Glossary

Algorithmic trading uses computer algorithms to execute trades based on predefined criteria. It allows for faster execution and can help traders capitalize on market opportunities.

Backtesting is the process of testing a trading strategy on historical data to evaluate its effectiveness. It helps traders understand how a strategy would have performed in the past.

Drawdown refers to the reduction of one's capital after a series of losing trades. It is expressed as a percentage of the peak capital and is an important metric for assessing the risk of a trading strategy.

Execution refers to the process of completing a buy or sell order in the financial markets. Efficient execution is vital for traders to ensure they achieve the desired price and minimize slippage.

Fundamental analysis involves evaluating a security's intrinsic value by examining related economic, financial, and other qualitative and quantitative factors. It helps traders make long-term investment decisions.

Funding refers to the process of providing capital to traders by a prop firm. It allows traders to access larger amounts of money to trade, often in exchange for a share of the profits.

Leverage in trading refers to the use of borrowed funds to increase the potential return on investment. It allows traders to control larger positions than their actual capital would permit, amplifying both potential gains and losses.

Liquidity refers to the ease with which an asset can be bought or sold in the market without affecting its price. High liquidity is essential for traders to enter and exit positions quickly.

Margin is the amount of capital required to open and maintain a leveraged position in trading. It acts as a security deposit to cover potential losses and is a crucial concept in margin trading.

Market analysis involves evaluating various factors that influence the financial markets, including economic indicators, market trends, and trader sentiment. It helps traders make informed decisions.

Order types are instructions given to a broker to buy or sell an asset. Common order types include market orders, limit orders, and stop-loss orders, each serving different trading strategies.

Performance evaluation is the assessment of a trader's results over a specific period. It includes analyzing profitability, risk management, and adherence to the trading strategy.

A proprietary trading firm, commonly referred to as a prop firm, is a company that provides traders with capital to trade financial markets. Traders share a portion of their profits with the firm, allowing them to leverage the firm's resources and expertise.

Risk management is the process of identifying, assessing, and controlling threats to an organization's capital and earnings. In trading, it involves strategies to minimize potential losses and protect profits.

Technical analysis is the study of past market data, primarily price and volume, to forecast future price movements. It uses charts and indicators to identify trends and trading opportunities.

A trading journal is a record of all trading activities, including trades made, strategies used, and outcomes. It helps traders analyze their performance and improve their trading skills.

A trading platform is software that allows traders to execute trades, analyze market data, and manage their accounts. It provides tools for charting, technical analysis, and order execution.

Trading psychology refers to the emotional and mental aspects that influence trading decisions. Understanding psychology is crucial for maintaining discipline and managing stress in trading.

A trading strategy is a systematic plan that a trader follows to make trading decisions. It includes rules for entering and exiting trades, risk management, and analysis of market conditions.

Volatility is a statistical measure of the dispersion of returns for a given security or market index. High volatility indicates a greater price range and potential for profit or loss.