Glossary
Plain definitions of the words used across these lessons. No jargon defined with more jargon.
Positions and sizing
Pip / point — the smallest standard increment a price is quoted in. What one point is worth depends on the instrument and your position size, not on the price itself.
Lot — a standard unit of trade size. Brokers offer fractions of it; what matters is the resulting value per point, not the label.
Exposure — the full market value of what you control, ignoring how much cash is set aside for it.
Position size — how much you trade. Derived from your risk budget and stop distance; never chosen first.
Risk per trade — the share of the account you accept losing if the stop is hit. Fixed in advance, expressed as a percentage.
Money mechanics
Leverage — the ratio that determines how little cash is locked to hold a position. It changes margin, not risk.
Margin — the cash your broker sets aside while a position is open. Returned when it closes.
Free margin — equity not currently locked as margin. A large number here is not a signal to trade bigger.
Margin call / stop-out — the broker closing positions automatically when equity falls too far relative to margin used. Reaching it means risk management already failed.
Swap — overnight financing charged or paid on the full exposure, typically tripled once a week for the weekend.
Negative balance protection — a broker policy capping losses at your deposit. Not universal; check yours.
Costs and execution
Spread — the gap between buy and sell price; paid on entry.
Commission — flat charge per volume traded, common on raw-spread accounts.
Slippage — the difference between the expected price and the executed price.
Gap — price reopening away from where it closed, most often over the weekend. Stops do not protect against the distance travelled in a gap.
Liquidity — how much can be traded without moving the price. It arrives and leaves with the sessions.
Results and risk
Drawdown — the fall from an equity peak to the following trough, in percent. The number that decides whether a method is survivable.
Win rate — share of trades that end profitable. Meaningless without the size of wins versus losses.
Expectancy — average result per trade after costs. The only figure that says whether repeating the process makes money.
R multiple — result expressed in units of the risk taken. A trade risking 1% that returns 2% is +2R.
Backtest — a simulation over historical data. Produced with hindsight; ignores slippage and pressure unless deliberately modelled.
Curve fitting — tuning a method until it fits past data beautifully and future data not at all.