Trading Glossary A to Z

This glossary gives short, plain English definitions of the terms you will meet most often in trading and investing. Each entry links to a full lesson where the idea is explained with examples, so use it as a quick reference and a map of the school. Terms are grouped by their first letter. If a word you need is missing, try the search box at the top of the page, which searches every lesson title and summary.

A#

• Alpha: return above what a portfolio's market exposure explains. See Alpha and Beta.
• Arbitrage: profiting from price differences for the same or related assets. See Arbitrage.
• Ask: the lowest price a seller will accept. See Bid-Ask Spread.
• Asset allocation: how a portfolio is split across asset classes. See Asset Allocation.
• ATR (average true range): an indicator of typical price range per bar. See ATR (Average True Range).

B#

• Backtest: testing a strategy on historical data. See Backtesting Methodology.
• Backwardation: futures priced below spot. See Backwardation.
• Basis: the difference between futures and spot prices. See Basis and Basis Trading.
• Beta: how much an asset moves relative to the market. See Alpha and Beta.
• Bid: the highest price a buyer will pay. See Bid-Ask Spread.
• Bollinger Bands: volatility bands around a moving average. See Bollinger Bands.
• Bond: a loan to a government or company that pays interest. See What Is a Bond?.
• Break of structure: price breaking a prior swing high or low. See Break of Structure.
• Breakout: price moving beyond a key level. See Breakout Trading.

C#

• Call option: the right to buy at a set price. See Calls and Puts.
• Candlestick: a chart bar showing open, high, low and close. See How to Read Candlesticks.
• CFD: a contract paying the difference in an asset's price. See What Is a CFD?.
• Clearing house: the central counterparty that guarantees trades. See Clearing Houses and Central Counterparties.
• Contango: futures priced above spot. See Contango.
• Correlation: how consistently two assets move together. See Covariance and Correlation.
• Credit spread: extra yield over government bonds for credit risk. See Credit Spreads.

D#

• Day trading: opening and closing positions within the same day. See Day Trading.
• Delta: an option's price change per $1 move in the underlying. See Delta.
• Derivative: a contract whose value comes from another asset. See What Is a Derivative?.
• Diversification: spreading risk across assets that move differently. See Diversification.
• Drawdown: a fall from an equity peak. See Maximum Drawdown.
• Duration: a bond's sensitivity to interest rate changes. See Duration.

E#

• ETF: a fund that trades on an exchange like a stock. See What Is an ETF?.
• Expectancy: average profit or loss per trade. See Expectancy.
• Expiration: the date an option or future ends. See Expiration.
• Exponential moving average: an average weighted toward recent prices. See Exponential Moving Average (EMA).

F#

• Fair value gap: a price imbalance left by a fast move. See Fair Value Gaps.
• Fibonacci retracement: levels based on Fibonacci ratios. See Fibonacci Retracements.
• Funding rate: periodic payments between perpetual futures longs and shorts. See Funding Rates.
• Futures contract: an agreement to trade an asset at a set price on a future date. See What Is a Future?.

G#

• Gamma: how fast an option's delta changes. See Gamma.
• Gap: a jump in price between sessions. See Price Gaps and How to Trade Them.
• Greeks: measures of an option's sensitivities. See The Option Greeks Explained.

H#

• Hedging: reducing risk with an offsetting position. See Hedging.
• High frequency trading: very fast automated trading. See High-Frequency Trading.
• Historical volatility: volatility measured from past returns. See Historical and Realized Volatility.

I#

• Implied volatility: volatility priced into options. See Implied Volatility (IV).
• Index: a basket that tracks part of a market. See What Is an Index?.
• Insider trading: illegal trading on confidential information. See Insider Trading.
• Iron condor: an options strategy that profits in a range. See Iron Condor.

K#

• Kelly criterion: a formula for growth optimal bet size. See Kelly Criterion.

L#

• Leverage: controlling more than your capital through borrowing. See Leverage.
• Limit order: an order at a set price or better. See Limit Orders.
• Liquidation: forced closing of a leveraged position. See Liquidations in Crypto.
• Liquidity: how easily an asset trades without moving its price. See Liquidity.
• Long position: owning an asset to profit if it rises. See Long Positions.
• Lot: a standard trade size in forex. See Lots: Standard, Mini and Micro.

M#

• MACD: a momentum indicator from two moving averages. See MACD.
• Margin: collateral deposited to open leveraged positions. See Margin.
• Market maker: a firm quoting both bid and ask. See Market Makers and Liquidity Providers.
• Market order: an order to trade immediately at the best price. See Market Orders.
• Mean reversion: the tendency of prices to return toward an average. See Mean Reversion.
• Momentum: the tendency of trends to persist. See Momentum Trading.
• Moving average: the average price over a set period. See Moving Averages Explained.

O#

• Open interest: the number of open futures or options contracts. See Open Interest.
• Option: the right, not the obligation, to buy or sell at a set price. See What Is an Option?.
• Order block: a zone of large institutional orders in smart money concepts. See Order Blocks.
• Order book: the list of resting buy and sell orders. See The Order Book and Market Depth.
• Overfitting: a model fitted to noise in past data. See Overfitting and Curve Fitting.

P#

• Paper trading: practising with simulated money. See Paper Trading.
• Perpetual futures: futures with no expiry, kept near spot by funding. See Perpetual Futures.
• Pip: the standard unit of forex price movement. See Pips and Pipettes.
• Position sizing: deciding how much to trade. See Position Sizing.
• Prediction market: a market where contracts pay out on real world events, such as Polymarket. See What Are Prediction Markets?.
• Price to beat: the starting price an up or down round is judged against. See Price to Beat and How Rounds Settle.
• Profit factor: gross profits divided by gross losses. See Profit Factor.
• Put option: the right to sell at a set price. See Calls and Puts.

R#

• Rebalancing: trading back to target weights. See Rebalancing.
• Resistance: a price level where selling tends to appear. See Support and Resistance.
• Risk reward ratio: potential gain compared with potential loss. See Risk/Reward Ratio.
• RSI: an oscillator measuring the speed of price moves. See RSI (Relative Strength Index).

S#

• Scalping: very short term trading for small gains. See Scalping.
• Sharpe ratio: excess return per unit of volatility. See Sharpe Ratio.
• Short selling: selling borrowed assets to profit from a fall. See Short Selling.
• Slippage: the difference between expected and actual fill price. See Slippage.
• Spread: the gap between bid and ask, or a multi leg position. See Bid-Ask Spread.
• Stablecoin: a crypto token designed to hold a steady value. See Stablecoins.
• Stop loss: an order that exits a losing position. See Stop Loss Strategies.
• Support: a price level where buying tends to appear. See Support and Resistance.
• Swing trading: holding positions for days to weeks. See Swing Trading.

T#

• Theta: an option's value lost per day. See Theta.
• Tick: the minimum price increment. See Ticks and Tick Size.
• Time in force: how long an order stays active. See Time in Force: Day, GTC and GTD Orders.
• Trailing stop: a stop that follows price as it moves in your favour. See Trailing Stop Orders.
• Trend following: trading in the direction of established trends. See Trend Following.

V#

• Value at risk: a statistical estimate of potential loss. See Value at Risk (VaR).
• Vega: an option's sensitivity to implied volatility. See Vega.
• VIX: an index of expected S&P 500 volatility. See The VIX.
• Volatility: how much prices vary. See Volatility.
• Volume profile: traded volume at each price level. See Volume Profile.
• VWAP: volume weighted average price. See VWAP.

W#

• Wash sale: a US tax rule disallowing some losses. See Wash Sale Rule.
• Win rate: the share of trades that make money. See Win Rate and Payoff Ratio.
• Wyckoff method: a framework for reading accumulation and distribution. See Wyckoff Method.

Y#

• Yield curve: interest rates across maturities. See Yield Curves.
• Yield to maturity: a bond's total return if held to maturity. See Yield to Maturity.

Frequently asked questions#

What are the most important trading terms for beginners?#

Bid, ask, spread, market order, limit order, stop loss, leverage, margin, position sizing and risk reward ratio are good places to start.

Is there a glossary for options terms?#

Options terms such as call, put, strike, delta, gamma, theta, vega and implied volatility are included above, each linked to a full lesson.

How do I find a term that is not listed?#

Use the search box at the top of every page, which searches all lesson titles and summaries.

Next, find every key formula in one place in the Formula Library.