TRADING DICTIONARY

Financial & Trading Glossary

Clear definitions of essential market terminology, risk metrics, and order execution types.

Stop-Loss Order

Risk Management

Simple Definition:

An automatic instruction to your broker to close a trade at a specific price to prevent further loss if the market moves against you.

Professional Definition:

A conditional market or limit order deployed at a pre-calculated risk price point to limit an investor's maximum dollar draw-down on a given open asset position.

Real World Example:You buy Stock XYZ at $100. You set a Stop-Loss at $95. If the stock falls to $95, your position is automatically closed, capping your loss at $5 per share (5%).

Risk-to-Reward Ratio (R:R)

Risk Management

Simple Definition:

A comparison between the potential loss (risk) and the prospective profit (reward) of a trade.

Professional Definition:

The ratio of potential downside monetary risk versus expected upside profit target. A 1:2 R:R means risking $100 to potentially gain $200.

Real World Example:Entry: $100, Stop Loss: $95 ($5 risk). Take Profit: $110 ($10 reward). R:R = 5:10 = 1:2.

Leverage

Trading Basics

Simple Definition:

Using borrowed capital from a broker to control a much larger trade size than your cash deposit allows.

Professional Definition:

The use of financial margin provided by a brokerage firm to magnify potential return on investment. Leverage increases both gain and loss magnitude proportionally.

Real World Example:With 1:100 leverage, a $100 account deposit allows you to open a $10,000 position in the market. A 1% move = $100 gain or loss.

Pip (Percentage in Point)

Forex Basics

Simple Definition:

The smallest standard price movement unit in a currency pair — typically the 4th decimal place (0.0001).

Professional Definition:

A pip is the unit of change in the exchange rate of a currency pair. For most pairs, 1 pip = 0.0001. For JPY pairs, 1 pip = 0.01.

Real World Example:EUR/USD moves from 1.0850 to 1.0860 — that is a 10 pip move. On a Standard Lot (100,000 units), each pip = approximately $10.

Support & Resistance

Technical Analysis

Simple Definition:

Price levels where the market has historically reversed — Support is a floor where buyers step in, Resistance is a ceiling where sellers dominate.

Professional Definition:

Support and resistance are horizontal price zones of concentrated historical buying (support) or selling (resistance) activity, creating areas of significant supply/demand imbalance.

Real World Example:EUR/USD has reversed upward from 1.0800 three times in the past month — making 1.0800 a key support level. Traders watch this zone for buying opportunities on pullbacks.

Candlestick Chart

Technical Analysis

Simple Definition:

A type of financial chart that shows the Open, High, Low, and Close price for each time period using a "candle" shaped visual element.

Professional Definition:

A candlestick represents the price action for a defined time period (1 minute to monthly). The body shows the difference between Open and Close; the wicks show the High and Low extremes.

Real World Example:A bullish (green) candlestick on the 1-hour chart shows price opened at 1.0820, rose as high as 1.0865 (upper wick), fell as low as 1.0810 (lower wick), and closed at 1.0850.