A–Z trading glossary

A

Ask: The bid-ask spread is the difference between the best buying and selling quotes. Measuring it alongside available quantity helps explain the cost of entering and leaving a position.

Base currency: A currency pair states the price of one currency in units of another.
Bid: The bid-ask spread is the difference between the best buying and selling quotes. Measuring it alongside available quantity helps explain the cost of entering and leaving a position.
Bid-ask spread: quotes, costs and market depth: The bid-ask spread is the difference between the best buying and selling quotes. Measuring it alongside available quantity helps explain the cost of entering and leaving a position.
Bonds, coupons and yield: A bond is a debt claim. Its coupon, trading price and yield answer different questions.

Call option: An option buyer pays for a contractual right. The seller accepts the corresponding obligation.
Calls, puts and option premiums: An option buyer pays for a contractual right. The seller accepts the corresponding obligation.
Consumer Price Index: The CPI measures changes in consumer prices. An index level, a monthly change and an annual change are different figures.
Coupon: A bond is a debt claim. Its coupon, trading price and yield answer different questions.
CPI: The CPI measures changes in consumer prices. An index level, a monthly change and an annual change are different figures.
Current yield: A bond is a debt claim. Its coupon, trading price and yield answer different questions.

Designing a backtest: A backtest applies recorded rules to historical observations. Its result depends on what the simulation permits and excludes.
Drawdown and recovery: Drawdown measures the fall from an earlier equity peak. The percentage gain needed to recover is larger than the percentage lost.

ETF: An ETF gives investors a tradable interest in a portfolio, but the label alone says little about the risks inside it.
Exchange-traded funds: An ETF gives investors a tradable interest in a portfolio, but the label alone says little about the risks inside it.
Expectancy and win rate: Win rate counts successful trades. Expectancy also accounts for the size of wins, losses and costs.

Futures contracts: A futures position is exposure to a specified contract, including its size, expiry and settlement terms.

Keeping a trading journal: A journal preserves what was known and planned before the outcome was visible.

Leverage and exposure: Leverage measures exposure relative to the capital supporting it. A small margin requirement does not make the position small.
Limit order: Market orders seek execution at available prices, limit orders constrain the execution price, and stop orders activate after a trigger. The choice determines which risks remain when a trade reaches the market.

Market order: Market orders seek execution at available prices, limit orders constrain the execution price, and stop orders activate after a trigger. The choice determines which risks remain when a trade reaches the market.
Market, limit and stop orders: Market orders seek execution at available prices, limit orders constrain the execution price, and stop orders activate after a trigger. The choice determines which risks remain when a trade reaches the market.

Notional exposure: Leverage measures exposure relative to the capital supporting it. A small margin requirement does not make the position small.

Policy rates and market rates: A central-bank policy setting and a traded market yield are distinct observations.
Position sizing: Position sizing connects an intended loss budget to the distance between entry and a planned exit.
Premium: An option buyer pays for a contractual right. The seller accepts the corresponding obligation.
Put option: An option buyer pays for a contractual right. The seller accepts the corresponding obligation.

Quote currency: A currency pair states the price of one currency in units of another.

Reading a forex pair: A currency pair states the price of one currency in units of another.

Simple moving average: A simple moving average is the arithmetic mean of a rolling window of prices.
SMA: A simple moving average is the arithmetic mean of a rolling window of prices.
Spread: The bid-ask spread is the difference between the best buying and selling quotes. Measuring it alongside available quantity helps explain the cost of entering and leaving a position.
Stocks and share ownership: A stock represents an ownership interest in a company. Its market price and the cash it distributes are separate parts of the investment result.
Stop order: Market orders seek execution at available prices, limit orders constrain the execution price, and stop orders activate after a trigger. The choice determines which risks remain when a trade reaches the market.
Strike price: An option buyer pays for a contractual right. The seller accepts the corresponding obligation.

Win rate: Win rate counts successful trades. Expectancy also accounts for the size of wins, losses and costs.