- versopropfirm
- Trading Foundations
Ready to start trading but overwhelmed by the jargon? This is your core resource. The Basic Trading Glossary provides the key definitions every beginner must know, from what Forex is to the fundamental terminology of a Prop Firm. Easily learn about Pips, Lot Size, and Leverage in plain language. Master these essential market concepts to build a solid foundation for your investment career and understand the first steps toward a funded trading account.
The total amount of money currently in a trader’s account, excluding open positions. It represents funds available before considering unrealized profits or losses.
The price at which a trader can buy a currency pair or asset. It is always slightly higher than the bid price.
Any tradable instrument in financial markets such as currencies, commodities, indices, or stocks.
The reduction in account balance due to closed losses. It measures how much capital has decreased from its highest point.
The first currency listed in a forex pair (e.g., in EUR/USD, EUR is the base currency).
A market condition characterized by falling prices and widespread pessimism, typically representing a decline of 20% or more from recent highs.
The price at which a trader can sell a currency pair or asset. It is always slightly lower than the ask price.
The price level at which a trade results in neither profit nor loss, after accounting for fees or commissions.
Prop Firm Impact: Crucial for managing funded accounts; helps traders move stops to secure capital and protect challenge targets.
A financial intermediary that provides traders with access to markets through a trading platform, executing buy and sell orders on their behalf.
Prop Firm Impact: Prop firms partner with regulated brokers offering low latency, tight spreads, and reliable pricing to ensure fair conditions.
A market characterized by rising prices and strong investor confidence. It often precedes economic expansion.
An instruction to purchase an asset at a specific price or at the market’s current rate.
A chart representation showing the open, high, low, and close prices for a specific period. Traders use patterns of candles to predict market direction.
Prop Firm Impact: Candlestick recognition enhances precision in entries and exits during funded account challenges.
A trial period where traders must prove their skills by meeting specific profit targets and respecting risk limits on a simulated account.
Prop Firm Impact: Passing the Challenge is the mandatory first step to getting a funded account and earning real payouts.
A graphical representation of price movements over time, used for technical analysis.
Fees charged by brokers for executing trades. They vary depending on broker type and trading volume.
Prop Firm Impact: Higher commissions can reduce net profitability and affect your ability to hit profit targets efficiently.
The quotation of one currency against another, showing how much of one currency is needed to buy one unit of the other.
A simulated trading account that allows traders to practice strategies with virtual money.
Prop Firm Impact: Prop firm challenges often start on demo accounts before transitioning to funded live capital.
The practice of spreading investments across multiple assets to reduce risk.
The decline in account equity from a previous peak to a trough, usually expressed as a percentage. It measures capital at risk and recovery needs.
Prop Firm Impact: Max drawdown limits are key risk rules in prop challenges exceeding them results in instant disqualification.
A schedule of major economic events (e.g., GDP, CPI, interest rate decisions) that can influence market volatility.
The current value of a trading account, including both balance and open profits/losses.
The process of completing a trade order on the market at the specified or current market price.
Unrealized gains or losses from open trades that fluctuate as market prices move.
The global decentralized market where currencies are traded. It is the most liquid market in the world.
A trading account financed by a prop firm where the trader operates with the firm’s capital and shares a portion of the profits.
Prop Firm Impact: Maintaining consistency and respecting drawdown limits determines long-term success and payouts.
A sharp jump in price between two periods on a chart, usually caused by major news events or low liquidity.
The ability to control a large position with a smaller amount of capital. For example, 1:100 leverage means you control $100,000 with $1,000.
Prop Firm Impact: Leverage amplifies both gains and losses prop firms often set limits to protect their capital.
An order to buy or sell an asset at a specific price or better. It allows traders to control the price at which their trade is executed, but it may not be filled if the market doesn’t reach that price.
Prop Firm Impact: Understanding limit orders helps funded traders execute their strategies precisely, ensuring entries and exits at desired price points, which is vital for maintaining profit targets and managing risk within firm rules.
The ease with which an asset can be bought or sold without significantly affecting its price.
A position where a trader buys an asset expecting its price to rise.
The standardized number of units in a trade (e.g., 1 lot in forex equals 100,000 units of the base currency).
Prop Firm Impact: Lot sizing is often restricted in prop firm challenges to manage risk and maintain consistency.
The amount of capital required to open or maintain a leveraged position.
Prop Firm Impact: Mismanaging margin can trigger stop-outs or violations of firm risk rules.
An instruction to buy or sell an asset immediately at the best available current price.
A broker or institution that provides liquidity by continuously quoting buy and sell prices.
A request placed by a trader to buy or sell an asset at a specified price or market condition.
A risky behavior where traders open too many trades or trade too frequently, often leading to losses.
The share of profits that a prop firm pays to a funded trader, typically on a recurring schedule (e.g., monthly).
Prop Firm Impact: The payout is your ultimate reward for consistent, profitable trading and the primary goal of a funded trader.
Short for “percentage in point,” it represents the smallest price move in forex, usually 0.0001 for most pairs.
Prop Firm Impact: Pip calculation affects position sizing and risk per trade accuracy in your challenge metrics.
The amount of a specific asset a trader currently holds, either long (buy) or short (sell).
A long-term trading strategy where positions are held for weeks or months to capture larger market trends.
A company that provides its own capital to traders, who in return share a portion of the profits they generate.
Prop Firm Impact: This is the model you operate in. Understanding it builds trust and clarifies the relationship with your traders.
The distribution of profits between a trader and the prop firm based on agreed percentages (e.g., 80/20). Prop Firm Impact: A higher split rewards consistency; many firms increase splits after successful payout milestones.
The second currency in a forex pair that represents the value of the base currency.
An individual investor who buys and sells securities for a personal account, not for an institution.
Prop Firm Impact: The payout is your ultimate reward for consistent, profitable trading and the primary goal of a funded trader.
The process of identifying, assessing, and controlling potential losses by using tools like stop losses and proper lot sizing.
Prop Firm Impact: Strong risk management is mandatory for funded traders risk violations lead to account termination.
The ratio comparing potential profit to potential loss in a trade (e.g., 1:3 means risking $1 to gain $3).
Prop Firm Impact: Prop firms expect traders to maintain consistent, positive R:R ratios to achieve profit targets sustainably.
An order to sell an asset at a specific or market price, anticipating a price decline.
A trade where a trader sells an asset expecting its price to fall, aiming to buy it back at a lower price.
The difference between the expected trade price and the price at which the trade is actually executed, often due to market volatility.
The difference between the bid and ask price of an asset. It represents a cost of trading.
Prop Firm Impact: Wide spreads reduce profit efficiency and can affect high-frequency trading strategies used in challenges.
A pre-set order to close a trade when the market moves against the trader by a specific amount to limit losses.
Prop Firm Impact: Stop losses help prevent rule violations and safeguard against hitting daily drawdown limits.
An order to buy or sell an asset once its price reaches a specified price, known as the stop price. Once the stop price is reached, a stop order becomes a market order.
Prop Firm Impact: Stop orders are critical for risk management in prop firm challenges, as they help prevent excessive losses and protect against hitting daily or maximum drawdown limits, which can lead to account termination.
Price levels where an asset tends to stop and reverse due to supply and demand forces.
The interest charged or paid for holding a leveraged position overnight.
An order to close a trade automatically once a certain profit level is reached.
The study of price movements using charts and indicators to forecast future trends.
The act of buying or selling an asset in financial markets.
The digital interface (software or app) that allows traders to execute and monitor trades.
The general direction of a market’s movement upward, downward, or sideways.
The degree of variation in an asset’s price over time. High volatility indicates larger and faster price changes.
Prop Firm Impact: High volatility increases risk of breaching limits; traders must adjust lot size and stops during volatile sessions.
At Verso Prop Firm, everything we do is built around you. We provide the capital, tools, and support so you can focus on what really matters: trading your way to success.
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