Trading mechanics

Break-even stop

Moving a stop loss to the entry price once a trade is far enough into profit, so the position can no longer produce a loss. It removes risk from the trade at the cost of a tighter exit.

Commission

An explicit per-lot charge for executing a trade, usually quoted per side. Two sides make a round turn, so the quoted figure has to be doubled to get the cost of a completed trade.

Execution

The process of turning an order into a filled position - the price received, the delay before it arrives, and whether the order is filled in full. It is where a strategy meets reality.

Free margin

Equity minus the margin currently committed to open positions. It is what remains available to open new trades or to absorb floating losses on the ones already running.

Hedging

Holding opposing positions in the same or correlated instruments so that one offsets the other. Used genuinely it manages exposure; used across accounts it is an attempt to game an evaluation.

Leverage

The ratio between the notional size of a position and the margin required to hold it. At 1:50, $2,000 of margin supports a $100,000 position - it changes what you can open, not what you may lose.

Limit order

An instruction to trade only at a specified price or better. It controls the price but not the fill: if the market never reaches the level, or passes through it too quickly, the order does not execute.

Liquidity

How much can be traded at a given price without moving it. Deep liquidity produces tight spreads and reliable fills; thin liquidity produces wide spreads, slippage and gaps.

Lot

The unit position size is measured in. One standard forex lot is 100,000 units of the base currency; mini and micro lots are one tenth and one hundredth of that.

Margin

The portion of account equity set aside to hold an open position. It is a deposit against the position rather than a cost, and it is returned to free margin when the position closes.

Margin call

A warning issued when equity falls to a set percentage of the margin required for open positions. It signals that the account is close to being unable to support the trades it holds.

Market order

An instruction to trade immediately at the best price available. It prioritises certainty of execution over certainty of price, so it will always fill but not always where expected.

Micro lot

1,000 units of the base currency, one hundredth of a standard lot. Worth roughly $0.10 per pip on most dollar-quoted pairs, it is the smallest size most accounts can trade.

Mini lot

10,000 units of the base currency, one tenth of a standard lot. On most dollar-quoted pairs it is worth about $1 per pip, which is the size most small evaluation accounts actually trade.

Partial close

Closing part of a position while leaving the remainder open. It banks some of the result and reduces the risk carried by the trade without giving up exposure entirely.

Pip

The standard unit of price movement in forex - 0.0001 for most pairs, 0.01 for yen pairs. A pipette is one tenth of a pip, which is why most quotes carry a fifth or third decimal place.

Position size

How many lots a trade is placed in. It is calculated from the dollar amount being risked and the stop distance, not chosen first - which is the reverse of how most traders approach it.

Raw spread

A pricing model where the spread is passed through without a markup and the cost is charged as an explicit commission instead. It separates the price you trade from the fee you pay.

Round turn

One complete trade - the entry and the exit together. Commission quoted per side has to be doubled to get the round-turn cost, which is the only figure worth comparing between firms.

Slippage

The difference between the price requested and the price filled. It appears when the market moves between order and execution, and it is most pronounced around news and at thin points in the session.

Spread

The gap between the bid and the ask price. It is the cost paid on entry: a position opens slightly underwater by the width of the spread before the market has moved at all.

Standard lot

100,000 units of the base currency - the full-size forex contract. On most dollar-quoted pairs it is worth roughly $10 per pip, which makes it the reference every other size is scaled from.

Stop loss

A resting order that closes a losing position at a predetermined level. It is the mechanism that turns a risk-per-trade figure into an actual limit rather than an intention.

Stop order

An order that becomes a market order once a specified price is touched. Used to enter on a breakout or to exit a losing position, it fills at whatever price is available once triggered.

Stop-out

The automatic closing of positions when equity falls below the level needed to maintain them. On a prop account the phrase is also used loosely for hitting the maximum drawdown floor.

Swap

The financing charge or credit applied to a position held past the daily rollover. It reflects the interest rate difference between the two sides of the pair and can be positive or negative.

Take profit

A resting order that closes a position at a target price. Paired with a stop loss it fixes the reward-to-risk ratio of a trade at the moment it is placed, before the outcome is known.

Trailing stop

A stop loss that follows the price at a fixed distance as a position moves into profit, and stays put when it moves back. It locks in gains without capping the trade at a target.