Entering the futures market without understanding the terminology is like flying blind. Whether you’re reading a chart, listening to a podcast, or executing a trade, knowing the key terms used by professional traders will accelerate your learning curve and boost your confidence.
In this guide, we’ve expanded our glossary of must-know futures trading terms, directly from the Pilot Traders Beginner’s Guide.
Table of Contents
- Essential Trading Terms
- Market Mechanics
- Technical Indicators
- Order Types & Trading Styles
- Risk Management & Strategy
- Final Thoughts
1. Essential Trading Terms
- Ask Price: The lowest price a seller is willing to accept.
- Bid Price: The highest price a buyer is willing to pay.
- Bid-Ask Spread: The difference between the bid and the ask price.
- Bull Market: A market condition marked by rising prices.
- Bear Market: A market condition marked by declining prices.
- Contract: A standardized futures agreement to buy/sell an asset at a future date.
- Futures Contract: The actual agreement traded on a futures exchange.
- Liquidity: How easily an asset can be bought/sold without affecting price.
- Index: A benchmark that tracks the performance of a group of assets.
- Volatility: The rate of price fluctuations in a market.
- Volume: The number of contracts traded during a period.
2. Market Mechanics
- Tick Size: The smallest possible price movement.
- Tick Value: The dollar amount of a single tick.
- Notional Value: Total value of a leveraged contract.
- Leverage: Trading larger positions with smaller capital.
- Initial Margin: Capital required to open a futures trade.
- Maintenance Margin: Minimum equity to keep a position open.
- Margin Call: A broker’s request to add funds when account equity falls below required levels.
- Expiration Date: The final day a futures contract can be traded.
- Rollover: Shifting a position from a soon-to-expire contract into a later one.
3. Technical Indicators
- Candlestick Chart: A chart showing open, high, low, close prices.
- Moving Average (MA): A trend-following indicator smoothing price.
- MACD: Momentum indicator showing moving average convergence/divergence.
- RSI: A momentum oscillator that measures overbought/oversold conditions.
- Fibonacci Retracement: Tool to predict support/resistance using Fibonacci ratios.
4. Order Types & Trading Styles
- Market Order: Buy/sell immediately at best available price.
- Limit Order: Buy/sell at a specified price or better.
- Stop Loss Order: An order to limit losses by exiting at a set price.
- Take Profit Order: An order to exit once a specific profit target is reached.
- Scalping: Rapid trading for small profits from minor price moves.
- Swing Trading: Holding positions for several days to weeks.
- Day Trading: Opening and closing trades within the same day.
- Long Position: Buying in anticipation of a price increase.
- Short Position: Selling in anticipation of a price drop.
- Breakout: Price moving beyond support/resistance, often on volume.
- Support Level: A price floor where buyers are likely to step in.
- Resistance Level: A ceiling where selling pressure often appears.
5. Risk Management & Strategy
- Risk Management: The process of managing potential loss.
- Drawdown: Decline from peak to trough in account value.
- Capital Gains: Profit from selling an asset above purchase price.
- Hedge: Using an offsetting position to reduce risk.
- Portfolio Diversification: Spreading investments to limit exposure.
6. Final Thoughts
These terms aren’t just definitions—they’re the foundation for fluency in the futures world. Keep this glossary bookmarked, revisit it often, and apply the concepts in your everyday trading.
At Pilot Traders, our mission is to simplify professional trading tools and terminology so that every beginner can trade with clarity and confidence.
