Trading glossary

A

Account currency

The currency in which your trading account is held and profits and losses are settled. Trading instruments priced in another currency means conversions – see the pip value calculator.

Accumulating fund

A fund or ETF that reinvests dividends and interest instead of paying them out. Tax treatment differs from distributing funds in several countries.

ADR (alternative dispute resolution)

Out-of-court resolution of a dispute between a consumer and a firm, for example by a financial ombudsman. See How to complain about a broker in Europe – and when to go to the ombudsman.

Algorithmic trading

Trading in which a computer program decides and places orders according to predefined rules. See Automated trading, forex robots and "AI trading" – what works and what to avoid.

Appropriateness test

A MiFID II assessment of whether you have the knowledge and experience to understand a complex product such as a CFD before a firm lets you trade it.

Ask

The price at which you can buy. Also called the offer. It is higher than the bid; the difference is the spread.

ATR (Average True Range)

An indicator measuring how far a market typically moves over a period, used to set stops and compare volatility between instruments.

B

Base currency

The first currency in a pair. In EUR/USD the euro is the base currency; the quote tells you how many dollars one euro costs.

Basis point

One hundredth of a percentage point (0.01%). Interest rates and costs are often quoted in basis points.

Bear market

A prolonged period of falling prices, often defined as a fall of 20% or more from a recent high.

Best execution

The MiFID II duty of investment firms to take all sufficient steps to obtain the best possible result for clients, considering price, costs, speed and likelihood of execution.

Bid

The price at which you can sell. It is lower than the ask.

Binary option

An all-or-nothing bet on whether a price will be above or below a level at expiry. Banned for retail clients in the EU and UK since 2018. See Forex options – how currency options work and where Europeans can trade them.

Breakout

A move of price through a support or resistance level, often after a period of consolidation.

Bull market

A prolonged period of rising prices.

C

Carry trade

A strategy of holding a higher-yielding currency against a lower-yielding one to earn the interest-rate difference.

CASP (crypto-asset service provider)

A firm licensed under the EU's MiCA Regulation to provide crypto services such as exchange, custody or brokerage. See Crypto in Europe – MiCA-licensed platforms vs crypto CFDs.

CFD (contract for difference)

A derivative contract that pays the difference in an asset's price between opening and closing the contract, without owning the asset. See CFDs explained – how contracts for difference work in Europe.

Chargeback

A reversal of a card payment requested through your card issuer, sometimes possible after fraud.

Client money

Money a firm holds for clients, which must be kept in segregated accounts separate from the firm's own funds.

Clone firm

A fraudulent operation that copies the name and details of a genuine authorised firm. See Clone firms and trading scams in Europe – how they work and how to spot them.

Commission

A fee charged per trade or per lot, common on raw-spread accounts and share trading.

Compensation scheme

A national scheme that pays eligible clients if an authorised firm fails and cannot return their money or assets. See Investor compensation schemes in Europe – what they cover and what they don't.

Contract size

The quantity of the underlying represented by one lot or contract – 100,000 units for a standard forex lot.

Copy trading

Automatically replicating another trader's positions in your own account. See Copy trading and managed forex accounts in Europe – rules, risks and how to judge a strategy.

Correlation

The degree to which two markets move together. Highly correlated positions add up to one larger bet.

Counterparty risk

The risk that the other side of a contract – for a CFD, the broker – fails to meet its obligations.

Cross pair

A currency pair that does not include the US dollar, such as EUR/GBP or EUR/JPY.

Custody

Safekeeping of securities on behalf of clients, separate from the custodian's own assets.

D

Day trading

Opening and closing positions within the same trading day. See Forex day trading from Europe – schedules, setups and the realities.

Deposit guarantee

Protection of bank deposits, normally €100,000 per person per bank in the EU, if a bank fails.

Depth of market (DOM)

A display of pending buy and sell orders at different prices, showing available liquidity.

Derivative

A financial instrument whose value depends on an underlying asset, such as a CFD, future or option.

Distributing fund

A fund or ETF that pays dividends or interest out to investors.

Drawdown

The fall in account value from a peak to a trough, usually expressed as a percentage. See the drawdown calculator.

E

ECB (European Central Bank)

The central bank of the euro area, which sets interest rates for the euro. See The ECB and the euro – how monetary policy moves EUR/USD.

ECN

Electronic communication network – a venue where multiple participants' orders meet. "ECN account" usually means raw spreads plus commission. See ECN, STP and market maker brokers – what the execution model means for you.

Economic calendar

A schedule of data releases and central-bank events that can move markets.

EEA (European Economic Area)

The EU plus Iceland, Liechtenstein and Norway. Investment firms licensed in the EEA can passport services across it.

Elective professional client

A retail client who has asked to be treated as professional and meets MiFID II criteria, giving up some protections. See Retail vs professional client status – should you opt up?.

Equity (account)

Your account balance plus or minus the unrealised profit or loss of open positions.

ESMA

The European Securities and Markets Authority, which coordinates EU securities regulation and introduced the retail CFD restrictions. See ESMA.

ETC (exchange-traded commodity)

A security traded on an exchange that tracks a commodity, often backed by physical metal such as gold.

ETF (exchange-traded fund)

A fund traded on a stock exchange, usually tracking an index. European retail investors buy UCITS ETFs. See ETF savings plans in Europe – the low-cost alternative to trading.

Execution policy

A document every EU investment firm must publish describing how and where it executes client orders.

Expert Advisor (EA)

An automated trading program for MetaTrader.

F

Fibonacci retracement

Levels at 23.6%, 38.2%, 50%, 61.8% and 78.6% of a price move, used to anticipate pull-backs. See the Fibonacci calculator.

FIN-NET

The European network of national financial dispute-resolution bodies, which helps with cross-border complaints.

Fractional shares

Parts of a share, allowing investment of small amounts in expensive stocks.

Fundamental analysis

Analysing economic data, interest rates, company results and other information to judge value or direction.

Futures contract

An exchange-traded agreement to buy or sell an asset at a set price on a future date.

G

Gap

A jump in price between one trade and the next, typically over weekends or after news, which can cause stops to fill at worse prices.

Guaranteed stop-loss

A stop-loss that the broker guarantees to fill at your exact price, even if the market gaps, usually for a fee.

H

Hedging

Taking a position to offset an existing risk. See Forex hedging – what it is and when it makes sense for Europeans.

HICP

Harmonised Index of Consumer Prices – the euro area's official inflation measure, targeted by the ECB.

Home member state

The EEA country that authorised an investment firm and supervises it.

Host member state

An EEA country where a firm licensed in another EEA country provides services under a passport.

I

Implied volatility

The volatility expected by the options market, derived from option prices.

Inducement

A payment or benefit a firm receives or gives in connection with a service. ESMA bans incentives to retail clients for trading CFDs.

Initial margin

The deposit required to open a leveraged position. Under ESMA rules it is at least 3.33% for major FX pairs.

Investment firm

A company authorised under MiFID II to provide investment services such as dealing, brokerage or portfolio management.

ISA

Individual Savings Account – a UK tax-free wrapper for savings and investments, with an annual allowance.

ISK

Investeringssparkonto – Sweden's investment savings account, taxed on a standardised yield instead of gains.

K

KID (Key Information Document)

A standardised document required under the EU PRIIPs Regulation for packaged retail investment products, including CFDs, showing risks and costs.

L

Leverage

Controlling a position larger than your deposit. 30:1 leverage means a €3,333 margin controls €100,000. See Leverage in forex under ESMA rules – limits, margin and the 50% close-out.

Limit order

An order to buy below or sell above the current price, at the limit price or better. See Order types explained – market, limit, stop, stop-limit and trailing stops.

Liquidity

How easily an asset can be bought or sold without moving its price. High liquidity usually means tighter spreads.

Liquidity provider

A bank or market maker that quotes prices to brokers.

Long position

A position that profits if the price rises.

Lot

A standard trade size. One standard forex lot is 100,000 units of the base currency. See Forex lot sizes and position sizing – how much should you trade?.

M

Major currency pair

In market usage, the most traded USD pairs. Under ESMA rules, any pair made of two of USD, EUR, JPY, GBP, CAD and CHF.

Margin

Money set aside by the broker as collateral for an open leveraged position.

Margin call

A warning that your equity is close to the level at which positions will be closed.

Margin close-out rule

The ESMA requirement that brokers close retail clients' positions when equity falls to 50% of the required margin.

Margin level

Equity divided by used margin, shown as a percentage.

Market maker

A firm that quotes buy and sell prices and takes the other side of trades. Many retail brokers act as market makers.

Market order

An order to buy or sell immediately at the best available price.

MetaTrader (MT4 / MT5)

Popular trading platforms from MetaQuotes used by many forex and CFD brokers. See Trading platforms compared – MetaTrader 4, MetaTrader 5, cTrader, TradingView and broker apps.

MiCA

The EU Markets in Crypto-Assets Regulation, which licenses crypto-asset service providers and regulates stablecoins.

MiFID II

The EU directive and regulation (with MiFIR) governing investment services and markets, including client protection, best execution and passporting.

Money-market fund

A fund investing in short-term, high-quality debt, often used to earn interest on cash.

N

Negative balance protection

A rule that a retail client cannot lose more than the funds in their CFD account. Mandatory for EU and UK retail clients.

Neobroker

An app-based, low-cost broker, such as Trade Republic or Trading 212.

Non-major currency pair

Under ESMA rules, any pair that is not made of two of the six major currencies. Retail leverage is capped at 20:1.

O

Offshore broker

A broker licensed only in a light-touch jurisdiction outside Europe. See Unregulated and offshore brokers – what Europeans give up.

Ombudsman

An independent body that resolves complaints between consumers and firms, usually free of charge.

Option

A contract giving the right but not the obligation to buy (call) or sell (put) at a set price. See Forex options – how currency options work and where Europeans can trade them.

Order book

The list of buy and sell orders waiting on a trading venue.

Overnight financing (swap)

The interest charged or paid for holding a leveraged position overnight. See the overnight financing calculator.

P

Passporting

The right of an EEA-licensed firm to offer services across the EEA after notifying its home regulator. See MiFID passporting explained – how a Cyprus licence lets a broker serve all of Europe.

Payment for order flow (PFOF)

Payments a broker receives from a market maker or venue for routing client orders to it. Banned in the EU under the MiFIR review, with transitional exemptions ending on 30 June 2026.

PEA

Plan d'Épargne en Actions – a French tax-advantaged account for European equities.

Pip

The standard price step in forex: 0.0001 for most pairs, 0.01 for yen pairs. See What is a pip in forex? Pips, pipettes and points explained.

Pipette

One tenth of a pip – the fifth decimal on most pairs.

Pivot point

A price level calculated from the previous period's high, low and close. See the pivot calculator.

Position sizing

Choosing trade size so that the loss at the stop equals a set share of the account.

PRIIPs

The EU regulation requiring Key Information Documents for packaged retail and insurance-based investment products.

Professional client

A client category under MiFID II with fewer protections than retail. See Retail vs professional client status – should you opt up?.

Prop firm

A company that funds traders who pass an evaluation. Retail prop firms are generally not regulated as investment firms. See Prop trading firms and "funded accounts" – what Europeans should know.

Q

Quote currency

The second currency in a pair, in which the price and your profit or loss are expressed.

R

Raw spread

A spread close to the interbank price, charged alongside a commission.

Recovery scam

A fraud targeting previous victims with fake offers to recover lost money for a fee.

Resistance

A price level where selling has previously stopped a rise.

Retail client

The default MiFID II client category for individuals, with the highest level of protection.

Retail loss percentage

The share of a CFD provider's retail accounts that lost money over the past 12 months, which EU brokers must publish in their risk warning.

Reverse solicitation

A narrow exception allowing a non-EU firm to serve an EU client who approached it entirely on their own initiative.

Reward-to-risk ratio

The expected gain of a trade divided by the amount risked to the stop-loss.

Risk warning

The standard warning EU CFD providers must display, including the percentage of retail accounts losing money.

Robo-adviser

A digital service that builds and manages a portfolio automatically. See robo-advisers.

Rollover

The daily process, at 17:00 New York time, when open FX positions are rolled to the next value date and financing is applied.

S

Savings plan

Automatic regular investment into ETFs, funds or shares, often from small amounts.

Scalping

Very short-term trading for small, frequent profits. See Scalping forex – what it takes, broker conditions and costs.

Segregation

Keeping client money and assets separate from a firm's own, so they are protected if the firm fails.

Short position

A position that profits if the price falls.

Slippage

The difference between the expected price of an order and the price at which it is filled.

Spot FX

Currency exchanged for settlement in two business days. Retail "spot" forex is usually a rolling contract that never settles.

Spread

The difference between the bid and ask price – a main cost of trading. See Spreads and trading costs – what you really pay to trade forex and CFDs.

Spread betting

A UK and Irish form of trading where you bet an amount per point on price movement. See Spread betting explained – why it exists only in the UK and Ireland.

Stop-loss

An order that closes a position when price moves against you to a set level.

Stop-out level

The margin level at which the broker automatically closes positions – 50% for EU retail clients.

STP (straight-through processing)

An execution model where the broker passes orders to liquidity providers.

Support

A price level where buying has previously stopped a fall.

Swap-free account

An account without overnight interest, often with an administration fee instead.

T

Take-profit

An order that closes a position at a target price.

TBSZ

A Hungarian long-term investment account with reduced tax after three and five years.

Technical analysis

Studying price charts, patterns and indicators to make trading decisions.

Tick

The smallest possible price movement of an instrument.

Trailing stop

A stop-loss that moves with the price at a set distance when the trade moves in your favour.

U

UCITS

The EU framework for funds sold to retail investors across Europe. Most ETFs available to EU investors are UCITS.

Underlying

The asset on which a derivative is based.

Unrealised profit or loss

The profit or loss on open positions, which becomes realised when you close them.

V

Value date

The date on which a currency trade settles.

Volatility

How much and how quickly a price changes. Higher volatility means wider stops for the same idea.

VPS

Virtual private server – a remote computer used to run automated trading around the clock.

W

Warning list

A regulator's public list of firms operating without authorisation or impersonating authorised firms.

Whipsaw

A sharp move in one direction followed by a reversal, often triggering stops on both sides.

Y

Yield

The income from an investment as a percentage of its price.

€

€STR

The euro short-term rate, an overnight interest-rate benchmark published by the ECB and used by many brokers to calculate euro financing charges.