Futures, CFDs and spread bets are high risk; most retail traders lose money. Education only, not advice. Risk warning

Good Trading Guide

Trading Glossary: A–Z of Trading and Prop Firm Terms

Every trading term used on Good Trading Guide, explained in plain English – from ask to whipsaw, including UK-specific terms (spread betting, CGT, FCA, FSCS, leverage limits) and prop firm rules (drawdown, daily loss limits, profit splits, payouts). Where we have a full lesson on a term, the definition links to it.

New to trading? Start with Trading jargon in plain English, then use this page as a reference.

Jump to: A · B · C · D · E · F · G · H · I · K · L · M · N · O · P · Q · R · S · T · V · W

A

Anchored VWAP
A VWAP that starts from a point you choose, such as a big news candle or a swing low, instead of the start of the session. See VWAP.
Appropriateness test
Questions a UK broker must ask before opening a leveraged account, to check you understand the risks. If you fail it, the broker should warn you or may refuse the account.
Ask (offer)
The price at which you can buy. It is always slightly above the bid; the gap is the spread.
ATR (Average True Range)
An indicator that measures how far a market typically moves per candle, including gaps. Often used to set stop distances. See ATR in depth.

B

Backtesting
Testing a set of trading rules on past price data to see how they would have behaved. Results are hypothetical and often look better than live trading.
Base currency
The first currency in a forex pair. In GBP/USD, the pound is the base currency.
Bear market
A market that has been falling for a sustained period. “Bearish” means expecting prices to fall.
Bid
The price at which you can sell. It is always slightly below the ask.
Bollinger Bands
A moving average with bands set a number of standard deviations above and below it. The bands widen when volatility rises. See Bollinger Bands.
Bond yield
The return an investor gets for lending to a government or company through a bond. When bond prices fall, yields rise, and vice versa. See Intermarket links.
Breakeven
Moving your stop-loss to your entry price so the trade can no longer lose much (spread and slippage aside).
Breakout
When price moves decisively beyond a level or range it was stuck in. Many breakouts fail and reverse. See the London Breakout Strategy.
Broker
The firm that gives you access to markets and holds your money. In the UK, check it is on the FCA Register.
Bull market
A market that has been rising for a sustained period. “Bullish” means expecting prices to rise.

C

Cable
Trader slang for GBP/USD, named after the transatlantic telegraph cable.
Candlestick
A chart bar showing the open, high, low and close for a period. The body shows open to close; the wicks show the extremes.
Capital Gains Tax (CGT)
UK tax on gains from selling assets. CFD and share dealing gains can fall under CGT; spread betting gains are generally exempt for most individuals. See our UK tax guide.
CCI (Commodity Channel Index)
A momentum oscillator that measures how far price is from its recent average. See Stochastic and CCI.
Central bank
The institution that manages a country’s money and sets its key interest rate, such as the Bank of England, the US Federal Reserve or the ECB. See Central banks and interest rates.
CFD (Contract for Difference)
A leveraged contract where you exchange the difference in price between opening and closing. You never own the underlying asset. Most retail CFD accounts lose money.
Chart pattern
A recognisable shape in price, such as a double top or a flag. Patterns describe the past and fail often. See Chart patterns.
Clone firm
A scam that copies the name and details of a genuine FCA-authorised firm. Always contact a firm using the details on the FCA Register.
Commission
A fixed fee charged per trade, on top of or instead of the spread.
Confirmation
Waiting for extra evidence, such as a candle close beyond a level, before acting on a setup. It reduces false signals but costs a worse price.
Confirmation bias
The habit of noticing information that supports what you already believe and ignoring what doesn’t.
Consensus forecast
The typical economists’ forecast for an economic release, shown on economic calendars. Markets react mainly to the surprise versus this figure.
Consistency rule
A prop firm rule limiting how much of your total profit can come from one day or one trade. It stops a single lucky trade from passing an evaluation.
Consolidation
A period where price moves sideways in a narrow range, often before a bigger move in either direction.
Continuation pattern
A pattern that forms during a trend and is read as a pause before the trend carries on, such as a flag or pennant. See Continuation patterns.
Contrarian
Taking a view against the crowd, for example being cautious about buying when most traders are already long. Crowds can stay right for a long time.
Correlation
How closely two markets move together. Trading two highly correlated pairs in the same direction roughly doubles your risk. See Intermarket links.
COT report (Commitments of Traders)
A weekly report from the US CFTC showing how large traders are positioned in US futures markets. Uses Tuesday’s data and is usually released Friday at 20:30 UK time. See The COT report.
CPI (Consumer Prices Index)
The main measure of how fast consumer prices are rising. UK CPI is published by the ONS at 07:00 UK time; the Bank of England targets 2%. See Economic data that moves markets.
Cross (currency pair)
A forex pair that doesn’t include the US dollar, such as EUR/GBP.
Crossover
When one line crosses another, such as a fast moving average crossing a slow one. See the Moving Average Crossover Strategy.
Crowded trade
A position that a large share of traders already hold. It can reverse sharply if they all try to exit at once – but it can also stay crowded for a long time.
Curve-fitting
Tweaking rules or settings until they fit past data perfectly. The result usually performs badly on new data.

D

Daily loss limit
A prop firm rule setting the most you can lose in one day before you fail or are locked out. How “the day” and the loss are measured varies by firm. See Challenge pressure.
Day trading
Opening and closing trades within the same day, with nothing held overnight.
Demo account
A practice account with pretend money and real prices. Useful for learning, but fills and emotions differ from live trading. See Your first demo trade.
Divergence
When price and an indicator disagree, such as a higher high in price with a lower high in RSI. A warning, not a signal. See Divergence.
Doji
A candle where the open and close are almost the same, showing indecision.
Double bottom
A reversal pattern where price makes two similar lows with a peak between them. See Reversal patterns.
Double top
A reversal pattern where price makes two similar highs with a dip between them. See Reversal patterns.
Dovish
Leaning towards lower interest rates to support the economy. Dovish surprises often weaken a currency. The opposite of hawkish.
Drawdown
The fall in an account from a previous high (or from the starting balance). Prop firms set maximum drawdown limits.

E

ECB (European Central Bank)
The central bank for the euro area. Its rate decisions are published at 14:15 CET (13:15 UK time). See Central banks and interest rates.
Economic calendar
A schedule of upcoming data releases and central bank decisions that can move markets. Set it to UK time. See Economic data that moves markets.
EMA (Exponential Moving Average)
A moving average that gives more weight to recent prices, so it reacts faster than a simple moving average.
Engulfing candle
A candle whose body completely covers the previous candle’s body.
Entry
The price at which you open a trade.
Equity
Your account balance plus or minus the profit or loss on open trades.
ESMA / FCA leverage limits
Caps on leverage for retail CFD and spread bet clients, first set by ESMA in 2018 and kept permanently by the FCA: 30:1 on major forex pairs, 20:1 on major indices and gold, 10:1 on other commodities and minor indices, 5:1 on shares and 2:1 on crypto (crypto derivatives are banned for UK retail clients).
Evaluation (challenge)
The paid test a prop firm sets, usually on a simulated account, where you must hit a profit target without breaking loss rules.
Expectancy
The average amount you’d expect to win or lose per trade over many trades, based on win rate and average win and loss.
Exposure
The full value of your position, which is much bigger than the margin you put up when trading with leverage.

F

Fakeout (false breakout)
When price breaks a level and then quickly reverses back inside.
FCA (Financial Conduct Authority)
The UK regulator for financial firms, including brokers. Check any firm on the FCA Register before you deposit.
FCA Register
The FCA’s public database of authorised firms and individuals. It also lists known clone firms.
Fibonacci extension
Levels beyond the original move (such as 127.2% and 161.8%) that some traders use for targets. See Fibonacci.
Fibonacci retracement
A drawing tool that marks levels such as 38.2%, 50% and 61.8% of a prior move, where some traders expect pullbacks to pause. See Fibonacci.
Financial Ombudsman Service (FOS)
The free UK service that settles complaints against authorised financial firms when the firm’s own complaints process fails.
Flag
A continuation pattern: a sharp move (the pole) followed by a small sloping channel against the trend. See Continuation patterns.
FOMC (Federal Open Market Committee)
The US Federal Reserve committee that sets US interest rates, at eight scheduled meetings a year. Its statement is normally released at 19:00 UK time. See Central banks and interest rates.
FOMO
Fear of missing out: chasing a move because you’re worried about missing it, usually without a plan.
Forex (FX)
The foreign exchange market, where currencies are traded in pairs.
Forward guidance
What a central bank says about its likely future decisions. Changes in guidance can move markets more than the decision itself.
FSCS
The Financial Services Compensation Scheme. It can protect up to £85,000 per person if an authorised UK investment firm fails and can’t return client money. It doesn’t cover trading losses.
Fundamental analysis
Studying economic data, interest rates and news to judge where a market may go. See Economic data that moves markets.
Funded account
The account a prop firm gives you after passing an evaluation. Many are simulated, with payouts based on simulated profits.
Futures
Exchange-traded contracts to buy or sell something at a set price on a future date.

G

Gap
A jump in price between one candle’s close and the next candle’s open, common over weekends and news.
GDP (Gross domestic product)
The total value of goods and services an economy produces – the main measure of whether it’s growing or shrinking.
Gearing
Another word for leverage, common in UK spread betting.
Gilt
A UK government bond. Gilt yields reflect what markets expect from UK interest rates and inflation.
Golden ratio
Roughly 1.618, the ratio behind the Fibonacci levels. There is no proven reason markets should respect it.
Guaranteed stop-loss
A stop that is filled at your exact price even if the market gaps, usually for an extra fee.

H

Hammer
A candle with a small body near the top and a long lower wick.
Hawkish
Leaning towards higher interest rates (or fewer cuts) to fight inflation. Hawkish surprises often strengthen a currency. The opposite of dovish.
Head and shoulders
A reversal pattern with three peaks, the middle one highest, and a “neckline” joining the lows. An inverse version appears at bottoms. See Reversal patterns.
Hedging
Opening a position to offset the risk on another. Many prop firms restrict hedging across accounts.
Hidden divergence
When price makes a higher low but the indicator makes a lower low (or the reverse). Some read it as trend continuation. See Divergence.
Higher high / higher low
The building blocks of an uptrend: each peak and each dip is above the last one.
Hindsight bias
Believing a pattern or move was obvious after it happened. It makes chart patterns look more reliable than they are.
Histogram
Bars showing the gap between two lines, as in the MACD histogram. See MACD.
HMRC
His Majesty’s Revenue and Customs, the UK tax authority.

I

Index
A number that tracks a basket of shares, such as the FTSE 100. You can trade indices with spread bets, CFDs or futures.
Indicator
A calculation based on price or volume, plotted on a chart. Indicators describe the past; none predicts the future. See Trading indicators explained.
Indicator overload
Using so many indicators that they contradict each other or just repeat the same information. See Why fewer indicators is better.
Inflation
The rate at which prices rise over time. Central banks raise interest rates to bring high inflation down.
Inside bar
A candle whose high and low are both inside the previous candle’s range.
Interest rate
The cost of borrowing money. A central bank’s key rate (Bank Rate in the UK) influences currencies, bonds and shares. See Central banks and interest rates.
Intermarket analysis
Studying how markets such as bonds, currencies, commodities and indices affect each other. Useful for context and spotting doubled-up risk. See Intermarket links.
ISA (not for CFDs)
A UK tax-free savings or investment wrapper. You can’t hold spread bets or CFDs in an ISA.

K

Keltner Channels
An EMA with bands set a multiple of ATR above and below. See Keltner Channels.

L

Lagging indicator
An indicator built from past prices, so it reacts after moves have happened. Most indicators lag.
Leverage
Controlling a large position with a small deposit. It magnifies losses as much as gains. See How a trade makes or loses money.
Leverage ratio
Leverage written as a ratio, such as 30:1, meaning a £1 deposit controls £30 of exposure.
Limit order
An order to buy below or sell above the current price, filled only at your price or better.
Liquidity
How easily a market can be traded without moving the price. Liquid markets usually have tighter spreads.
Long
A buy position that profits if the price rises.
Lot
A standard unit of trade size in forex. One standard lot is 100,000 units of the base currency; mini is 10,000 and micro is 1,000.

M

MACD
Moving Average Convergence Divergence: the gap between two EMAs, plus a signal line and histogram. See MACD.
Major pair
The most traded forex pairs, all including the US dollar, such as EUR/USD, GBP/USD and USD/JPY.
Margin
The deposit needed to open a leveraged position. It is not the most you can lose.
Margin call
A warning that your equity is close to the level where your broker will close positions.
Margin close-out
When your broker automatically closes your positions because your account equity has fallen too far below the margin required. UK retail CFD rules set this at 50% of margin.
Market maker
A firm that quotes buy and sell prices and takes the other side of trades.
Market order
An order filled straight away at the best available price.
Market structure
The pattern of highs and lows that shows whether a market is trending or ranging.
Marubozu
A candle with a large body and little or no wick, showing strong one-way pressure.
Maximum drawdown
The biggest fall from peak to trough. In prop firms, the hard limit that ends an account if breached.
Mean deviation
The average distance of prices from their average. CCI uses it.
Mean reversion
The idea that prices tend to move back towards an average after stretching away from it. Trends can override it for a long time.
Measured move
A projection from a chart pattern, such as the height of a head and shoulders added to the breakout point. It’s a rough guide, not a target the market owes you.
Minor pair
A forex pair that doesn’t include the US dollar but includes another major currency, such as EUR/GBP. Also called a cross.
Momentum
The speed and strength of a price move.
Moving average
The average price over a set number of candles, recalculated each candle to give a smoothed line.
MPC (Monetary Policy Committee)
The nine-member Bank of England committee that sets Bank Rate eight times a year. Decisions are published at 12:00 UK time, usually on a Thursday. See Central banks and interest rates.

N

Neckline
The line joining the lows (or highs) of a head and shoulders pattern. A break of it is the usual trigger.
Negative balance protection
A UK retail rule meaning you can’t lose more than the money in your CFD or spread betting account.
Net positioning
Long positions minus short positions for a group of traders. Used to read the COT report and sentiment data.
News trading
Trading around economic releases. Spreads can widen and slippage is common; many prop firms restrict it. See Economic data that moves markets.
Non-Farm Payrolls (NFP)
The monthly US jobs figure, part of the BLS Employment Situation report, usually released on the first Friday of the month at 13:30 UK time (12:30 in the clock-change gaps).

O

Open interest
The total number of futures or options contracts that are open (not yet closed or settled) in a market.
Order ticket
The box on a trading platform where you set the market, direction, size, stop and target before placing a trade.
Oscillator
An indicator that moves between fixed levels or around a centre line, such as RSI.
Overbought
A label for an indicator reading near the top of its range, such as RSI over 70. It describes past momentum, not a forecast.
Overlay
An indicator drawn on top of the price chart, such as a moving average.
Overnight financing
A daily charge (or occasionally credit) for holding leveraged positions past the daily cut-off.
Oversold
A label for an indicator reading near the bottom of its range, such as RSI under 30. It describes past momentum, not a forecast.
Overtrading
Taking more trades than your plan allows, often out of boredom, frustration or to recover losses.

P

P&L
Profit and loss: how much a trade or account has made or lost.
Payout
A withdrawal of profit share from a prop firm funded account. Firms set minimum periods, amounts and conditions.
Pennant
A continuation pattern: a sharp move followed by a small symmetrical triangle. See Continuation patterns.
Pip
The standard unit of movement in forex, usually the fourth decimal place (0.0001), or the second for yen pairs.
PMI (Purchasing Managers' Index)
A monthly business survey. Above 50 suggests activity is growing; below 50 suggests it’s shrinking. UK PMIs are published at 09:30 UK time.
Point
A unit of price movement used for indices, shares and many commodities.
Position sizing
Working out how big a trade should be so that, if the stop is hit, you lose only the amount you planned.
Profit split
The share of profits a prop firm pays you from a funded account, such as 80%.
Profit target
The profit you must reach to pass a prop firm evaluation, or the price where you plan to take profit.
Prop firm
A proprietary trading firm. Retail “prop firms” usually sell evaluations and pay a share of profits from simulated accounts. Most aren’t FCA-authorised.
Pullback
A temporary move against the trend before it continues. See the Moving Average Pullback Strategy.

Q

Quantitative easing (QE)
When a central bank creates money to buy large amounts of bonds, pushing down longer-term interest rates. Selling them back is called quantitative tightening (QT).
Quote currency
The second currency in a forex pair. In GBP/USD, the dollar is the quote currency.

R

R-multiple
Profit or loss expressed as a multiple of your initial risk. Risk £20 and lose £20 is −1R; make £40 and it’s +2R.
Range
A market moving sideways between a clear high and low.
Redundancy (indicators)
Using several indicators that measure the same thing, so they “agree” without adding information.
Resistance
A price area where selling has previously stopped rises. See the Support and Resistance Bounce Strategy.
Retail client
The default UK client category, with the most protection: leverage limits, negative balance protection and FOS access.
Retail sentiment
How one provider’s retail clients are positioned (for example “70% long”). Not the whole market, and not a reliable signal. See Retail positioning data and its limits.
Retest
When price returns to a level it has just broken, before moving away again. It doesn’t always happen.
Retracement
A partial move back against the previous move. See Fibonacci.
Revenge trading
Trading impulsively to win back a loss. See Revenge trading and tilt.
Reversal pattern
A pattern read as a sign a trend may be ending, such as a double top. See Reversal patterns.
Risk warning
The statement regulated firms must show about the risk of leveraged products. Read ours on the risk warning page.
Risk-off
A market mood of fear, when money tends to move out of shares and growth currencies into safe havens. See Risk-on vs risk-off.
Risk-on
A market mood of confidence, when money tends to flow into shares, growth currencies and commodities. See Risk-on vs risk-off.
Risk:reward ratio
The size of your potential loss compared with your planned gain. Risking £10 to aim for £20 is 1:2.
Rollover
The daily cut-off when open leveraged positions are charged overnight financing.
RSI (Relative Strength Index)
A momentum oscillator from 0 to 100 comparing recent gains with recent losses. See RSI explained.

S

Safe haven
An asset investors tend to buy when worried, such as the Japanese yen, Swiss franc, US dollar, gold or government bonds. A tendency, not a guarantee.
Scaling plan
A prop firm rule that increases your account size after you meet set conditions, such as a profit level over several months.
Scalping
Very short-term trading aiming for small moves. Costs eat a big share of each trade.
Self Assessment
The HMRC tax return many traders and prop firm payout recipients must file. See our UK tax guide.
Sentiment
The overall mood and positioning of traders in a market – how bullish or bearish they are. See Market sentiment and the COT report.
Shooting star
A candle with a small body near the bottom and a long upper wick.
Short
A sell position that profits if the price falls.
Signal line
A moving average of an indicator, such as the 9-period EMA of MACD, used for crossovers.
Simulated account
An account that uses real prices but no real market orders. Most prop firm accounts are simulated.
Slippage
When your order is filled at a worse price than you asked for, common in fast markets.
SMA (Simple Moving Average)
A moving average that weights every price in the period equally.
Spread
The gap between the bid and the ask. It’s a cost you pay on every trade.
Spread betting
A UK and Irish product where you bet an amount per point on a price move. Gains are generally free of CGT and stamp duty for most individuals, but tax treatment depends on your circumstances and can change.
Squeeze
When volatility bands (such as Bollinger Bands) narrow sharply, showing a quiet market that may be followed by a bigger move in either direction.
Stake per point
Your trade size in spread betting: £2 per point means you gain or lose £2 for every point the price moves.
Stamp duty
UK tax on buying shares (0.5% on most UK shares). It doesn’t apply to spread bets or CFDs.
Standard deviation
A measure of how spread out prices are around their average. Bollinger Bands use it.
Static drawdown
A prop firm loss limit fixed from your starting balance that doesn’t move as your account grows.
Stochastic oscillator
A momentum indicator showing where the close sits within the recent high-low range. See Stochastic and CCI.
Stop-loss
An order that closes a trade at a set price to limit the loss. It can slip in fast markets unless guaranteed.
Support
A price area where buying has previously stopped falls. See the Support and Resistance Bounce Strategy.
Swap
Another name for overnight financing, common on MT4/MT5.
Swing high / swing low
A peak (or dip) with lower highs (or higher lows) either side of it.
Swing trading
Holding trades for days to weeks to catch larger moves.

T

Take-profit
An order that closes a trade at a set profit level.
Technical analysis
Studying price charts, patterns and indicators to make trading decisions.
Tick volume
The number of price changes in a candle. Used as a stand-in for volume in forex, where there’s no central volume figure.
Tilt
An emotional state where frustration takes over your decisions. See Revenge trading and tilt.
Timeframe
The period each candle represents, such as 5 minutes, 1 hour or 1 day.
Trading journal
A record of every trade and your reasons, used to review your process.
Trading plan
Your written rules for what, when and how you trade, including risk per trade and when to stop.
Trading session
The main trading hours of a region: Asian, London and New York. Volatility usually rises when London opens and when London and New York overlap.
Trailing drawdown
A prop firm loss limit that moves up as your account reaches new highs, so the room you have doesn’t grow with profits. Some trail balance, some trail equity.
Trailing stop
A stop-loss that follows price at a set distance as the trade moves in your favour.
Trend
A sustained move in one direction, shown by higher highs and higher lows (up) or lower highs and lower lows (down).
Trendline
A line drawn through swing lows (or highs) to show a trend’s slope. Where you draw it is subjective.
Triangle
A pattern where price narrows between converging lines: ascending, descending or symmetrical. See Continuation patterns.
True range
The largest of: high minus low, high minus previous close, or previous close minus low. ATR averages it.
Typical price
(High + Low + Close) ÷ 3. Used in VWAP and CCI.

V

Volatility
How much and how quickly prices move. Higher volatility means bigger swings both ways.
Volume
How much was traded in a period. Real volume is available for shares and futures; forex usually uses tick volume.
VWAP
Volume-Weighted Average Price: the average price weighted by volume, usually reset each session. See VWAP.

W

Wedge
A pattern where price narrows between two lines sloping the same way. Rising wedges are often read as bearish and falling wedges as bullish.
Whipsaw
When price triggers a signal and quickly reverses, often several times, causing repeated small losses.
Wick (shadow)
The thin lines above and below a candle’s body, showing the high and low.
Win rate
The percentage of trades that make money. Meaningless on its own without the average win and loss sizes.

Disclaimer: This page is general education, not financial, investment or tax advice or a personal recommendation, and it doesn’t take your circumstances into account. Examples are hypothetical, for illustration only, and not an invitation to buy or sell. Learning a strategy doesn’t guarantee profits. Past performance is not a reliable guide to future results. Futures, spread bets and CFDs are complex and carry a high risk of losing money quickly because of leverage, and most retail traders lose money. With a real futures account, losses can exceed your deposit. Only trade with money you can afford to lose, and speak to an independent FCA-authorised adviser if you’re unsure. Tax treatment depends on your circumstances and can change. Read our full risk warning.