per trade: win rate times average win, minus loss rate times average loss.
F
- FCA RegisterThe FCA Register is the public database of firms and individuals authorised or registered by the UK Financial Conduct Authority. It is the source to confirm a UK broker's status.
- FOMOFOMO, the fear of missing out, is the urge to enter a trade late because price is moving without you, usually at a worse level and with a weaker plan.
- FSCSThe Financial Services Compensation Scheme (FSCS) is the UK's compensation scheme, which can pay eligible claims against an authorised firm that fails, up to a limit.
- Funded accountA funded account is what a prop firm offers a trader who passes its evaluation, with profits shared between trader and firm under the firm's terms.
L
M
- MarginMargin is the amount a broker sets aside from your account to keep a leveraged position open. It is a deposit held against the trade, not a fee.
- Margin callA margin call is a broker warning, or an automatic closure of positions, when your account equity falls too far below the margin needed to hold them.
- Market makerA market maker broker takes the other side of client trades rather than passing them to an outside market. It sets its own prices and earns from the spread and, potentially, from client losses.
- MartingaleMartingale is a betting approach that doubles the position size after each loss. It risks a very large loss and can breach margin or drawdown limits quickly.
- Maximum drawdownMaximum drawdown is the total loss a prop firm allows an account to reach before it is closed, measured against a fixed or moving reference point.
- Minimum trading daysMinimum trading days is a prop firm rule requiring you to place trades on a set number of separate days before you can pass, even if you hit the profit target sooner.
N
- Negative balance protectionNegative balance protection means a retail client cannot lose more than the money in their account on leveraged CFD trading.
- News trading ruleA news trading rule restricts opening or holding trades around high-impact economic releases, for a window of time set by the prop firm.
- Non-farm payrolls (NFP)Non-farm payrolls is the US monthly jobs report, published by the Bureau of Labor Statistics, showing how many jobs the economy added outside farming.
P
- PipA pip is the standard unit of price movement in forex: 0.0001 for most currency pairs and 0.01 for pairs quoted in Japanese yen.
- Position sizingPosition sizing is deciding how large a trade should be so that hitting your stop-loss costs a fixed, pre-decided amount of your account.
- Profit splitA profit split is the share of profits a prop firm pays the trader on a funded account, with the rest kept by the firm.
- Profit targetA profit target is the gain a trader must reach in a prop firm evaluation to pass, usually a percentage of the starting balance.
R
- Red-folder newsRed-folder news is the trader's name for high-impact scheduled economic events, so called because calendars often mark them in red.
- Regulated brokerA regulated broker is one licensed or authorised by a financial regulator to offer its services. Regulation is a starting point, not a guarantee of quality.
- Revenge tradingRevenge trading is placing impulsive, often oversized trades to win back a loss quickly, driven by emotion rather than a plan.
- Risk to reward ratioThe risk to reward ratio compares how much you stand to gain if a trade works with how much you stand to lose if it does not. A trade risking 30 pips to make 90 pips is 1:3.
S
- Segregated fundsSegregated funds means a broker keeps client money separate from its own money, so client funds are not treated as the firm's assets if it fails.
- SlippageSlippage is the difference between the price you expected for an order and the price at which it was filled. It happens when the market moves or liquidity is thin.
- SpreadThe spread is the difference between the price you can buy at (ask) and the price you can sell at (bid). It is a cost you pay on every trade.
- Stop-lossA stop-loss is an order that closes a trade automatically when price reaches a level you set, limiting how much the trade can lose.
- Swap (overnight financing)A swap is the interest charged or paid for holding a leveraged position open past the daily rollover time, typically late in the New York afternoon.
T
- Take-profitA take-profit is an order that closes a trade automatically when price reaches your target, locking in the gain.
- TiltTilt is an emotional state after a loss or frustration in which you abandon your rules and trade recklessly.
- Trading journalA trading journal is a record of your trades and the reasoning, mood and outcome behind each, used to find patterns you cannot see in the moment.
- Trailing drawdownA trailing drawdown is a loss limit that moves up as your account reaches new highs, so the room to lose shrinks as you profit.
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