Glossary

The vocabulary, without the jargon.

48 terms in plain English, grouped in the order you will meet them in the program. To look up whenever a word gets in the way.

The basics

The words you meet from the very first class.

Broker: The company that opens your account, receives your deposits and executes your orders in the market. Arco is not a broker; HFM is.
CFD: Contract for difference. You trade the change in an asset's price without owning it. It is a leveraged product.
Pip: The usual smallest unit of movement in a currency pair: 0.0001 in most pairs and 0.01 in those that include the yen.
Spread: The difference between the buy price (ask) and the sell price (bid). It is the cost you pay when you open a trade.
Lot: The unit of trade size. In forex, a standard lot is 100,000 units of the base currency; there are also mini lots (0.10) and micro lots (0.01).
Leverage: Trading with more money than you have deposited. It multiplies the result, good or bad. It is expressed as 1:100, 1:500, and so on.
Margin: The part of your capital that the broker sets aside as collateral while a trade is open.
Demo account: A practice account with virtual money and real prices. It is where you learn before putting capital at risk.

Orders and execution

How you tell the platform what to do, and what can turn out different from what you asked for.

Market order: Enters at the price available at that moment. Fast, but the final price can differ slightly from the one you saw.
Pending order: An order that activates only if the price reaches a level you defined: limit (better price) or stop (worse price, to follow the momentum).
Stop loss: An order that closes the trade when the loss reaches what you decided to accept. It is set before entering, not after.
Take profit: An order that closes the trade when it reaches the profit target you set.
Trailing stop: A stop loss that moves along with the price when the trade is going your way, to protect part of the profit.
Slippage: The difference between the price you asked for and the one you got. It happens with news or low liquidity.
Gap: A jump in price with no quotes in between, typical after the weekend or a news release. A stop can be filled worse than expected.
Execution: The process by which your order becomes an open trade. Its speed and price depend on the broker and the market.

Your account and its costs

What you see in the platform window and what it costs to hold a position.

Swap: A charge or credit for keeping a trade open overnight. It depends on the interest rate difference between the two currencies.
Commission: A fixed fee per trade that some account types apply, in addition to the spread or instead of part of it.
Balance: The money in your account, not counting open trades.
Equity: Balance plus or minus the floating result of open trades. It is what you actually have at this moment.
Free margin: Equity minus the margin in use. It is what remains available to open new trades.
Margin level: Equity divided by used margin, as a percentage. The lower it is, the closer you are to a margin call.
Margin call: A notice from the broker that your margin level has dropped below a certain threshold. You need to close positions or reduce risk.
Stop out: The broker closes your trades automatically because the margin level fell too low. It is the consequence of trading too large.

Risk and plan

The module that separates those who last from those who do not.

Position size: How many lots to open so that, if the stop is hit, you lose exactly what you decided to risk.
Risk per trade: The percentage of capital you accept losing on a single trade. In the program we practice with 1% or less.
Risk-reward ratio: How much you expect to gain for each unit you risk. 1:2 means the target is twice as far away as the stop.
Drawdown: The drop from the highest point of your account to the lowest point after it. It measures how much the worst streak hurt.
Losing streak: Several losing trades in a row. It is normal and the plan must be able to survive it.
Overtrading: Opening trades without the plan justifying them: out of boredom, to recover losses or out of euphoria. The most common cause of empty accounts.
Trading journal: The record of every trade: why you entered, how much you risked, what happened and what you learned. Without a journal there is no improvement.
Trading plan: Written rules: which markets, which hours, which conditions to enter and exit, how much to risk and when not to trade.

Technical analysis

Reading the chart: structure, levels and candles.

Support: A zone where the price stopped falling and bounced in the past. It is studied as a place where it may react again.
Resistance: A zone where the price stopped rising and pulled back in the past. The opposite of support.
Pivot point: A level calculated from the previous session's high, low and close. It serves as a neutral reference for marking the day's support and resistance.
Trend: The prevailing direction of the price: rising highs and lows (uptrend) or falling highs and lows (downtrend).
Range: A period in which the price moves between a support and a resistance without defining a direction.
Candlestick: A representation of a period with its open, close, high and low. The body shows the open and close; the wicks show the extremes.
Timeframe: The period each candle represents: 1 minute, 1 hour, 1 day. Levels on higher timeframes carry more weight.
Moving average: The average price over the last N periods, drawn as a line. It helps you see direction without the noise.

Fundamental analysis and the market

What moves the price outside the chart.

Economic calendar: The schedule of releases: inflation, employment, rate decisions. It marks the hours when the price can move sharply.
Interest rate: The price of money, set by each central bank. Expectations about rates move currencies, bonds and gold.
Inflation: The general rise in prices. Central banks respond with rates, and the market anticipates that response.
Volatility: How much and how fast the price moves. More volatility means more opportunity and more risk, in the same proportion.
Liquidity: How easily you can enter and exit without moving the price. High in EUR/USD during European hours; low overnight and in exotic pairs.
Market session: The time blocks of Asia, Europe and New York. Each has its own character and its busiest hours.
Correlation: When two instruments tend to move together or in opposite directions. Opening two correlated positions doubles the risk.
High-impact news: A release that usually moves the market sharply. Before trading it on demo, watch it several times.

Missing a word?

Write to us at hola@arcofx.com and we will add it. In the meantime, practice the vocabulary where it is learned: on the demo.