ask: In a market, the current price at which an instrument is available for purchase.
backtesting: The practice of applying trading rules over historical market data to gain insight as to how such rules might continue to perform.
bid: In a market, the current price at which an instrument may be sold.
commission: A fee charged by a broker for the execution of trades.
days: The duration of an open position measured in market, not calendar, days.
day trader: A market participant that trades frequently throughout the day and seldom carries existing positions from one trading day into the next.
drawdown: The length of time that a trader's equity remains below its all time high. Alternately, the percentage of the all time high in equity lost in an unprofitable period.
equity: The total value of a trading account, including cash on hand and the value of all instruments held.
entry: The price at which a trade was entered.
expectancy: In a situation with multiple possible outcomes, the sum of the probability of each outcome multiplied by the effect of that outcome.
forex: The abbreviation for "foreign exchange," specifically in reference to the interbank foreign exchange markets. Sometimes abbreviated to FX.
fractal: A set of data elements, frequently representing the points of a geometric figure, characterized by self affinity (parts resemble the whole) and invariance to scale (having similar attributes at various degrees of analytical precision).
fundamental analysis: The study of different financial instruments based on factors such as earnings, debt, and interest rates.
hard profit: The profit which would be realized if a trade were to exit at a current stop order price.
institutional investor: A large corporate body which may hold large positions in various markets.
instrument: An item which may be traded, typically stocks, bonds, futures, options, and currencies.
leverage: The use of borrowed funds in conjunction with owned money to amplify investment outcomes by facilitating larger position sizes than would be available simply using owned funds.
limit order: An order placed with a broker to execute a trade if the price should reach a certain level or any level more favorable to the trader.
long: A position initiated by the purchase of a given instrument.
lot: The number of units, contracts or shares typically traded by a broker. For example, a forex broker may require that EUR/USD be traded in lots of 100,000.
margin: Money held in an account as a good faith deposit for the use of leverage.
margin call: A notice from a broker that more money must be deposited to an account in order to maintain a position at current leverage.
market order: An order placed with a broker to execute a trade at the immediately available price.
money management: The practice of deliberately trading positions at a certain size as a component of a trading strategy.
nonlinear system: A set of related variables having the property that small changes in one variable may result in unpredictably large changes in other variables within the system.
pair: In the context of forex trading, a pair is a combination of two currencies. A trade on a pair of currencies is successful or unsuccessful based on fluctuations in the rate of exchange between the two currencies.
parameter: A number within a trading system used for calculating the entry/exit indicators or position sizing techniques. For example, the number of days in the period to calculate a moving average or the maximum risk taken per trade.
pip: The smallest possible change which can occur in the exchange rate between two currencies.
position: A trader's stance in regard to a market. For example, a trader would create a long position by purchasing an instrument.
position trader: A market participant whose strategy involves holding instruments for periods of days to months to benefit from changes in price.
random walk theory: The belief, popular in academic institutions, that 1. market action is random and unpredictable, and 2. market randomness eliminates the potential for profitable active trading.
risk: The possibility and magnitude of an unfavorable outcome.
robust: In a trading system, the property of not being vulnerable to poor (or unlucky) parameter selection.
short: A position initiated by the sale of a particular instrument. In most markets, this instrument is borrowed prior to selling it.
soft profit: The outcome a trade would produce if an existing position were closed at the current market price.
spread: The difference between the best price at which an instrument may be purchased (ask) and the best price at which the instrument may be sold (bid).
stop: An order placed with a broker to execute a trade if the price of the instrument reaches a certain level or any less favorable level.
technical analysis: The use of information such as price and volume in trading decisions.
trader: A person that frequently places transactions in markets with the intent to profit from changes in price.
trend: A series of price changes over time moving in the same direction.
trend following: The practice of buying instruments increasing in price and selling instruments decreasing in price in order to benefit from large changes.
unit: The smallest individual unit that a trader can place a transaction for. In the iSigma system newsletter, units are multiplied by account equity to get the actual numbers of untis to trade.
uptick rule: The requirement in US Stock markets that a short sale may not be executed immediately folliwing a downward move, or downtick.
volatility: The range over which the price of an instrument moves with a given timeframe.
whipsaw: A situation which appears to present a profitable opportunity for trading but immediately moves against the trader upon entering a position.
zero-sum game: An activity in which the success of one participant is directly related to the losses of other participants.
