Glossary

33 terms, each defined in a sentence and linked to the lesson that explains it.

A B C D F H K L M O P R S T V W

Ask: The lowest price someone will sell at right now. You buy at the ask. See Bid, ask and the order book.
Backtest: A simulation of trading rules on past prices. See What a backtest is.
Backwardation: A futures price below the spot price. See Commodities and futures.
Bid: The highest price someone will pay right now. You sell at the bid. See Bid, ask and the order book.
Commission: A fee charged per trade by a broker or exchange. See Costs.
Contango: A futures price above the spot price. See Commodities and futures.
Deflated Sharpe ratio: A Sharpe ratio adjusted for how many variants were tried, among other things. See Overfitting and multiple testing.
Drawdown: The fall in equity from its highest point so far. See Drawdown.
Fat tails: Very large moves happening more often than a normal distribution predicts. See Volatility.
Financing (swap): Interest earned or paid on a position held overnight. See Forex basics.
Futures contract: An agreement to trade a fixed amount on a fixed future date at a price set today. See Commodities and futures.
Holdout: Data set aside before development and used once at the end. See Walk-forward and holdouts.
Kelly fraction: The bet size that maximises long-run growth when the odds are known exactly. See Position sizing and leverage.
Leverage: Holding a position larger than the account, against a deposit. See Forex basics.
Limit order: An order to trade only at a stated price or better. See Bid, ask and the order book.
Log return: The natural logarithm of end price over start price. Log returns add across time. See Returns and compounding.
Look-ahead bias: A simulated decision that used information from after it was made. See Look-ahead bias.
Lot: The unit of trade size in foreign exchange. A standard lot is 100,000 units of the base currency. See Forex basics.
Margin: The deposit a broker requires to hold a leveraged position. See Forex basics.
Market order: An order to trade now at the best available price. See Bid, ask and the order book.
Multiple testing: Running many tests, which raises the chance that one looks significant by luck. See Overfitting and multiple testing.
Out of sample: Data that played no part in building or tuning a strategy. See Walk-forward and holdouts.
Overfitting: Tuning rules until they describe the noise in one history. See Overfitting and multiple testing.
Over the counter (OTC): Trading directly with a dealer, with no central exchange. See What a market is.
Pip: The standard small unit of a currency price: 0.0001 on most pairs, 0.01 on yen pairs. See Forex basics.
Roll: Closing an expiring futures contract and opening the next one. See Commodities and futures.
Sharpe ratio: Average excess return divided by the standard deviation of returns. See The Sharpe ratio.
Slippage: The difference between the price expected and the price received. See Bid, ask and the order book.
Spread: The gap between the bid and the ask. See Bid, ask and the order book.
Trial registry: The terminal's record of every variant tried on a strategy and dataset, used to charge significance tests for the search. See Overfitting and multiple testing.
Validation verdict: The terminal's computed result from its 49 checks: trust, caution, or do not trust. See All 49 checks at a glance.
Volatility: The standard deviation of returns. See Volatility.
Walk-forward: Tuning on one window and testing on the next, repeated through the history. See Walk-forward and holdouts.