Glossary.

Account statementThe broker's record of every trade, deposit, withdrawal and charge on an account over a period. It is the primary record for tax and for checking any published result. Page 39. ADXAverage directional index, an indicator that measures the strength of a trend without regard to its direction. Readings below about 20 are usually read as a ranging market. Page 35. Algorithmic tradingTrading in which orders are generated and placed by a program following fixed rules. An Expert Advisor is the retail form. Page 19. ArbitrageBuying and selling the same thing in two places at once to capture a price difference. In retail trading the term usually means latency arbitrage, which breaches broker terms. Page 94. Asian sessionThe trading period centred on Tokyo, roughly midnight to 9am UK time, with lower volume in European pairs. Page 73. ASICThe Australian Securities and Investments Commission, the regulator for Australian brokers. Page 89. AskThe price at which the broker will sell to you, and therefore the price at which you buy. Always above the bid. Page 9. ATRAverage true range, the average size of a bar's full movement over a set number of bars, used to measure volatility and to set stops. Page 34. Averaging downAdding to a losing position to lower its average entry price, so that a smaller recovery brings it to breakeven. The mechanism behind grid trading. Page 57. B-book brokerA broker that takes the other side of client trades rather than passing them to the market. Legitimate when regulated; the same thing as a market maker. Page 21. BacktestA simulation of a strategy over historical prices. Useful for checking logic and shape; never a forecast. Pages 45 and 46. BalanceThe money in an account after all closed trades, excluding open positions. Page 30. Base currencyThe first currency in a pair, the one being bought or sold. In EUR/USD it is the euro. Page 1. Basket tradeA set of positions opened together and managed as one, usually closed when their combined result reaches a target. Common in grid systems. Page 57. Bear marketA sustained falling market. Page 62. BidThe price at which the broker will buy from you, and therefore the price at which you sell. Charts in MetaTrader are drawn from it. Page 9. Bond yieldThe interest return on a government bond, which moves continuously and reflects expectations for interest rates. Page 80. Breakeven stopA stop loss moved to the entry price once a trade is in profit, so that the trade can no longer lose. Page 12. BrokerThe firm that holds a trading account, quotes prices and fills orders. Page 21. Bull marketA sustained rising market. Page 62. CAGRCompound annual growth rate, the constant yearly return that would have turned the starting balance into the ending balance over the period. Page 78. Calmar ratioAnnual return divided by maximum drawdown, usually over three years. Page 59. CandlestickA bar showing a period's open, high, low and close as a body and two wicks. Page 15. Cent accountAn account denominated in cents, allowing live trading at a hundredth of normal size. Page 92. Central bankThe institution that sets a currency's interest rate, such as the Federal Reserve, the Bank of England or the European Central Bank. Page 80. CFDContract for difference, an agreement to exchange the change in an asset's price between opening and closing, without owning the asset. Page 2. Chart patternA named shape in price such as a double top or head and shoulders, traded on a traditional interpretation. Page 88. CommissionA fixed charge per lot per trade, levied on raw-spread accounts in place of a wider spread. Page 7. CompoundingThe growth that results from sizing positions as a percentage of a balance that itself grows. Page 78. Consistency ruleA prop firm rule capping how much of an evaluation's profit may come from a single day. Page 86. Copy tradingReproducing another trader's positions in your own account, through a signal service or copier. Page 75. CorrelationA measure from plus one to minus one of how closely two markets or two strategies move together. Page 32. CPIConsumer price index, the main measure of inflation and the release that most directly moves rate expectations. Page 80. cTraderA trading platform offered by some brokers, with its own automation in C#. Page 84. Currency pairTwo currencies quoted against each other, such as GBP/USD. Page 1. Curve fittingAdjusting a strategy's parameters until it matches past data, capturing the noise along with any pattern. Page 48. Custom indicatorAn indicator supplied as a compiled file rather than built into the platform. Page 90. CySECThe Cyprus Securities and Exchange Commission, the EU regulator most retail brokers use. Page 89. Daily loss limitA prop firm rule setting the most an account may lose in one day, usually measured on equity. Page 41. Day tradingHolding trades for minutes to hours and closing before the daily rollover. Page 77. DD95The drawdown level that 95 per cent of simulated reorderings of a strategy's trades stayed within. A planning figure. Page 69. Dealing deskA broker that fills client orders internally rather than passing them to the market. Page 21. Demo accountAn account trading real prices with imaginary money. Page 18. Deposit bonusCredit added by a broker on deposit, subject to conditions, and prohibited for UK retail clients. Page 92. DLLA Windows code library that an EA may call. The platform asks permission, which should normally be refused. Page 90. Dollar indexAn index of the US dollar against a basket of major currencies. Page 80. DrawdownThe fall from an account's peak to its subsequent low, as a percentage of the peak. Page 28. Drawdown controllerA utility EA that closes all positions when equity falls to a set level. Page 93. ECN brokerA broker that passes client orders to an electronic network of liquidity providers and charges a commission. Page 21. EquityBalance plus the floating profit or loss on open positions. The true value of the account. Page 30. Equity curveA chart of equity over time. The honest shape of a record. Page 30. ESMAThe European Securities and Markets Authority, which sets EU product rules for retail CFDs. Page 89. Exotic pairA pair involving a less freely traded currency, with wide spreads. Page 1. ExpectancyThe average result per trade, combining win rate, average winner and average loser. Page 27. Expert AdvisorA program that trades a MetaTrader account automatically according to fixed rules. Page 19. FCAThe Financial Conduct Authority, the UK regulator for brokers and investment activity. Pages 81 and 89. FillThe execution of an order at a price. Page 10. FOMCThe Federal Open Market Committee, the body within the US Federal Reserve that sets interest rates. Page 80. ForexThe market for exchanging one currency for another. Page 1. Forward testRunning a fixed strategy on live prices from a stated start date, before the results are known. Page 47. Free marginEquity minus the margin held against open positions; the amount available for new trades. Page 5. FSCSThe Financial Services Compensation Scheme, covering eligible claims up to £85,000 against a failed FCA-authorised firm. Page 21. Fundamental analysisAssessing markets from economic data, interest rates and policy rather than from price. Page 80. Funded accountThe account a prop firm allocates after an evaluation is passed, usually simulated. Page 41. FX BlueA free service for publishing and analysing a trading record. Page 85. GDPGross domestic product, the quarterly measure of an economy's output. Page 80. Grid tradingOpening additional positions at set intervals as price moves against the first, closing the set when it recovers. Page 57. Hard stopA stop loss held at the broker's server, executing whether or not the platform is running. Page 11. Hedging accountA MetaTrader 5 account type that allows several positions in the same instrument at once. Page 22. Hedging, as a strategyOpening an opposite position instead of closing a losing one. A way of holding a loss open. Page 57. High-frequency tradingTrading many times a second, an institutional activity that retail latency and costs rule out. Page 77. Investor passwordA read-only login to a MetaTrader account, used by verification services. Page 71. KYCKnow Your Customer, the identity verification a regulated broker must complete. Page 82. LatencyThe delay between sending an order and its execution. Page 51. Latency arbitrageTrading against a broker's stale quotes using a faster price feed. Prohibited by broker terms. Page 94. LeverageThe ratio between a position's size and the margin needed to hold it. Page 5. Limit orderA pending order to buy below or sell above the current price, filling only at that price or better. Page 10. LiquidityThe amount that can be traded at a price without moving it. Page 74. Liquidity providerA bank or firm that quotes prices to a broker. Page 21. London sessionThe trading period from about 8am to 5pm UK time, the largest by volume. Page 73. LotThe unit of position size. A standard lot is 100,000 units of the base currency; a micro lot is 1,000. Page 4. Magic numberAn identifier attached to every order an EA places, so that it manages only its own trades. Page 43. MAMMulti-account manager, a structure letting one manager trade many separate accounts at once. Page 76. MarginThe deposit the broker holds against an open position. Page 5. Margin callThe broker's warning when the margin level falls below a set threshold, after which new orders are refused. Page 31. Margin levelEquity divided by margin in use, as a percentage. Page 31. Market executionAn execution mode in which orders fill at the best available price without requotes. Page 10. Market makerA broker or firm that quotes both sides of a market and takes the other side of client trades. Page 21. MartingaleIncreasing position size after each loss so that one win recovers everything. Page 57. Maximum drawdownThe largest peak-to-trough fall in an account's history. Page 29. MetaTrader 4 and 5The two MetaQuotes platforms, not compatible with each other. New EAs are written for MT5. Page 83. MiFID IIThe EU directive setting the framework for investment services, retained in UK law. Page 81. Minimum trading daysA prop firm rule requiring trades on a set number of days before a pass. Page 86. Monte Carlo simulationReshuffling a strategy's trades many times to estimate the range of possible drawdowns. Page 50. MQL4 and MQL5The programming languages of MetaTrader 4 and 5. Page 83. MQL5 MarketThe store inside MetaTrader where EAs are bought and rented. Page 87. MQL5 SignalsMetaQuotes' service for publishing and copying trading accounts. Page 58. Multi-strategy systemAn EA running several independent strategies at once. Page 53. MyfxbookA service for publishing and verifying trading records. Page 85. Negative balance protectionThe rule that a retail account cannot go below zero, required of FCA and EU brokers. Page 5. Netting accountA MetaTrader 5 account type holding at most one position per instrument. Page 22. New York sessionThe trading period from about 1pm to 10pm UK time. Page 73. News filterA control that blocks new trades in a window around scheduled releases. Page 36. NFPNon-farm payrolls, the monthly US employment report and the most watched data release. Page 36. Offshore brokerA broker licensed in a jurisdiction with minimal regulation, offering high leverage and little protection. Page 89. OrderAn instruction to the broker to open or close a position, either now or at a set price. Page 10. Out-of-sample testingTesting a strategy on data that was not used in building it. Page 48. OverfittingSee curve fitting. Page 48. PAMMPercentage allocation management module, a pooled account traded by one manager. Page 76. Parameter optimisationRunning a backtest across many parameter values to find the best; the usual route to overfitting. Page 48. Pending orderAn order that waits for the market to reach a set price before executing. Page 10. Performance feeA manager's share of profits. Page 76. PipThe standard unit of price movement, the fourth decimal place for most pairs and the second for yen pairs. Page 3. PMIPurchasing managers' index, a monthly survey of business activity. Page 80. PointThe smallest price increment on the platform. On a five-decimal broker, a pip is ten points. Page 3. Position sizingCalculating lot size from the amount at risk and the distance to the stop. Page 23. Position tradingHolding trades for weeks to months. Page 77. PPIProducer price index, inflation measured at the producer level. Page 80. Profit factorGross profit divided by gross loss. Page 95. Prop firmA firm that sells evaluations leading to a funded account and a share of profits. Pages 41 and 86. Quantitative easingA central bank buying bonds to lower longer-term rates. Page 80. R multipleA trade's result expressed as a multiple of the amount it risked. Page 25. RangeA period in which price moves between a ceiling and a floor without trending. Page 35. Rate decisionA scheduled central bank announcement of its interest rate. Page 80. Raw spread accountAn account with near-zero spreads and a separate commission. Page 7. Recovery factorNet profit divided by maximum drawdown. Page 95. RegimeA period in which a market behaves in a characteristic way, such as trending, ranging or volatile. Page 62. Regulated brokerA broker authorised by a recognised regulator such as the FCA. Page 21. RequoteA broker's offer of a new price when the requested one is no longer available, under instant execution. Page 37. Reset, prop firmPaying to restart an evaluation after a rule breach. Page 86. Risk of ruinThe probability of losing enough that recovery is impractical, given a strategy's edge and risk per trade. Page 24. Risk paritySizing each component of a portfolio so that each contributes equal risk. Page 63. Risk per tradeThe fraction of the account a single trade can lose at its stop. Page 24. Risk to rewardThe ratio between a trade's potential loss at the stop and its potential gain at the target. Page 25. RolloverThe daily point, 10pm UK time, at which the trading day ends and swap is applied. Page 8. ScalpingTrading for a few pips many times a day. Page 77. Segregated accountA client-money account kept apart from the broker's own funds, required of regulated brokers. Page 21. Serial correlationThe tendency of a strategy's results to depend on the results before them, producing streaks. Page 67. SessionOne of the three overlapping trading periods in the forex day. Page 73. Set fileA saved file of an EA's input settings. Page 44. Sharpe ratioReturn above the risk-free rate divided by the standard deviation of returns. Page 59. Signal serviceA service publishing a trader's positions for others to copy. Page 75. SlippageThe difference between the requested price and the filled price. Page 37. Sortino ratioLike the Sharpe ratio but counting only downside variability. Page 59. SpreadThe difference between the ask and the bid, and the first cost of every trade. Page 6. SQNSystem quality number, a statistic combining average trade, consistency and trade count. Page 95. Stop lossAn order that closes a position at a set price if the market moves against it. Page 11. Stop orderA pending order to buy above or sell below the current price, becoming a market order when reached. Page 10. Stop outThe broker closing positions when the margin level falls to its stop-out threshold. Page 31. Strategy testerMetaTrader's built-in backtesting tool. Page 45. Survivorship biasJudging a population by the members that remain visible, which overstates their quality. Page 61. SwapThe overnight interest charge or credit on a position held past the rollover. Page 8. Swap-free accountAn account with no overnight interest, often replaced by an administration fee. Page 8. Swing tradingHolding trades for days to a few weeks. Page 77. Tail riskThe risk of extreme moves far larger than ordinary volatility predicts. Page 66. Take profitAn order that closes a position at a set price in profit. Page 12. TemplateA saved chart layout in MetaTrader. Page 90. Third-party verificationPublication of a trading record by an independent service connected directly to the broker. Pages 40 and 71. TickA single change in price. Page 45. Tick dataHistorical price data at the level of individual price changes, the most detailed basis for a backtest. Page 45. Time-weighted returnA return measure that removes the effect of deposits and withdrawals. Page 78. TimeframeThe period each bar on a chart represents, from one minute to one month. Page 15. Trade copierSoftware that reproduces trades from one account in another. Page 75. Trade managerA utility EA that manages positions opened by hand or by another program. Page 93. Trading planA written statement of what will be done, decided in advance. Page 38. Trailing stopA stop loss that moves behind a rising price to lock in gains. Page 12. TrendA sustained move in one direction, with higher highs and higher lows or the reverse. Page 35. Triple swapThe weekday on which three days of swap are charged to cover the weekend. Page 8. Value at riskAn estimate of the loss a portfolio would not exceed over a period at a given confidence level. Page 66. Verified recordA trading record published by a third party from a read-only connection to the broker. Page 40. VolatilityThe size of a market's price movements over a period. Page 34. Volatility targetingScaling exposure so that a strategy's own volatility stays near a chosen level. Page 64. Volume, tickIn forex, the number of price changes in a bar, used as a proxy for activity. Page 16. VPSA virtual private server, a rented remote computer that runs MetaTrader continuously. Page 20. Walk-forward testingChoosing parameters on one window of data and testing them on the next, repeatedly. Page 49. Weekend holding ruleA prop firm rule requiring positions closed before the weekend. Page 86. Win rateThe percentage of trades that close in profit. Page 26.