Glossary

This is the price at which a broker or dealer offers to sell a currency.

The process of testing a trading strategy on historical market data to determine certain performance criteria such as profitability and drawdown.

This is the price at which a broker or dealer offers to buy a currency.

The decline in the value of a trading account from an historical high to the lowest subsequent value. Normally measured as a percentage, it is calculated by subtracting the trough value from the peak value.

An expert advisor is a computer program written to run on the Metatrader platform and which can automatically monitor price changes and execute trading commands (including opening and closing a position) according to the underlying strategy. Expert advisors (or EAs) can be written by anyone using the MQL4 programming language.

The leverage is the amount by which the lot size that is being traded exceeds the margin requirement. For example, if the margin requirement for trading one standard lot of $100,000 was $1,000, then the leverage for that account would be 100,000/1,000 = 100. This would normally be expressed as 100:1, or 100 to 1.

Taking a long position entails buying a currency with the belief that it will rise in value relative to another currency.

Your margin is the minimum amount of money that is required to be in your account before a position can be opened, or to keep an open position from being closed.

A pip is the smallest incremental price movement of a currency. The value differs depending on the currency. For example, for EUR/USD a movement of 0.0001 is one pip, whereas for USD/JPY a movement of 0.01 is one pip.

Taking a short position entails selling a currency with the belief that it will fall in value relative to another currency.

The spread is the distance between the Bid and Ask prices. It is usually given in pips. The smaller or tighter the spread, the cheaper it is for the trader.

A stop order whereby if the price of a currency reaches a pre-determined value, the position is either partially or (more usually) fully closed. The main purpose is to limit the amount of capital risked on a specific trade.

A technique where the stop loss of a position is moved upwards (for a long position) whenever the price reaches a new high. The aim is effectively to allow an open-ended position where, if the price continues to rise and the stop loss is not hit, the trade is never closed, with the stop loss being continually moved to lock in more profit.