Module 1: Start Here · Lesson 6 of 7 · Back to course
Trading has its own language, and a lot of it sounds more complicated than it is. This lesson covers the 40 terms you’ll meet most often in this course, on trading platforms and on prop firm websites. Each one gets a plain-English definition and, where it helps, a quick example.
You don’t need to memorise them all now. Bookmark this page and come back to it whenever a word trips you up. For a longer A–Z, see our full trading glossary.
Prices and markets
1. Bid (sell price) The price you can sell at. It’s always the lower of the two prices quoted.
2. Ask / offer (buy price) The price you can buy at. It’s always the higher of the two prices.
3. Spread The gap between the bid and the ask. It’s a cost you pay on every trade. Example: FTSE 100 quoted at 8,199.5 / 8,200.5 has a 1-point spread. See Lesson 1.3.
4. Pip The standard unit of movement for most currency pairs: the fourth decimal place (0.0001). For pairs including the Japanese yen, it’s the second decimal place (0.01).
5. Point The unit of movement for indices, shares and many commodities. A move from 8,200 to 8,201 is one point.
6. Currency pair Two currencies quoted against each other, e.g. GBP/USD. The first is the base currency, the second is the quote currency.
7. Index A measure of a group of shares, such as the FTSE 100 or S&P 500. Trading an index lets you speculate on the whole basket at once. See Lesson 1.2.
8. Volatility How much and how quickly a price moves. High volatility means bigger, faster moves – more opportunity and more risk.
9. Liquidity How easily a market can be traded without moving the price much. Liquid markets (like major forex pairs during London hours) usually have tighter spreads.
10. Session The main trading periods around the world – Asian, London and New York. Markets are often busiest when sessions overlap. See Trading sessions in UK time.
Products and accounts
11. Spread bet A leveraged product where you bet an amount per point of price movement. For most UK individuals, profits are currently outside Capital Gains Tax, but tax depends on your circumstances – see our tax guide.
12. CFD (contract for difference) A leveraged contract to exchange the difference in an asset’s price between opening and closing. Profits are normally subject to Capital Gains Tax in the UK.
13. Futures contract A standardised contract traded on an exchange to buy or sell something at a set price on a future date. Many prop firms offer futures, such as index futures.
14. Lot A standard trade size, mainly used for forex CFDs. One standard lot is 100,000 units of the base currency. A mini lot is 10,000 units and a micro lot is 1,000.
15. Demo account A practice account with pretend money and live (or near-live) prices. It’s the best place to learn. See Opening a demo account.
16. Retail client The standard category for individual traders, with the most regulatory protection – including leverage limits and negative balance protection.
Leverage and margin
17. Leverage Controlling a large position with a smaller deposit. It magnifies both gains and losses. UK retail leverage on CFDs and spread bets is capped at between 30:1 and 2:1 depending on the market (FCA PS19/18).
18. Margin The deposit needed to open and keep a leveraged position. Example (hypothetical): a £16,400 position with a 5% margin requirement needs £820 of margin.
19. Exposure (notional value) The full value of your position – what you’d gain or lose on a 100% move. Always know this number, not just the margin.
20. Margin call / margin close-out A margin call is a warning that your account is running low compared with the margin needed. UK providers must close retail positions when funds fall to 50% of the margin required.
21. Negative balance protection A rule meaning UK retail clients can’t lose more than the money in their CFD or spread betting account.
22. Overnight financing (swap / rollover) A daily charge (or occasionally a credit) for holding a leveraged position past the provider’s daily cut-off time.
Orders and trades
23. Long A buy trade. You profit if the price rises.
24. Short A sell trade. You profit if the price falls.
25. Market order An order to buy or sell immediately at the best available price.
26. Limit order An order to buy below or sell above the current price – entering only if price comes to you. Also used to take profit.
27. Stop order (stop entry) An order to buy above or sell below the current price. It’s used to enter when price breaks through a level.
28. Stop-loss An order that closes your trade at a set price to limit your loss. A normal stop can “slip” in fast or gapping markets. A guaranteed stop can’t, but you usually pay a premium if it’s triggered.
29. Take-profit An order that closes your trade automatically when a profit target is reached.
30. Slippage When your order is filled at a worse price than you expected, usually in fast markets or at gaps.
31. Gap When a market opens noticeably away from its previous closing price, skipping the prices in between – common after weekends or big news.
Risk and performance
32. Risk per trade The amount you’d lose if your stop-loss is hit, usually expressed as a percentage of your account (e.g. 1%). See The 1% rule.
33. Position sizing Working out how big a trade should be so that, if your stop is hit, you lose only your chosen risk amount. See Position sizing step by step.
34. Risk-to-reward ratio (R:R) How much you could gain compared with how much you risk. Risking £10 to make £20 is 1:2.
35. R-multiple A trade’s result measured in units of risk. If you risk £10 and make £25, that’s +2.5R. If you lose £10, that’s −1R.
36. Win rate The percentage of trades that make money. On its own it means little: a 70% win rate can still lose money if the losses are much bigger than the wins.
37. Expectancy The average amount you expect to win or lose per trade over many trades, based on your win rate and average win and loss. See Expectancy.
38. Drawdown A fall in your account from its highest point. If your account goes from £1,000 to £850, that’s a 15% drawdown.
Prop firm terms
39. Challenge / evaluation A paid test run by a prop firm. You must hit a profit target without breaking loss limits or other rules to get a “funded” account – which is usually simulated. See What is a prop firm?
40. Daily loss limit and maximum drawdown The two rules that end most challenges. The daily loss limit caps how much you can lose in one day. Maximum drawdown caps your total loss, and can be static (fixed from your starting balance) or trailing (it moves up as your account grows). Break either and the account is usually closed. See Trailing vs static drawdown.
Watch out for these “jargon traps”
Some terms are used in marketing in ways that can mislead beginners:
- “Funded trader” – usually means trading a simulated account under a prop firm’s rules, not managing real money.
- “Risk-free” – no trade is risk-free. Be suspicious of anyone using the phrase.
- “Passive income” – trading is neither passive nor reliable income.
- “Guaranteed” – the only genuinely guaranteed thing is a guaranteed stop-loss, and even that has a cost.
- “Win rate 90%+” – meaningless without the average loss size, and often based on cherry-picked or hypothetical results.
Nearly there – what’s next?
Well done: you’re nearly through Module 1. You now know what trading is, which markets exist, how trades make and lose money, why most traders lose, what learning really costs, and the language you’ll see everywhere.
Before you move on, check you can do these three things without looking:
- Explain the difference between margin and exposure.
- Work out the profit or loss on a simple spread bet.
- Explain why a high win rate doesn’t guarantee profit.
If you can, you’re ready for the last lesson of the module.
Quick quiz
- What’s the difference between the bid and the ask? (Bid is the sell price, ask is the buy price; the gap is the spread.)
- How many units of the base currency are in one standard lot? (100,000.)
- You risk £20 and make £50. What’s the R-multiple? (+2.5R.)
- What’s the difference between static and trailing drawdown? (Static is fixed from the starting balance; trailing moves up as the account grows.)
- Why should you be suspicious of “risk-free” trading claims? (No trade is risk-free.)
Try this
Make your own flashcards (paper or an app) for the ten terms you found hardest. Test yourself for five minutes a day this week.
FAQ
What’s the difference between a pip and a point? Both measure price movement. Pips are used for forex (usually the fourth decimal place), points for indices, shares and many commodities.
What does “going long” mean? Buying, in the expectation the price will rise.
What does drawdown mean in a prop firm challenge? It’s the fall in your account from a reference point. The maximum drawdown rule sets how far your account can fall before the challenge is failed.
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. Read our full risk warning.