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Coach's Playbook Posted by Team Topstep July 12, 2022

Trading Lingo you NEED to Know

We recently got an influx of feedback from our community members about some of the trading vocabulary we regularly use in our content. Based on that feedback, we decided to start compiling a list of “trading lingo” that some people new to the business might find confusing when they hear it for the first time. This week, the Topstep coaches tackle the first few items from the trading lingo list and offer a little commentary about their personal experiences from their early days as traders.

Trading Lingo

Here are a few of the industry terms the coaches touch on, including the textbook definitions from industry publications.

Tick: The minimum fluctuation in price allowed for a futures or options contract during a trading session as specified by a contract’s terms (CME Group).

Tick Size: Tick size refers to the minimum price movement of a trading instrument in a market. The price movements of different trading instruments vary, with their tick sizes representing the minimum amount they can move up or down on an exchange (Investopedia).

Pip: “Pip” is an acronym for percentage in point or price interest point. A pip is the smallest whole unit price move that an exchange rate can make, based on forex market convention (Investopedia).

Contract Size: The actual amount of a commodity represented in a futures or options contract as specified in the contract specifications (CME Group).

Fat-Finger: A fat finger error is a human error caused by pressing the wrong key when using a computer to input data (Investopedia).

Busted Trade: A busted trade refers to a situation where an execution occurs and IB receives the execution message from the exchange.  The exchange then realizes some type of error (Pricing, electronic, obvious error, etc) and rules to bust (cancel) the trade.  The exchange makes these rulings entirely on their own (Interactive Brokers).

DOM: Depth of market (DOM) is a measure of the supply and demand for liquid, tradeable assets. It is based on the number of open buy and sell orders for a given asset such as a stock or futures contract (Investopedia).

Hedge: The purchase or sale of a futures contract as a temporary substitute for a cash market transaction to be made at a later date. Usually involves simultaneous, opposite positions in the cash market and futures market (CME Group).

Maybe it’s time we started putting our own glossary of terms together. What do you think?