Signal & strategy terms
Signal — a specific trade suggestion (instrument, direction, and ideally entry, stop-loss, and target) generated by a model, indicator, or analyst.
Backtest — a simulation of how a strategy would have performed using historical data. See our full guide on backtesting vs. forward testing.
Forward test / out-of-sample test — testing a strategy on new data after its rules were already fixed, which is much harder to bias than a backtest.
Overfitting / curve-fitting — tuning a strategy so closely to historical data that it captures noise rather than a repeatable pattern, making it look better in testing than it will perform going forward.
Win rate — the percentage of signals that were profitable. Meaningless on its own without knowing the typical size of wins versus losses (see risk-to-reward ratio).
Risk-to-reward ratio — the ratio between how much is risked (distance to stop-loss) and the potential gain (distance to target) on a trade.
Order & execution terms
Stop-loss — a pre-set order that closes a position automatically if the price moves against you to a specified level. Full explanation: stop-loss and take-profit levels.
Take-profit — a pre-set order that closes a position automatically once it reaches a specified favourable price.
Slippage — the difference between the price you expected an order to fill at and the price it actually filled at, common in fast-moving or illiquid markets.
Spread — the difference between the buy (ask) and sell (bid) price of an instrument; effectively a transaction cost built into most trades.
Risk & account terms
Leverage — trading with borrowed capital so a smaller deposit controls a larger position; it multiplies both gains and losses, and does not improve a signal's underlying accuracy.
Margin — the amount of your own capital required to open a leveraged position.
Margin call — a broker's demand for additional funds when losses reduce your account equity below a required level; unmet margin calls typically result in positions being closed automatically.
Drawdown — the decline from a peak account value to a subsequent low, usually expressed as a percentage; a key measure of how much pain a strategy can put you through even if it's eventually profitable.
Position sizing — deciding how much capital to risk on a single trade, typically as a small, fixed percentage of total account value.
Provider & market structure terms
Copy trading — automatically replicating another trader's positions in your own account, distinct from following a manually-acted-on signal. See copy trading vs. signal following.
CFD (Contract for Difference) — a leveraged derivative product that lets you speculate on price movement without owning the underlying asset; carries a high risk of loss.
Regulated broker — a brokerage authorised and supervised by a recognised financial regulator (e.g., an EU national regulator, the FCA in the UK), subject to rules around client fund protection and conduct.
Looking for the practical checklist version of these ideas? Start with how to evaluate a signal provider and risk management basics.