ForexCopilotEA

Forex EA Glossary: MT5 and Trading Terms Explained

Plain-language definitions of the terms behind Expert Advisors in MetaTrader 5: drawdown, profit factor, margin, magic number, setfile, overfitting and more.

40 terms, written as general education. Brokers and prop firms set their own levels and rules for several of them, so check yours before relying on a figure.

Backtest

A simulation of how an Expert Advisor would have traded on past price data, run in the MetaTrader 5 Strategy Tester. It shows how the logic behaves on history, not how it will behave live: results depend heavily on the quality of the tick data, the modelled spread and the settings used.

Balance

The amount in your account from deposits, withdrawals and closed trades. It does not include the profit or loss on positions that are still open, which is why equity is the figure that shows your real position at any moment.

Commission

A fee some brokers charge per lot traded, usually on raw-spread accounts, on top of or instead of a wider spread. It is a cost on every trade, so it matters most for strategies that trade often, such as scalpers.

Curve fitting (overfitting)

Tuning an Expert Advisor's settings until it fits past data very well, including the random noise in it, so it looks excellent in a backtest and then disappoints on new data. The more settings an optimisation tries, the greater the risk. Testing on data the optimiser never saw, and forward testing on a demo account, are the usual checks.

Daily loss limit

A prop firm rule that caps how much an account may lose in one trading day, usually as a percentage of the starting balance or the balance at the start of the day. Many firms measure it on equity, so floating losses count before a trade closes, and reaching the limit is normally a breach.

Drawdown

The fall from an account's peak value to a later low, usually shown as a percentage. Maximal drawdown is the largest such fall in a period. A drawdown needs a larger gain to recover: a 50% fall needs a 100% rise to get back to the peak.

Equity

Your balance plus the profit or minus the loss on all open positions. It changes with every price tick while a trade is open. Margin level, stop out and most prop firm loss limits are based on equity, not balance.

EX5, MQ5 and MQH files

An EX5 file is a compiled Expert Advisor that MetaTrader 5 can run but not read. An MQ5 file is its human-readable source code, which you can edit and compile in MetaEditor. An MQH file is a header that holds code shared between programs. Buying the EX5 alone gives you the working EA; the source is a separate edition.

Expectancy

The average result per trade, often written in R, where 1 R is the amount risked on one trade. It combines win rate and reward to risk: win rate multiplied by the ratio, minus the loss rate. It is only reliable when the win rate comes from a large sample.

Expert Advisor (EA)

A program that runs inside MetaTrader and can analyse prices, open and close trades and manage them by itself according to coded rules. It is written in MQL5 for MetaTrader 5. An EA is a tool that follows rules: it does not remove market risk and does not guarantee profit.

Forward test

Running an Expert Advisor on a demo account, or with very small size on a live one, in real time after its backtest. It shows how the EA handles real spreads, execution and your broker's conditions, which a backtest can only approximate.

Free margin

Equity minus the margin already in use. It is what is left to open new positions or absorb losses. When it reaches zero you cannot open further trades, and the broker's margin call and stop out rules come into play.

Grid trading

A strategy that places orders at fixed price intervals above and below the market, or adds a new position each time price moves a set distance against the last one. It can collect small gains in a range but accumulates open risk in a strong trend, so check its worst case, not its average.

Hedging account and netting account

MetaTrader 5 supports two position accounting modes, set by the broker. On a netting account there is one position per symbol, and a new order in either direction changes it. On a hedging account you can hold several positions on one symbol at once, including opposite ones. Some Expert Advisors need a hedging account to work as designed.

Leverage

The ratio between the size of a position and the margin needed to open it. At 1:100, a position worth 100,000 needs 1,000 of margin. Leverage lowers the deposit a trade requires, but it does not lower the risk of the trade itself: profits and losses follow the full position size.

Lot

The unit of trade size. One standard lot is 100,000 units of the base currency for most forex pairs, 0.10 is a mini lot and 0.01 a micro lot. Gold contracts commonly use 100 ounces per lot, but contract sizes differ by broker, so check the symbol specification in MetaTrader 5.

Magic number

A number an Expert Advisor stamps on its orders so it can tell them apart from trades placed by hand or by other EAs on the same account. Two EAs sharing one account should use different magic numbers, or they may manage each other's trades.

Margin

The part of your equity the broker sets aside to keep a position open. It is a deposit, not a fee, and is released when the position closes. It is calculated from the position's value and your leverage.

Margin call and stop out

A margin call is the broker's warning that margin level has fallen to a set threshold. Stop out is the lower level at which the broker starts closing positions automatically, usually the largest loser first. The percentages differ between brokers and account types.

Margin level

Equity divided by the margin in use, shown as a percentage. A higher number means more room before a margin call. An Expert Advisor that adds positions into a loss lowers it from both sides: margin in use rises while equity falls.

Martingale

A position sizing method that increases the lot size after a loss so one win recovers the earlier losses. It produces many small wins and can fail with a very large loss, because a run of losing trades grows the exposure quickly. It is the main reason some EAs show smooth backtests and sharp live drawdowns.

MetaTrader 5 (MT5)

MetaQuotes' trading platform and the successor to MetaTrader 4. It runs Expert Advisors written in MQL5, includes the multi-threaded Strategy Tester, and supports forex, metals, indices and other instruments depending on the broker.

MQL5

The programming language used to write Expert Advisors, indicators and scripts for MetaTrader 5. The MQL5 Market is MetaQuotes' own marketplace for buying and selling such programs, and the MQL5 community also hosts trading signals.

Optimisation

Running the Strategy Tester many times with different input values to find the combination that scores best on a chosen measure. It is useful for choosing sensible settings and dangerous when the best result is taken at face value, because the winner may simply fit the past (see curve fitting).

Pip

The standard small price step in forex: 0.0001 for most pairs and 0.01 for pairs quoted in Japanese yen. Its money value depends on the pair, the lot size and your account currency. A point in MetaTrader 5 is usually one tenth of a pip.

Profit factor

Gross profit divided by gross loss over a set of trades. Above 1 the trades made more than they lost; below 1 they lost money overall. It ignores how large the drawdowns were and how many trades there were, so read it alongside drawdown and trade count.

Prop firm

A proprietary trading firm that sells evaluations (challenges) and lets traders who pass trade the firm's capital under fixed rules, usually a profit target and loss limits. Rules on Expert Advisors, news trading and holding trades differ by firm and some firms do not allow EAs at all, so read the firm's own rules.

Recovery factor

Net profit divided by maximal drawdown, as reported by the MetaTrader 5 Strategy Tester. It compares how much a test earned with the worst fall it went through. Like other ratios from one backtest, it describes the past period tested.

Risk to reward ratio

The distance from entry to take profit divided by the distance from entry to stop loss. A ratio of 1:2 means the target is twice as far as the stop. It sets the win rate needed to break even: 50% at 1:1, 33% at 1:2, 25% at 1:3, before costs.

Scalping

Trading for very small price moves with short holding times, often many trades a day. Costs such as spread, commission and slippage take a large share of each small target, and some brokers and prop firms set minimum holding times, so execution quality matters more than for slower strategies.

Setfile (.set)

A saved list of an Expert Advisor's input values that you load in the EA's settings dialog. Sellers often provide setfiles for particular symbols, timeframes or risk levels, so you do not have to enter every input by hand.

Slippage

The difference between the price you expected and the price you got. It happens when the market moves between the order and its execution, most often around news or in thin markets, and it can work for or against you. It adds to the real cost of frequent trading.

Spread

The gap between the bid price you sell at and the ask price you buy at. It is the main cost of opening a trade and it widens in quiet hours and around news. A strategy with small targets can be unprofitable at a spread that a slower one barely notices.

Stop loss and take profit

A stop loss is an order level that closes a trade at a set loss; a take profit closes it at a set gain. Setting both on the server side means they work even if your terminal is offline. Stop distance together with lot size decides how much a losing trade costs.

Strategy Tester

The tool built into MetaTrader 5 that runs an Expert Advisor on historical data. Its modelling modes range from fast open-price tests to every tick based on real ticks, which is the most accurate but the slowest. The report it produces lists profit factor, drawdown, expected payoff and the trade list.

Swap (rollover)

The interest a broker charges or pays for holding a position past the daily rollover time. It can be positive or negative depending on the pair, the direction and the broker, and many brokers charge triple swap on one weekday to cover the weekend. It matters for strategies that hold trades for days.

Tick data

The record of every price change. Backtests that use real tick data from the broker model the market more closely than tests that build ticks from one-minute bars, and the difference grows for strategies with small targets.

Trailing stop

A stop loss that follows price in your favour by a set distance and never moves back. It can lock in part of a gain. A terminal-side trailing stop only works while MetaTrader is running, so it is usually paired with a VPS for an Expert Advisor.

VPS (virtual private server)

A remote computer that stays on around the clock. Running MetaTrader 5 and your Expert Advisors on one keeps them trading when your own computer is off or offline, and puts them closer to the broker's server for steadier execution.

Win rate

The share of trades that closed in profit. On its own it says little: a strategy can win most trades and still lose money if its losses are larger than its wins. Judge it together with the average win and loss, drawdown and the number of trades.

Trading foreign exchange, gold and CFDs carries a high level of risk. This glossary is general education, not financial advice, and no definition here suggests any strategy or Expert Advisor will be profitable.