Algorithmic & Prop Trading Glossary
Clear, math-backed definitions of quantitative risk metrics, MetaTrader algorithmic parameters, and prop firm evaluation rules.
Maximum Daily Drawdown
The maximum permissible equity or balance drop allowed within a single trading day, calculated either from the previous day's balance or equity high watermark.
Position Sizing & Lot Size
The mathematical calculation of contract or lot volume allocated to a trade to ensure risk matches an exact percentage of account equity.
Pip Value
The monetary gain or loss generated by a one-pip price movement for a specified lot volume in a currency pair or commodity.
Expert Advisor (EA)
An automated software program written in MQL4, MQL5, or Python that executes trading rules, entries, exits, and risk management on MetaTrader platforms without human intervention.
Martingale Strategy
A cost-averaging strategy where position sizes are exponentially multiplied (e.g. 1x, 2x, 4x) following each losing trade to recover previous losses with a single winner.
Smart Money Concepts (SMC)
An institutional price action framework focused on liquidity pools, order blocks, break of structure (BOS), and fair value gaps (FVG) used by major banks.
Order Blocks (OB)
The specific candlestick or price consolidation zone where institutional market makers accumulated or distributed large volume prior to an aggressive displacement move.
Fair Value Gap (FVG)
A three-candle price imbalance where rapid buying or selling leaves a price inefficiency that the market algorithmically tends to rebalance.
Slippage
The difference between the expected execution price of an order and the actual price at which the order is filled by the broker.
Trailing Stop Loss
A dynamic stop-loss order that automatically tracks market price at a set distance as the trade moves into profit, locking in gains while leaving upside open.
Prop Firm Evaluation Challenge
A 1-step or 2-step simulated trading audition where traders must reach a profit target (8% to 10%) without breaching daily or total drawdown rules to manage funded capital.
Consistency Rule in Prop Trading
A prop firm risk mandate stipulating that no single trading day or position can account for more than a specific percentage (e.g. 30% to 50%) of total profits.
Forex Leverage
The ratio of borrowed funds provided by a broker that enables a trader to control larger market positions with a smaller upfront deposit.
Forex VPS (Virtual Private Server)
A dedicated cloud server running 24/7 with ultra-low latency to broker servers, ensuring automated EAs never disconnect during power outages or internet drops.
Average Daily Range (ADR)
The average number of pips or price distance an asset moves between its daily high and daily low over a specified period (e.g. 14 or 20 days).
Drawdown Recovery Rate
The mathematical percentage gain required to restore an account to its previous peak equity following a portfolio loss.
Profit Factor
The ratio of gross trading profits divided by gross trading losses over a specific backtest or live trading period.
Break-Even Stop
Moving a trade's stop-loss order to the exact entry price (plus spread/commission) once the position reaches a predefined profit milestone, eliminating downside risk.
Sharpe Ratio
A statistical metric that measures the risk-adjusted return of an investment portfolio or EA relative to its volatility.
News Trading Restrictions
Prop firm rules restricting order execution within a window (usually 2 to 5 minutes) before and after high-impact economic news releases.
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