50 Algo Trading Terms Every Indian Trader Should Know

50 Algo Trading Terms Every Indian Trader Should Know

Jargon is a barrier the trading industry rarely bothers to lower. This glossary fixes that — fifty terms you'll meet in algo trading, explained in plain language, grouped so related ideas sit together. Bookmark it and come back when a word trips you up.

Strategy & signals

<p>1. Algorithm — a defined set of rules a computer follows to make trading decisions.</p><p>2. Strategy — the logic behind those rules: what to trade, when to enter, when to exit.</p><p>3. Signal — the specific trigger that tells the algo to act (e.g. a moving-average crossover).</p><p>4. Entry / Exit — the conditions for opening and closing a position.</p><p>5. Backtest — testing a strategy on historical data to estimate how it would have performed.</p><p>6. Forward test — running a strategy on live data (often without real money) to see how it behaves now.</p><p>7. Paper trading — simulated trading with no real capital at risk.</p><p>8. Overfitting — tuning a strategy so tightly to past data that it fails on new data.</p><p>9. Parameter — an adjustable value in a strategy (like a moving-average length).</p><p>10. Optimisation — searching for parameter values that improve backtested results (and a common path to overfitting).</p>

Execution & orders

<p>11. Order — an instruction to buy or sell.</p><p>12. Market order — buy/sell immediately at the best available price.</p><p>13. Limit order — buy/sell only at a specified price or better.</p><p>14. Stop-loss — an order that exits a position once losses hit a set level.</p><p>15. Slippage — the difference between the price you expected and the price you got.</p><p>16. Latency — the delay between a signal and the order reaching the exchange.</p><p>17. Fill — the execution of an order; a "partial fill" is when only part executes.</p><p>18. Order book — the list of buy and sell orders at various prices for an instrument.</p><p>19. Liquidity — how easily you can trade without moving the price.</p><p>20. Child order / order slicing — breaking a large order into smaller ones to reduce market impact.</p>

Instruments & markets

<p>21. Equity — shares of a company.</p><p>22. Derivative — an instrument whose value derives from an underlying asset.</p><p>23. Futures — a contract to buy/sell an asset at a set price on a future date.</p><p>24. Options — a contract giving the right (not obligation) to buy/sell at a set price.</p><p>25. Call / Put — an option to buy (call) or sell (put).</p><p>26. Strike price — the price at which an option can be exercised.</p><p>27. Premium — the price paid to buy an option.</p><p>28. Expiry — the date a derivative contract terminates.</p><p>29. Lot size — the fixed quantity per derivative contract.</p><p>30. Underlying — the asset a derivative is based on (e.g. the NIFTY index).</p>

Options-specific

<p>31. In/Out/At the money — whether an option currently has intrinsic value (ITM), none (OTM), or is at the strike (ATM).</p><p>32. Intrinsic value — the in-the-money portion of an option's price.</p><p>33. Time value — the part of an option's premium beyond intrinsic value, decaying toward expiry.</p><p>34. Greeks — measures of an option's sensitivity to various factors (see term 35–38).</p><p>35. Delta — sensitivity of option price to the underlying's price move.</p><p>36. Theta — the rate an option loses value as time passes.</p><p>37. Vega — sensitivity to changes in volatility.</p><p>38. Gamma — the rate at which delta itself changes.</p>

Risk & performance

<p>39. Position sizing — deciding how much to trade on a given signal.</p><p>40. Drawdown — the drop from a peak in your account value to a subsequent low.</p><p>41. Max drawdown — the largest such drop over a period; a key risk measure.</p><p>42. Sharpe ratio — a measure of return earned per unit of risk taken.</p><p>43. Win rate — the percentage of trades that are profitable (high win rate ≠ profitable).</p><p>44. Risk-reward ratio — the size of potential gain versus potential loss on a trade.</p><p>45. Leverage — using borrowed exposure (e.g. margin) to control a larger position.</p><p>46. Margin — money blocked by your broker to cover potential losses on a position.</p>

Compliance & infrastructure

<p>47. API — the interface letting your code talk to your broker's systems.</p><p>48. Algo-ID — the exchange-issued identifier now required on every automated order in India.</p><p>49. Static IP — a fixed internet address you register with your broker for API access.</p><p>50. Empanelment — formal exchange recognition of an algo provider as approved.</p>

How to use this list

Don't try to memorise it. Use it as a reference — when a term snags you while reading or setting up a strategy, look it up here and move on. Understanding compounds: the Greeks make more sense once you've traded an option, slippage becomes vivid the first time it costs you, and drawdown stops being abstract the first time you live through one.

For the concepts behind many of these terms in action, see the complete guide to algo trading in India, 7 Algo Trading Myths Indian Retail Traders Still Believe, and Do You Need Coding Skills to Algo Trade?.