Reference
Trading Glossary
This trading glossary defines the essential terms every trader and investor runs into, from leverage and margin to Sharpe ratio, drawdown, and the indicators behind chart analysis. Each entry is a plain-English definition you can read in one or two sentences, with no jargon assumed. Use it as a quick reference while you read charts, manage risk, or work with an AI trading copilot like Bullynx. The terms are foundational across stocks, crypto, forex, and commodities, and we link to deeper guides where a concept deserves more than a sentence.
- Leverage
- Leverage is the use of borrowed money to increase the size of a trade beyond your own capital. It magnifies both gains and losses, so a small price move can have an outsized effect. Learn more in leverage and margin explained.
- Margin
- Margin is the deposit a broker requires you to put up to open a leveraged position, acting as collateral. If the position moves against you past a threshold, you may face a margin call to add funds. See leverage and margin explained.
- Short selling
- Short selling is selling a borrowed asset you do not own, hoping to buy it back later at a lower price and keep the difference. Losses are theoretically unlimited because price can rise without a ceiling. Read short selling explained.
- Liquidity
- Liquidity is how easily an asset can be bought or sold without moving its price much. Highly liquid markets have many buyers and sellers and tight spreads; illiquid ones are harder to enter and exit at a fair price.
- Drawdown
- Drawdown is the decline from a portfolio or strategy's peak value to its lowest point before a new peak. Maximum drawdown measures the worst such drop and is a key gauge of downside risk. See our portfolio management guide.
- The Sharpe ratio measures return earned per unit of risk, calculated as excess return over the risk-free rate divided by volatility. A higher Sharpe ratio means better risk-adjusted performance. More in our portfolio management guide.
- Volatility
- Volatility is the degree to which an asset price fluctuates over time, usually measured by standard deviation. Higher volatility means larger and faster price swings, which raises both opportunity and risk.
- Market order
- A market order is an instruction to buy or sell immediately at the best price currently available. It prioritizes speed of execution over price certainty, so the fill price can differ from the last quote.
- Limit order
- A limit order is an instruction to buy or sell only at a specified price or better. It gives you price control but no guarantee of execution, since the market may never reach your limit price.
- Stop-loss
- A stop-loss is an order that automatically closes a position once price reaches a set level, used to cap losses. It converts to a market order when triggered, so the exact fill price is not guaranteed in fast markets.
- Support
- Support is a price level where buying interest has historically been strong enough to halt or reverse a decline. Traders watch it as a potential floor where demand may step in. Learn to spot it in our guide to reading charts.
- Resistance
- Resistance is a price level where selling pressure has historically been strong enough to stop or reverse an advance. It acts as a potential ceiling where supply may overwhelm demand. See our guide to reading charts.
- RSI (Relative Strength Index)
- RSI is a momentum oscillator from 0 to 100 that measures the speed and magnitude of price changes. Readings above 70 are traditionally considered overbought and below 30 oversold (Wilder, 1978). Explore our technical indicators hub.
- MACD (Moving Average Convergence Divergence)
- MACD is a trend-following momentum indicator that shows the relationship between two moving averages of price. Traders watch crossovers of the MACD line and its signal line for shifts in momentum. More in our technical indicators hub.
- Candlestick
- A candlestick is a chart element that shows the open, high, low, and close for one time period. Its body and wicks reveal who controlled the period, buyers or sellers, at a glance. Learn to read them in our guide to reading charts.
- Bid-ask spread
- The bid-ask spread is the gap between the highest price a buyer will pay (bid) and the lowest a seller will accept (ask). A narrow spread signals a liquid market, while a wide spread raises your cost to trade.
- Slippage
- Slippage is the difference between the price you expected on a trade and the price at which it actually executed. It tends to grow in fast-moving or illiquid markets and on large orders.
- P/E ratio (Price-to-Earnings)
- The P/E ratio compares a company share price to its earnings per share, showing how much investors pay for each dollar of earnings. A high P/E can signal growth expectations or overvaluation, depending on context.
- Dividend yield
- Dividend yield is the annual dividend per share expressed as a percentage of the share price. It tells income investors how much cash return a stock pays relative to its cost, before any price change.
- Beta
- Beta measures how much an asset price tends to move relative to the overall market. A beta above 1 means it is more volatile than the market, while below 1 means it is less volatile.
- Stop-limit order
- A stop-limit order combines a stop trigger with a limit price: once price reaches the stop, it places a limit order rather than a market order. It gives you price control but, unlike a plain stop-loss, may not fill if price runs past your limit.
- Trailing stop
- A trailing stop is a stop order that follows price by a set distance as it moves in your favor, locking in gains while capping downside. If price reverses by the trailing amount, the position is closed.
- Take-profit
- A take-profit is an order that automatically closes a position once price reaches a target level, securing a gain. It is the upside counterpart to a stop-loss.
- Order book
- An order book is the live list of outstanding buy and sell orders for an asset at each price level. It shows where demand and supply are stacked and is a core measure of short-term liquidity.
- Market maker
- A market maker is a firm or trader that continuously quotes both a buy and a sell price for an asset, profiting from the spread while providing liquidity. Their presence makes it easier for others to trade without large price jumps.
- Volume
- Volume is the number of shares, contracts, or units traded in a given period. It gauges participation and conviction behind a move, so a breakout on high volume is generally seen as more reliable than one on low volume. See our guide to reading charts.
- Price gap
- A price gap is a break in the chart where an asset opens significantly higher or lower than its previous close, with no trading in between. Gaps often follow news or earnings and may later be partly or fully filled as price retraces.
- After-hours trading
- After-hours trading is buying and selling that takes place outside regular market hours through electronic networks. Volume is typically thinner and spreads wider, so prices can move sharply on small orders.
- Spot price
- The spot price is the current market price at which an asset can be bought or sold for immediate delivery. It contrasts with futures or forward prices, which are agreed now for settlement at a later date.
- Pip
- A pip is the smallest standard price increment in forex, usually the fourth decimal place (0.0001) for most currency pairs. It is the unit traders use to measure gains, losses, and spreads. Size it with our pip value calculator.
- Lot size
- Lot size is the standardized quantity of an asset per trade, such as 100,000 units of the base currency in a standard forex lot. It determines how much each price move is worth in money terms.
- Tick
- A tick is the minimum price movement an asset is allowed to make, set by the exchange. Its value varies by instrument and defines the smallest possible gain or loss per unit.
- Moving average
- A moving average smooths price by averaging it over a set number of periods, helping reveal the underlying trend. Common types are the simple moving average (SMA) and the exponential moving average (EMA), which weights recent prices more heavily. See moving averages explained.
- Bollinger Bands
- Bollinger Bands plot a moving average with an upper and lower band set a number of standard deviations away, so the bands widen and narrow with volatility. Price touching a band marks a relatively high or low level, not an automatic buy or sell. More in Bollinger Bands explained.
- Average True Range (ATR)
- Average True Range (ATR) measures volatility as the average size of price ranges over a set period. A higher ATR means larger swings, and traders often use it to size stops and targets. Explore our technical indicators hub.
- Trend
- A trend is the general direction of price over time: an uptrend makes higher highs and higher lows, a downtrend makes lower highs and lower lows, and a sideways market does neither. Traders generally prefer to trade with the trend rather than against it. Learn to spot it in our guide to reading charts.
- Breakout
- A breakout is when price moves decisively beyond a defined support or resistance level, often on rising volume, suggesting the start of a new move. A false breakout quickly reverses back into the prior range.
- Divergence
- Divergence is when price and an indicator such as RSI or MACD move in opposite directions, hinting that the current trend may be weakening. It is a warning sign rather than a precise timing signal.
- Fibonacci retracement
- Fibonacci retracement draws horizontal levels at key ratios (38.2%, 50%, 61.8%) of a prior move to mark where price might pause or reverse during a pullback. The levels are reference zones, not guarantees. See Fibonacci retracement.
- Golden cross
- A golden cross is when a shorter moving average (often the 50-day) crosses above a longer one (often the 200-day), traditionally read as a bullish trend signal. Because it uses lagging averages, it confirms a move rather than predicting it.
- Death cross
- A death cross is when a shorter moving average (often the 50-day) crosses below a longer one (often the 200-day), traditionally read as a bearish trend signal. Like the golden cross, it is a lagging confirmation, not a forecast.
- Overbought
- Overbought describes an asset that has risen far and fast enough that momentum indicators, such as an RSI above 70, flag it as stretched. It signals elevated risk of a pullback, not a guaranteed reversal.
- Oversold
- Oversold describes an asset that has fallen far and fast enough that momentum indicators, such as an RSI below 30, flag it as stretched to the downside. It points to a possible bounce, but a strong downtrend can stay oversold for a while.
- Timeframe
- A timeframe is the period each candle or bar on a chart represents, from one minute to one month. Shorter timeframes suit active trading and longer ones suit investing, and many traders check several at once for context.
- Position sizing
- Position sizing is deciding how much capital to commit to a single trade, usually so that a loss stays within a set percentage of your account. It is one of the most important risk controls, often more decisive than entry timing. More in trading risk management.
- Risk/reward ratio
- The risk/reward ratio compares how much you stand to lose on a trade against how much you aim to gain, for example risking 1 to make 3. A favorable ratio lets you stay profitable even with a modest win rate. See risk/reward ratio explained.
- Diversification
- Diversification is spreading capital across different assets, sectors, or strategies so that no single loss can sink the whole portfolio. It reduces asset-specific risk but cannot remove broad market risk. Read portfolio diversification.
- Hedging
- Hedging is taking an offsetting position to reduce the risk of an existing one, such as buying a put option to protect a stock holding. It limits downside but usually caps gains or costs a premium.
- Standard deviation
- Standard deviation measures how widely values spread around their average, and in markets it is a common gauge of volatility. A higher standard deviation means returns are more dispersed and the asset is riskier.
- Correlation
- Correlation measures how two assets move in relation to each other, from +1 (move together) to -1 (move opposite). Combining assets with low or negative correlation is the basis of effective diversification. See our portfolio management guide.
- Alpha
- Alpha is the return an investment earns above or below what its market exposure would predict, used as a measure of skill. Positive alpha means it outperformed its benchmark on a risk-adjusted basis.
- Market capitalization
- Market capitalization is the total value of a company's shares, calculated as share price times shares outstanding. It sorts companies into large, mid, and small cap, which tend to differ in risk and growth. Learn more in how to analyze a stock.
- Earnings per share (EPS) is a company's profit divided by its number of outstanding shares, showing profitability on a per-share basis. It is a key input to the price-to-earnings ratio and a focus of quarterly earnings reports. See how to read an earnings report.
- Bull market
- A bull market is a sustained period of rising prices and optimism, often defined as a gain of 20% or more from recent lows. It is the opposite of a bear market.
- Bear market
- A bear market is a sustained period of falling prices and pessimism, commonly defined as a decline of 20% or more from recent highs. It is the opposite of a bull market.
- ETF (Exchange-traded fund)
- An ETF is a fund that holds a basket of assets, such as the stocks in an index, and trades on an exchange like a single stock. It offers instant diversification at low cost with intraday liquidity.
- Dollar-cost averaging
- Dollar-cost averaging is investing a fixed amount on a regular schedule regardless of price, which smooths your average entry and removes the pressure to time the market. It can lower average cost in choppy markets but does not guarantee a profit. Read dollar-cost averaging explained.
- Compounding
- Compounding is earning returns on both your original capital and the returns it has already generated, so growth accelerates over time. Reinvesting gains is what turns steady returns into outsized long-term results. See compound interest in trading.
Keep learning
- Technical indicators: RSI, MACD, moving averages, and more.
- How to read charts: candlesticks, support, and resistance.
- Portfolio management: Sharpe ratio, drawdown, and diversification.
See these concepts on a real chart. Upload any chart screenshot and Lynx AI points out the structure, levels, and setups it finds, a faster way to learn than definitions alone.
Educational only. Not financial advice. Read the risk disclosure.