Glossary
Forex EA glossary — 14 terms every beginner should know
EA pages are full of numbers like 'PF 1.50' or 'equity DD 10.3%'. This page explains, briefly and for beginners, the 14 terms you need to read them. Come back here whenever a word is unclear.
- EA (Expert Advisor)
- A program that trades automatically on MT5. It encodes buy/sell rules and, once attached to a chart, opens and closes orders 24 hours a day.
- MT5 (MetaTrader 5)
- Free trading software. It connects to your broker account and handles charts, orders and running EAs. All EAs on this site are for MT5.
- PF (Profit Factor)
- Gross profit ÷ gross loss. 1.0 is break-even, 1.3+ is a good guide and 1.1–2.0 is a healthy range. Above 3.0, suspect over-optimisation (curve fitting).
- Max drawdown (DD)
- The largest temporary drop in equity from its peak, in %. 20% means at some point the account was down by a fifth. 'Balance DD' and 'equity DD' (including floating losses) differ; equity DD is larger.
- Win rate
- Share of winning trades. Higher is not automatically better: trend EAs win only 35–45% but each win is large, so they stay profitable. Read it together with PF.
- Risk/reward ratio
- Average profit per trade ÷ average loss. A low win rate still makes money when this ratio is high (40% win rate × 2.0 risk/reward = positive expectancy).
- Lot
- Unit of trade size. 1 lot = 100,000 units of currency (100 oz for gold). 0.01 lot is usually the minimum; beginners start at 0.01–0.05.
- Spread
- Difference between buy and sell price, i.e. the real cost of every trade. Narrower is better. Backtests must use your broker's real spread or results look too good.
- Backtest
- Running an EA on historical prices to measure performance. Trust long tests (5+ years) on 'real tick' data.
- Forward test
- Running the EA live in real time. It exposes EAs that looked great in backtests but fail in the real market. Ours are published on Myfxbook.
- Grid / martingale
- Adding to a losing position to lower the average price (grid/averaging) or doubling the stake after each loss (martingale). The win rate looks high, but one sharp move can wipe out the account. We label such EAs separately as 'aggressive'.
- Stop-loss
- A price at which a trade is closed automatically to cap the loss. An EA that has one on every trade keeps a single loss to a few percent of the account.
- VPS
- A small virtual server running 24/7. An EA only works while MT5 is running, so use a VPS unless you keep a home PC on all the time.
- Leverage / margin
- The multiplier that lets you trade a large size with little capital, and the collateral you deposit for it. Higher leverage lets you start small, but raising the lot size scales losses just as much.