Trading terms, explained
Every term below in plain English, with real examples — no jargon defining jargon. And because reading only gets you so far, each one links to a place you can practice it with 100% virtual money.
What is a pip?
A pip is the smallest common price step in a currency pair — 0.0001 for most pairs (0.01 for yen pairs). If EUR/USD moves from 1.1000 to 1.1001, it moved one pip.
What are leverage and margin?
Leverage lets you control a position bigger than your cash — at 30:1, $100 of margin controls a $3,000 position. Margin is the slice of your cash the broker reserves while the position is open.
What are stop-loss and take-profit orders?
A stop-loss automatically closes your position when price hits a level you chose, capping the loss. A take-profit does the opposite: it closes the position when price reaches your target, locking in the gain.
What does going long or short mean?
Going long means buying in the expectation that price rises — you profit on the way up. Going short means selling first to profit when price falls: you effectively borrow, sell high, and buy back lower.
What's the difference between a market and a limit order?
A market order executes immediately at the best available current price. A limit order waits: it only executes at your chosen price or better — a buy fills at or below your limit, a sell at or above it.
Win rate vs profit factor: which matters?
Win rate is the percentage of trades that make money. Profit factor is gross profits divided by gross losses — above 1.0 means the strategy makes money overall. A strategy can have a high win rate and still lose if its rare losses outweigh its many small wins.
What is a liquidity sweep (stop-hunt)?
A liquidity sweep (or stop-hunt) is a quick move just past an obvious high or low that triggers the stop-loss orders resting there, then reverses. The stops provide the liquidity that larger players use to fill their own positions.
What is a fair value gap (FVG)?
A fair value gap (FVG) is an imbalance left behind by a fast move: in a three-candle burst, the gap between the first candle's high and the third candle's low (or vice versa) that price never traded through calmly. Markets often come back to 'fill' these gaps.
What is ATR (Average True Range)?
ATR (Average True Range) measures a market's typical bar-to-bar movement — its volatility. An ATR of $2 means the market has recently moved about $2 per bar on average.
What is ADX (Average Directional Index)?
ADX (Average Directional Index) measures trend strength on a 0–100 scale — not direction. Readings below ~20 suggest a choppy, directionless market; above ~25 suggests a real trend is underway.
Unrealized vs realized P&L: what's the difference?
Unrealized P&L is the paper profit or loss on positions you still hold — it moves with the market every second. Realized P&L is profit or loss you locked in by closing a position — it never changes again.
What is a stop-out in leveraged trading?
A stop-out is the automatic, forced closing of a leveraged position when its loss reaches the margin you reserved for it. It's the broker's circuit-breaker — it prevents your account from going below zero.
The fastest way to learn a term is to trade it — risk-free.
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