The Market
Dictionary.
Every essential term, concept, and piece of jargon explained with honest, UK-focused clarity. From "Alpha" to "Zero-Day Options."
A
Arbitrage
The simultaneous purchase and sale of the same asset in different markets to profit from tiny differences in the asset's listed price.
Ask Price
The price a seller is willing to accept for a security.
Algorithm
A set of rules designed to execute a trading strategy automatically.
Accumulation
A phase in the market cycle where institutional investors are quietly buying a large position in an asset.
Ascending Triangle
A continuation pattern characterized by a horizontal resistance line and an ascending support line.
Asset Class
A broad category of financial instruments that share similar characteristics and tend to behave similarly in the market — forex, equities, commodities, and indices are each their own asset class.
B
Bull Market
A market condition where prices are rising or expected to rise.
Bear Market
A market condition where prices are falling or expected to fall.
Bollinger Bands
A technical analysis tool defined by a set of trendlines plotted two standard deviations away from a simple moving average.
Bid Price
The price a buyer is willing to pay for a security.
Breakout
When the price of an asset moves above a resistance level or below a support level with increased volume.
Base Currency
The first currency in a forex pair quotation.
Block Trade
A significantly large trade, typically executed outside the open market.
Break-Even
The price point at which a trade has zero profit and zero loss.
Black Swan Event
An unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences.
Backtesting
The process of testing a trading strategy using historical data to see how it would have performed in the past.
Bull Flag
A continuation pattern that occurs after a sharp price increase (the pole) followed by a short period of consolidation (the flag).
Bear Flag
A continuation pattern that occurs after a sharp price decline followed by a short period of upward consolidation.
Broker
A regulated company or individual that executes trades on your behalf, providing market access, a trading platform, and account infrastructure in exchange for a spread or commission.
C
Candlestick Chart
A style of financial chart used to describe price movements of a security, derivative, or currency.
Central Bank
A national bank that provides financial and banking services for its country's government and commercial banking system.
CFD (Contract for Difference)
A CFD lets you speculate on price movements without owning the underlying asset, using leverage — making it the primary instrument for UK retail traders.
Commodities
Raw materials and primary goods — gold, oil, wheat, coffee — traded on global markets as assets in their own right.
Correlation
A statistical measure of how two securities move in relation to each other.
Contango
A situation in the futures market where the forward price of a commodity is higher than the spot price.
Capitulation
The point in time when investors give up any previous gains by selling their positions during periods of decline.
Confirmation
The use of an additional indicator or signal to verify a trade setup.
Correlation Coefficient
A statistical measure that calculates the strength of the relationship between the relative movements of two securities.
Convergence
When the price of an asset and a technical indicator move in the same direction, confirming the current trend.
Carry Trade
A strategy that involves borrowing a currency with a low interest rate to buy a currency with a higher interest rate.
Curve Fitting
The error of over-optimizing a trading strategy to fit historical data so perfectly that it fails in real-time trading.
Cup and Handle
A bullish continuation pattern where the price forms a "U" shape (the cup) followed by a slight downward drift (the handle).
Cryptocurrency
A digital currency secured by cryptography and operating on a decentralised blockchain network, traded 24/7 on global markets with high volatility.
Currency Pair
Two currencies quoted together, where one is bought and the other sold simultaneously — for example GBP/USD. The first currency listed is the base currency; the second is the quote currency.
D
Drawdown
The peak-to-trough decline during a specific period for an investment or trading account.
Doji
A candlestick pattern that forms when a security's open and close are virtually equal.
Day Trading
The practice of buying and selling financial instruments within the same trading day.
Divergence
When the price of an asset moves in the opposite direction of a technical indicator.
Dividend
A distribution of a portion of a company's earnings to its shareholders.
Dead Cat Bounce
A temporary recovery in asset prices after a prolonged decline.
Dark Pool
A private financial exchange where institutional investors can trade without exposing their orders to the public.
Drawdown Limit
The maximum allowed loss on a trading account before trading privileges are suspended.
Direct Market Access (DMA)
Electronic facilities that allow traders to interact directly with the order book of an exchange.
Drawdown Recovery
The amount of profit required to return an account to its previous peak after a loss.
Distribution
A phase in the market cycle where institutional investors are quietly selling their large positions to retail traders.
Diversification
The practice of spreading investments across different assets to reduce overall risk.
Delta Volume
The difference between the volume traded at the ask price and the volume traded at the bid price.
Double Top
A bearish reversal pattern that occurs after an asset reaches a high price twice with a moderate decline between the two peaks.
Double Bottom
A bullish reversal pattern that occurs after an asset reaches a low price twice with a moderate rise between the two lows.
Descending Triangle
A continuation pattern characterized by a horizontal support line and a descending resistance line.
Demo Account
A simulated trading account funded with virtual money, using real market prices and a real platform — allowing practice without financial risk.
E
Engulfing Pattern
A reversal pattern that can be bearish or bullish depending on whether it appears at the end of an uptrend or downtrend.
Economic Calendar
A schedule of upcoming economic news releases and events.
Equity
The total value of a trading account, including unrealized profits and losses.
Exchange Rate
The value of one currency for the purpose of conversion to another.
Execution
The completion of a buy or sell order in the market.
Exotic Pairs
Currency pairs that consist of one major currency and one from a developing or emerging economy.
ECN Broker
Electronic Communication Network; a broker that connects retail traders directly to Tier 1 liquidity providers.
Elliott Wave
A form of technical analysis that looks for recurrent long-term price patterns related to persistent changes in investor sentiment.
Expert Advisor (EA)
An automated trading system used in the MetaTrader platform.
Engulfing Candle
A reversal pattern consisting of two candlesticks where the second candle completely "engulfs" the body of the first.
F
Fundamental Analysis
The study of economic, financial, and geopolitical factors to determine the value of an asset.
Fibonacci Retracement
A technical analysis tool used to identify potential support and resistance levels based on the Fibonacci sequence.
Fill Price
The exact price at which a trade was executed.
Fiat Currency
A national currency that is not pegged to the price of a commodity such as gold or silver.
Fat Finger Trade
An error in an electronic trade caused by a human typing the wrong price or volume.
Fibonacci Extension
A tool used to predict potential price targets beyond the current trend.
Fair Value Gap (FVG)
An imbalance in price action where a candle moves so quickly that it leaves a "gap" in the price delivery.
Footprint Chart
A type of candlestick chart that shows the specific volume traded at every price level within each candle.
Forex (FX)
The global market where national currencies are exchanged — the world's largest and most liquid financial market, operating 24 hours a day, five days a week.
Funded Account
A live trading account funded with a prop firm's capital after a trader passes the firm's evaluation process, rather than the trader's own money.
G
Gap
A break in price action where no trading has occurred, typically between the Friday close and Sunday open.
Guaranteed Stop Loss
A premium stop loss order that guarantees your trade will be closed at your exact price, regardless of market gaps or slippage.
Going Long
The act of buying an asset with the expectation that it will rise in value.
Going Short
The act of selling an asset you do not own with the expectation that it will fall in value.
H
Hammer
A bullish reversal candlestick pattern that forms during a downtrend.
Hedging
An investment made with the intent of reducing the risk of adverse price movements in an asset.
Half-Pip
A price movement equal to 0.5 of a standard pip.
HFT
High-Frequency Trading; a method of trading that uses powerful computer programs to transact a large number of orders in fractions of a second.
Hedging Strategy
A method of reducing risk by taking offsetting positions in related assets.
Head and Shoulders
A reversal pattern consisting of a large peak (the head) between two smaller peaks (the shoulders).
I
Indicator
A mathematical calculation based on an asset's price and/or volume.
Inflation
The rate at which the general level of prices for goods and services is rising.
Interest Rate
The amount charged by a lender to a borrower for the use of assets.
Intraday
Occurring within the course of a single business day.
Imbalance
A situation in the market where there is an excess of buy orders over sell orders (or vice versa).
Institutional Trading
The buying and selling of assets by large organizations, such as banks, hedge funds, and pension funds.
Index / Indices
A market index measures the combined performance of a defined group of stocks, such as the FTSE 100 (the 100 largest UK-listed companies) or the S&P 500.
K
L
Lot Size
A lot is the standardized unit used to measure the volume of a trade. It dictates exactly how much money each pip of movement is worth.
Leverage
Borrowed capital from your broker that lets you control a position larger than your deposit — amplifying both profits and losses equally.
Long Position
Buying an asset with the expectation that its value will increase.
Liquidity
The ease with which an asset can be bought or sold without affecting its price.
Lot
The standard unit for measuring the size of a trade.
Liquidity Grab
A price movement designed to trigger stop-loss orders in order to "collect" liquidity for a larger move in the opposite direction.
M
Margin
Margin is the portion of your account balance that the broker "locks away" as collateral to keep your leveraged position open.
Moving Average (MA)
A technical indicator that smooths out price action by filtering out the "noise" from random short-term price fluctuations.
MACD
Moving Average Convergence Divergence; a trend-following momentum indicator.
Major Pairs
The most heavily traded currency pairs in the world, all of which contain the US Dollar.
Momentum
The speed or velocity of price changes in a security or market.
Margin Call
A broker's demand that a trader deposit more money to cover potential losses on open positions.
Market Sentiment Analysis
The process of gauging the overall "mood" of market participants.
Market Maker
A firm or individual that provides liquidity to a market by being ready to buy and sell at all times.
Monte Carlo Simulation
A mathematical technique used to estimate the probability of various outcomes in a process that cannot easily be predicted due to the intervention of random variables.
Market Microstructure
The study of how the specific rules and mechanisms of an exchange affect the trading process.
N
NFP (Non-Farm Payroll)
A key economic indicator for the US economy, representing the number of jobs added or lost in the previous month, excluding the farming industry.
No Dealing Desk (NDD)
A broker model where orders are passed directly to liquidity providers without being handled by a dealer.
O
Oscillator
A technical analysis tool that constructs high and low bands between two extreme values, and then builds a trend indicator that fluctuates within these bounds.
Overbought
A situation in which the price of an asset has risen to such a degree that it is considered to be above its intrinsic value.
Oversold
A situation in which the price of an asset has fallen to such a degree that it is considered to be below its intrinsic value.
Order Book
An electronic list of buy and sell orders for a specific security or financial instrument, organized by price level.
Over-Leveraging
The practice of using too much borrowed capital relative to your account size.
Order Block
A specific area on a chart where institutional participants have placed large buy or sell orders.
Order Flow
The stream of buy and sell orders currently entering the market.
Overfitting
A modeling error where a trading algorithm is so complex that it "memorizes" historical data rather than learning underlying patterns.
P
Pip
A "pip" (percentage in point) is the foundational unit of measurement in forex trading, representing the smallest standard price move in an exchange rate.
Pattern
A distinctive formation created by the movement of security prices on a chart.
Pipette
A fractional pip, equal to one-tenth of a pip.
Pivot Point
A technical analysis indicator used to determine the overall trend of the market over different timeframes.
Position
The amount of a security, commodity, or currency that is owned (long) or borrowed (short) by an individual.
Price Action
The movement of a security's price plotted over time.
Pullback
A temporary fall in the price of an asset from its recent peak.
Pyramiding
The strategy of adding to a winning position as the price moves in your favor.
Pip Value
The monetary value of a one-pip move in a currency pair, based on the position size.
Prop Firm
A proprietary trading firm that funds traders who pass an evaluation challenge, allowing them to trade larger capital in exchange for a share of profits.
Q
R
Resistance
A price level where a rising market finds selling pressure and struggles to break above.
RSI (Relative Strength Index)
A momentum oscillator that measures the speed and change of price movements.
Rally
A period of sustained increase in the prices of stocks, bonds, or indexes.
Range
The difference between the high and low prices of an asset during a given period.
Risk-to-Reward Ratio (R:R)
A measure used by traders to compare the potential profit of a trade to its potential loss.
Risk-On / Risk-Off
A market environment where investors either seek out risk (Risk-On) or flee to safety (Risk-Off).
Risk of Ruin
The probability that a trader will lose so much capital that they can no longer continue trading.
Retail Trader
An individual trader who trades for their own account, rather than for an organization.
Rollover
The process of extending the settlement date of an open position to the next business day.
S
Spread
The spread is the difference between the bid (sell) price and the ask (buy) price. It is the immediate cost of executing a trade.
Short Position
Selling an asset (or a contract) with the expectation that its value will decrease.
Stop Loss
An order placed with a broker to sell (or buy) an asset when it reaches a certain price, to limit losses.
Slippage
The difference between the expected price of a trade and the price at which the trade is actually executed.
Support
A price level where a falling market finds buying interest and struggles to break below.
Scalping
A trading style specializing in profiting from small price changes and making a fast profit off reselling.
Sentiment
The overall attitude of investors toward a particular security or financial market.
Sovereign Debt
Debt issued by a national government in a foreign currency, in order to finance the issuing country's growth and development.
Spread Betting
A tax-efficient way of speculating on the price movement of various types of financial instruments.
Stochastic Oscillator
A momentum indicator comparing a particular closing price of a security to a range of its prices over a certain period of time.
Supply and Demand
The primary drivers of price in any free market.
Swing Trading
A style of trading that attempts to capture gains in a stock (or any financial instrument) over a period of a few days to several weeks.
Scalp Trading
A hyper-short-term trading style focusing on capturing tiny price moves.
Slippage Tolerance
The maximum amount of price difference a trader is willing to accept to get an order filled.
Stop-Out Level
The specific margin level at which a broker automatically closes a trader's open positions.
Stop Hunt
A deliberate attempt to push the price of an asset to a level where many traders have placed their stop-loss orders.
Smart Money
Capital controlled by institutional investors, central banks, and other financial professionals.
Swap Rate
The interest rate differential between the two currencies in a forex pair, applied to positions held overnight.
Stock / Share
A unit of ownership in a company, entitling the holder to a proportional share of its profits and assets.
T
Take Profit
An order placed to close a profitable trade once it reaches a specific price target.
Technical Analysis
The study of past price action and volume to predict future price movements.
Tape Reading
A technique used by stock traders to analyze the price and volume of a given stock.
Technical Indicator
A heuristic or pattern-based signal produced by the price, volume, and/or open interest of a security or contract used by traders who follow technical analysis.
Tick
The smallest possible change in price for a financial instrument.
Trailing Stop
A type of stop loss order that moves automatically as the price of an asset moves in your favor.
Trend
The general direction in which a market or the price of an asset is moving.
Trading Journal
A record of all trades made, including the rationale, entry/exit points, and psychological state.
TWAP (Time Weighted Average Price)
An algorithmic execution strategy that calculates the average price of an asset over a specific time period.
Trading
The buying and selling of financial instruments with the aim of profiting from price movements over shorter time frames than traditional investing.
Trading Platform
Software that connects traders to financial markets, enabling order placement, chart analysis, and position management — the primary interface between a trader and their broker.
Trading Account
The account held with a broker that is used to fund and execute live trades, distinct from a demo account, which uses virtual funds instead of real capital.
V
W
Wick
The thin line on a candlestick that shows the high and low prices reached during a specific period.
Wash Trading
A form of market manipulation where a trader buys and sells the same asset to create misleading market activity.
Walk Forward Analysis
A technique for evaluating a trading strategy by optimizing it on one segment of data and testing it on a subsequent "out-of-sample" segment.
Wedge Pattern
A chart pattern characterized by two converging trendlines, either rising or falling.