Glossary

Trading, options and money, term by term

Every term in one sentence, with no jargon explained by more jargon. Three vocabularies: the MCI method, options, and personal finance. Open, no account, no email.

257 terms · 3 vocabularies

Trading, structure and order flow

The vocabulary of the MCI method: how structure is read, where liquidity sits and what the algorithm does with it.

IIStructureBOS, MSS, displacement and dealing range

BOSBreak of Structure: A swing break WITH the trend: it confirms continuation, not a turn.
CHoCHChange of Character: A synonym for MSS: the first break against the trend after a sweep. Not to be confused with the BOS, which runs with it.
CISDChange in State of Delivery: A close above — or below — the open of the opposing candle series. Finer than the MSS, and it arrives earlier.
Daily biassesgo diario: The direction the daily suggests for today: which pool is the magnet, and whether we sit in premium or discount.
Dealing rangerango operativo: The range between the last relevant high and low. Its 50% splits it into premium and discount.
Discount: The lower half of the range: the zone where you only look for BUYS.
Displacementdesplazamiento: 2–3 full-bodied candles that break structure and leave an FVG. The footprint of institutional size stepping in.
Divergence phantom: A lower-timeframe break that looks like a structure change and is an internal sweep. You rule it out by demanding displacement.
EquilibriumEQ · 50%: The midpoint of the dealing range. Above it you are expensive, below it cheap.
HH / HL / LH / LLhigher high · higher low · lower high · lower low: The basic swing labelling. HH+HL = bullish; LH+LL = bearish.
ITH / ITLIntermediate Term High/Low: A swing with an STH/STL on each side. The degree that defines the day's working structure.
LTH / LTLLong Term High/Low: A swing with an ITH/ITL on each side. The highest degree: it sets the underlying bias.
MSSMarket Structure Shift: A break AGAINST the trend after a liquidity sweep. It is the number-one confirmation in almost every MCI model.
Premium: The upper half of the range: the zone where you only look for SELLS.
STH / STLShort Term High/Low: A minor-degree swing: it has lower candles on both sides. Breaking it does not change the higher structure.
Swing point: A high or low with lower candles on both sides. It is the unit structure is read with.
Top-downmulti-timeframe analysis: The daily sets the magnet and the bias, the 1H the array on the way, the 15m the sweep, the 5m the execution. Never the other way round.

IIILiquidityThe market's fuel

Acceptance: The opposite of a sweep: price CLOSES beyond the level and continues. Never fade acceptance.
BSLBuy-Side Liquidity: The buy stops stacked ABOVE highs. Price visits them like a magnet.
DOLDraw on Liquidity · the magnet: The pool price is pulling towards today. The session's first question: without a DOL you cannot judge whether a setup runs with or against.
Equal highs / lowsEQH · EQL: Two or more extremes at the same price. They concentrate stops: magnets, not support.
ERLExternal Range Liquidity: The extremes of the range, where the stops live. Price travels from the internal array towards them.
HRLRHigh Resistance Liquidity Run: A dirty path, full of overlaps and prior levels. Same R:R on paper, far less chance of getting there.
InducementIDM · the bait: An 'obvious' intermediate high or low the algorithm manufactures so retail enters too early. Their stops fund the institutional entry at the real zone.
IRLInternal Range Liquidity: The arrays inside the range — unmitigated FVGs and OBs. Price travels from the extreme towards them.
LRLRLow Resistance Liquidity Run: A clean path to the target: no overlaps, no unmitigated arrays. Price crosses it fast.
ONH / ONLOvernight High/Low: The extremes of the overnight session. Reference pools for the New York open.
Open Float: The liquidity still UNRESOLVED between the reference extremes. Once the float is exhausted, consolidation follows.
PDH / PDLPrevious Day High/Low: The previous day's high and low: the reference daily liquidity pools.
Raidsweep: Price running into a liquidity pool to trigger those stops, then reclaiming. It is manipulation, not direction.
REH / RELRelative Equal Highs/Lows: Highs or lows that are 'relatively' equal. They need not match to the tick: what matters is where people put their orders.
Round numbers: A pool nobody manufactures and that is always there: retail places stops and targets at round figures out of habit.
SSLSell-Side Liquidity: The sell stops stacked BELOW lows.
Trendline liquidity: The stops stacked along an obvious trendline. The more people draw it, the better it works as a trap.

IVPD ArraysFVG, Order Blocks and Breakers

BISIBuy-Side Imbalance Sell-Side Inefficiency: A bullish FVG: the gap sits below and acts as support on the return.
BPRBalanced Price Range: The overlap of two opposing FVGs. A high-quality reaction zone.
Breaker: An Order Block that failed and was broken: on the return it acts in the opposite direction to the original.
CEConsequent Encroachment: The 50% of an FVG. The most reliable reaction level inside the gap, and where the order goes.
First-return rule: An array works because unfilled orders remain. After the first touch they are filled: the second visit is degraded.
FTRFailed To Return: A zone price did NOT revisit after breaking structure: it keeps pending orders and stays valid.
FVGFair Value Gap · inefficiency · imbalance: A three-candle gap where price moved so fast it went untraded. It tends to rebalance.
IFVGInversion FVG: An FVG traded through with a close on the other side: it inverts and starts acting in the opposite direction.
Implied FVG: An inefficiency with no visible gap: the bodies almost touch but the wicks give away badly traded price.
Liquidity voidvacío de liquidez: A stretch covered with almost no trading. Price tends to come back and fill it.
Mean thresholdMT · 50% of the OB: The midpoint of an Order Block: where the limit order lives, just like the CE inside an FVG.
Mitigation Block: A zone price returns to so a trapped institutional position can exit at a better price. Like a breaker but without a prior liquidity sweep; in ICT's original usage it tends to be traded as continuation, not reversal.
NWOG / NDOGNew Week/Day Opening Gap: The gap between the close and the new week's or day's open. It acts as a magnet.
Order BlockOB: The last opposing candle before the displacement that breaks structure. When price returns, the same actor defends it.
PD ArrayPremium/Discount Array: Any zone where the algorithm delivers price: FVG, Order Block, Breaker, Mitigation Block…
Propulsion Block: An Order Block that forms on top of an earlier OB. Price returns, leans on it and accelerates.
RDRB / RRPRrebalanced and redelivered range: A BPR that rebalances and delivers again in the same direction: the exception to the first-return rule.
Reclaimed Order Block: An OB pierced and then reclaimed with a close back inside: still valid. It only becomes a breaker if it closes beyond and stays there.
Rejection Block: A zone formed by the wicks — not the bodies — of a violent rejection.
SCOBSingle Candle Order Block: A candle that sweeps liquidity and closes back inside (sweep + reclaim); it refines the OB down to one candle so you can enter on a lower timeframe when the larger block gives an unaffordable stop. The sweep and the re-entry are the core.
SIBISell-Side Imbalance Buy-Side Inefficiency: A bearish FVG: the gap sits above and acts as resistance on the return.
Vacuum Block: A price gap left by an event or an open. NDOG and NWOG are particular cases.
Volume ImbalanceVI: A gap between one candle's CLOSE and the next one's OPEN, with the wicks touching. It is not an FVG: that is the gap between the wicks of three candles.

VTimeKillzones and the patterns of the clock

ADRAverage Daily Range: The day's average travel over 20–30 sessions. It tells you how much movement budget today has left.
CBDRCentral Bank Dealing Range: A reference range (14:00–20:00 ET) whose size is projected in standard deviations.
Initial BalanceIB: The range of RTH's first hour. A narrow IB anticipates a trend day: the energy was not spent there.
Killzone: A high-probability time window. MCI's main one is 09:30–11:00 ET.
Lunch traptrampa del mediodía: The lunch pattern (12:00–13:00): institutional volume steps away and price breaks falsely on both sides. Not traded. Not to be confused with ICT's Venom Model.
Macro: A ~20-minute burst in which the algorithm reliably hunts liquidity (09:50–10:10, 10:50–11:10…).
Macro data daysCPI · NFP · FOMC: The announcement candle sweeps both sides: it is not information, it is a stop harvest. No positions inside it; its extremes remain as pools.
MOCMarket on Close: 15:50–16:00: mandatory closing orders arrive that follow no technical logic. Not traded.
ORGOpening Range Gap: The gap between yesterday's RTH close and today's open. A magnet, just like an NDOG.
Rolloverquarterly expiry: Mar/Jun/Sep/Dec. The continuous chart stitches different contracts and SHIFTS levels marked earlier.
Seek & Destroy: A day profile that sweeps BOTH extremes without delivering any direction. With both sides taken before 10:30, you do not trade.
Standard deviationSD · projection: The height of the CBDR — or of Asia — projected in ×1, ×2, ×3 multiples. It gives the day's travel budget.
TGIF: Friday's tendency to give back part of the weekly range. A bad afternoon to chase the extension.
True opens: The reference opens: daily (00:00 ET), weekly (MCI uses Monday 00:00 ET; Quarterly Theory places it Monday at 18:00), monthly (2nd Monday) and yearly (1st Monday of April). What matters is having one fixed anchor per scale and being consistent.

VIThe core playLondon range → NY sweep

LRH / LRLLondon Range High/Low: The extremes of the London range. They are the bait and the target of the core setup.

VIIEntry modelsThe named setups, one by one

2022 Model: The four-step skeleton: raid → displacement with FVG → entry on the retracement → delivery to the opposite pool.
DXYdollar index: The reference the rest of the board is read against. On indices you consult it, you do not trade it.
IOFEDInstitutional Order Flow Entry Drill: Entry at the far edge of the FVG: better price and a smaller stop, at the cost of filling less often.
Judas Swing: The session's first push runs opposite to the real move, to load liquidity on the wrong side.
MMBM / MMSMMarket Maker Buy/Sell Model: The full reversal: consolidation, sweep, a long manipulation the other way, Smart Money Reversal and distribution.
MMMMarket Maker Model · Smart Money Reversal: The market maker's full reversal model: accumulate, manipulate, distribute and reaccumulate.
OTEOptimal Trade Entry: A 62–79% retracement of an impulse. A CONTINUATION model: it demands the trend on your side.
Power of ThreePO3 · AMD: Accumulation → Manipulation → Distribution. The shape of every session, fractal at every scale.
Rate differential: The yield gap between two economies. It sustains multi-month trends with shallow retracements.
Relative strength: Which of two correlated instruments is leading. In continuation you side with the strong one.
Risk-on / risk-offRORO: The risk-appetite regime. A context filter that confirms or questions your bias, never an entry signal.
Silver Bullet: An hourly model: within 10:00–11:00 ET the algorithm leaves an FVG that gets rebalanced. There is an afternoon version.
Smart Money ReversalSMR: The real extreme where the Market Maker Model's manipulation ends and distribution begins.
SMTSmart Money Technique · divergence: One index sweeps its extreme and the other does not. It gives away that the sweep was manipulation; you trade the strong index.
Turtle Soup: Fading a false break: price takes out an obvious extreme, fails to get acceptance and comes back inside. You enter on the reclaim. Not ICT's: Raschke and Connors created it (Street Smarts, 1996); ICT reframes it as sweeping a swing point on any timeframe.
Unicorn: A breaker and an FVG overlapping at the same price: two independent reasons to react there.
Venom Model: A 2025 ICT model: the 08:00–09:30 ET box is swept at the open and price reverses. Same skeleton as the MCI core with a different range.

VIIIRisk managementThe arithmetic that keeps you alive

Break-evenBE · stop at entry: Moving the stop to your entry. It is justified when STRUCTURE advances, not when you are +1R: otherwise it takes you out of normal retracements.
COTCommitment of Traders: The CFTC's weekly report. Commercials (informed), large speculators (trend followers) and retail.
Esperanza matemáticaexpectancy: Average R per trade: (win rate × average win) − (loss rate × average loss). It is the only thing that decides whether a method wins long term, which is why a 40% win rate at 1:3 earns more than 70% at 1:1.
Open interestinterés abierto: Live contracts. Rising with price = new money; falling with price = positions closing, a move with no base.
Partialscaling out: Closing part of the position. It trims expectancy and buys staying power: it is a psychological tool.
Point value: What one point per contract is worth: ES $50, MES $5, NQ $20, MNQ $2. It defines how many times you can be wrong.
Position sizesizing · tamaño de posición: Risk ÷ (stop in points × point value), rounding down. It is derived from the stop, never the other way round.
Rrisk multiple: The unit of measurement: 1R is what you lose if the stop is hit. Everything is measured in R, not in currency.
Structural stop: A stop is not a distance: it lives where the idea dies, beyond the extreme of the sweep.
T1 / T2 / runner: A three-part exit: near target (≥1R), main pool (the DOL) and the remainder with the stop trailing structure.
Time invalidation: Closing because the expected move has not arrived in its window, even though the stop was never hit.

IXOrder FlowBookmap: the layer that confirms the chart — or denies it

Absorption: Massive aggression against passive liquidity that does NOT move price. Strong delta with price standing still means someone big is on the other side.
Delta: Buy aggression minus sell aggression. Its divergence — a new extreme on less delta — signals exhaustion.
Iceberg: An order that reloads at the same price every time it gets eaten: invisible absorption in the book.
Spoofing: A large, visible wall that is PULLED before it is touched. Fake liquidity: never fade a wall because of its size.
Stacking / Pulling: Adding liquidity at a level (stacking → usually real) or pulling it as price approaches (pulling → fake).
Trapped tradersatrapados: Those who entered a breakout that got absorbed. Their stops are the fuel for the move the other way.

XPsychologyProtocol, not motivation

A/B/C execution: The grade for HOW you decided, independent of the result in R. A trade can be an A and lose, or a C and win.
Blind backtest: Stepping candle by candle from a past date, deciding only on what is visible. The only one that does not fool you.
Correct loss: A trade with an A setup, size by formula and a structural stop that got hit. Indistinguishable from a winner except in the outcome.

XIAlgorithmic theoryHow the algorithm delivers price

Buy / sell curvecurva de compra · curva de venta: Delivery seen as accumulation or distribution rather than as trend. Accumulation happens while price is still falling.
Conditioning: The market repeats a pattern until you take it as a rule, and then inverts it.
Institutional sponsorshippatrocinio institucional: The proof a level was defended is not that price stopped: it is that it left with displacement, leaving inefficiency behind.
IPDAInterbank Price Delivery Algorithm: The idea that price is delivered by an algorithm referencing 20/40/60-day data ranges.
Market maker trapstrampas del creador de mercado: Famous retail patterns — flags, head and shoulders, trendlines — built to generate counterparty.
Narrative: The chain context → DOL → manipulation → execution, in one sentence. If you cannot say it, you have no thesis.
Order Pairingorder pairing: The underlying mechanic: a large order only fills against opposing liquidity, so the counterparty has to be manufactured first.
Quarterly shift: Every 3–4 months IPDA re-references its data ranges. Many underlying turns are born there.
Quarterly Theory: Time divides into fractal quarters, each with its phase: accumulation, manipulation, distribution, continuation.
True day open: The midnight open (00:00 ET). It splits the day into premium and discount.

XIIFunded-account managementTrading a funded account without blowing it

Consistency rule: A cap on how much your best day can weigh in total profit. It forces you to earn steadily.
Drawdown: The fall from your equity peak. In funded accounts it is usually trailing: it chases your high-water mark.

Options

Contracts, greeks, volatility and strategies. What you need to understand before looking at a chain.

IThe contractWhat you buy and what you commit to

American style: Can be exercised any day up to expiration. It is the norm for stock options.
Assignment: Being handed the other side of an exercise: you are made to deliver or to buy. It is the risk the option seller takes on.
ATMAt The Money: The strike sits right at the current price. It is where the contract holds the most extrinsic value and the most gamma.
Callcall option: A contract giving you the RIGHT to buy the underlying at a fixed price before a date. Buying one bets it rises; selling one bets it does not rise that much.
Contract multiplier: How many units of the underlying one contract controls. In stocks it is usually 100, so a premium of 2 costs 200.
European style: Can only be exercised on the expiration date. It is the norm for index options, and it removes early-assignment risk.
Exercise: Using the right the contract grants. The buyer decides it, not the seller.
Expirationexpiry: The date the contract stops existing. From then on it is worth only its intrinsic value, which is almost always zero.
Extrinsic valuetime value: What you pay ABOVE intrinsic value: the chance it still improves. It is the only part time destroys.
Intrinsic value: What the contract would be worth if it expired right now. Never negative: at worst, zero.
ITMIn The Money: The strike is already favourable: a call with price above it, a put below. It has intrinsic value.
Option premiumpremium · option price: What the contract costs. It is intrinsic value plus extrinsic value, and it is the most a buyer can lose.
OTMOut of The Money: The strike is not favourable yet. Everything the contract is worth is extrinsic, and that evaporates with time.
Putput option: A contract giving you the RIGHT to sell the underlying at a fixed price before a date. It is the most direct way to hedge a fall.
Strikeexercise price: The fixed price at which the contract lets you buy or sell. Choosing it changes the outcome more than getting the direction right.

IIThe underlyingThe thing everything else depends on

Cash settlement: At expiry no asset changes hands: only the cash difference is paid. Standard for index options.
Dividend: A payout to shareholders. It drops the share price on the ex-date, so it cheapens calls and richens puts.
Physical settlement: At expiry the actual shares are delivered. That is why an assignment in stocks leaves you with a position, not just a loss.
Spot pricespot: What the underlying costs right now. It is the reference for whether a strike is in or out of the money.
Underlying: The asset the contract depends on: a stock, an index, a future. The option does not exist without it.

IIITimeThe only factor that runs one way

0DTE: Contracts expiring today. All their value is extrinsic and burns in hours: the fastest-moving and the least forgiving.
DTEDays To Expiration: How many days the contract has left. It is the number that decides how much time weighs against direction.
Quarterly expirationtriple witching: The third Friday of March, June, September and December, when options and index products expire together. It concentrates volume and tends to move the market.
Rolling: Closing a contract and opening the same one at another expiry or strike. It does not fix a wrong thesis: it buys time, and time costs money.
Time decaytheta decay: The daily loss of extrinsic value. Not linear: it accelerates towards expiration and is brutal in the final week.

IVVolatilityWhat is really being bought and sold

Implied volatilityIV: The move the contract's price takes for granted between now and expiry. It is not a forecast: it is what you would have to believe for that price to be fair.
IV Percentile: What share of days in the last year had lower implied volatility than today. More robust than rank when there has been an isolated spike.
IV Rank: Where today's implied volatility sits within its range over the last year, from 0 to 100. It tells you rich or cheap FOR THAT asset, not in absolute terms.
Realised volatilityhistorical volatility: How much the underlying ACTUALLY moved. Comparing realised with implied is the central question for an option seller: is the expectation expensive?
Term structure: How implied volatility changes across expirations. When the short dates run above the long ones, the market expects an immediate scare.
VIX: The index summarising 30-day implied volatility on the S&P 500. It rises when the market pays up for protection, so it usually moves opposite to the index.
Volatility crushIV crush: The sharp drop in implied volatility right after a scheduled event. It explains how you can call an earnings move correctly and still lose.
Volatility skewskew: Far puts trading at higher implied volatility than equivalent calls. It is the price of fear: falling scares more than rising.
Volatility smile: The curve implied volatility traces across strikes. If it were flat the model would be enough; that it is not is what has to be interpreted.

VThe greeksWhat your position is sensitive to

Charmdelta decay: How much delta changes from time alone. It is what forces dealers to re-hedge without price having moved.
Delta: How much the premium moves per unit the underlying moves. It also reads as your position's equivalent exposure in shares.
Gamma: How much delta changes when price moves. It is the acceleration: high near the money and near expiry, which is why everything moves faster there.
Rho: Sensitivity to interest rates. Irrelevant on short horizons and anything but on contracts beyond a year.
Theta: What the premium loses from one day simply passing. Negative for the buyer and positive for the seller: it is the rent on time.
Vanna: How much delta changes when volatility changes. It links fear to flow: when implied volatility falls, it forces buying of the underlying.
Vega: How much the premium changes if implied volatility rises one point. It is the greek that explains losses that do not match the price move.

VIThe strategiesCombining contracts to choose your risk

Butterfly: Three strikes: a bet that price ends pinned at the middle one. It costs little and hits rarely, but pays a lot when it does.
Calendar spread: Same strike, different expirations. Sell the near one and buy the far one: a bet on time passing, not on direction.
Cash-secured put: Selling a put with the cash set aside to buy if assigned. It is committing to buy cheaper and getting paid to wait.
Collar: On shares you already hold: buy a put for protection and sell a call to pay for it. You bound the fall and the rise alike.
Covered call: Selling a call while owning the shares. You take in premium and give up the upside above the strike.
Credit spread: The vertical you get paid for on opening. You win if NOTHING happens and time works for you — but you lose more than you took in if you are wrong.
Debit spread: The vertical you pay for on opening. You need the underlying to move your way: time works against you.
Iron condor: One credit spread above and another below. You get paid for betting price stays in a range, with the loss bounded on both sides.
Long straddlestraddle: A call and a put at the same strike. It wins on a big move in either direction; it loses if the market sits still.
Long stranglestrangle: Like the straddle but with separated strikes: cheaper to open and needing a bigger move to pay.
Vertical spread: Buying and selling the same contract type at different strikes and the same expiry. It caps the maximum gain in exchange for bounding the loss.

VIIThe horizonsThe horizon changes which strategy makes sense

Event-driven trade: A position built around a known date — earnings, a macro release. What is traded is implied volatility, not the news.
LEAPS: Contracts beyond a year. Theta barely weighs and vega rules: closer to owning the asset than to trading an option.

VIIIRiskWhat can go wrong, and by how much

Break-even: The price at which the position neither wins nor loses at expiry. On a long call it is the strike plus the premium, not the strike.
Defined risk: The maximum loss is known at entry and cannot grow. Everything you buy is; spreads are too.
Early assignment: Being assigned before expiration. It only happens American-style and is triggered above all when a dividend is in play.
Margin requirement: The money the broker locks up while the position is open. It is not what you can lose: it is what you cannot use.
Pin risk: Expiring with price glued to the strike, not knowing whether you will be assigned. You can wake up on Monday holding a position you did not choose.
Undefined risk: The loss has no known ceiling, as in a naked short call. The odds of winning are high, which is what makes it tempting; the size of the failure is what ruins you.

IXThe dealersWho is on the other side and what forces their hand

Dealer gammaGEX · gamma exposure: The net sign of the gamma market makers are holding. When positive their hedging brakes price; when negative it pushes it.
Dealer hedging: The buying and selling of the underlying a market maker does to stay neutral. It is forced flow, and that is what makes it predictable.
Gamma flip: The level where dealer gamma changes sign. Above it the market tends to calm; below it, to accelerate.
Gamma wallcall wall · put wall: The strike with the most accumulated gamma. It acts as magnet and as brake, because that is where hedging piles up.
Market makerdealer: Whoever quotes both sides and keeps the spread. They do not bet on direction: they hedge what they are forced to take on.

XThe chainReading the table of contracts

Bid-ask spread: The gap between what you are paid and what you are charged. On thinly traded options it eats the profit before you start.
Max pain: The strike where the largest number of contracts would expire worthless. A statistical observation, not a prediction of where price ends up.
Mid pricemid: The point between bid and ask. A sensible reference for working the entry, not a price that fills by itself.
Open interestOI: How many contracts remain open at that strike. Unlike volume it does not reset daily: it says where positions are, not where the rush was.
Option chain: The table of every contract on an underlying, by strike and expiration. It is the map: without reading it, picking a strike is guessing.

XIThe methodThe decisions, in order

Directional thesis: What you expect the underlying to do, with a horizon and a size. Without all three you cannot choose strike or expiry: only buy for the sake of buying.
Exit plan: At what price or on what date you close, written before entering. An option can run out of time while you wait to be proved right.
Position sizing: How many contracts, decided from the maximum loss you accept. Worked out before opening; after that it is negotiating with yourself.

Personal finance

Month-to-month money: budget, cushion, debt, investing and retirement. With no country and no currency, because tax rules change and principles do not.

CKnowWhere your money comes from and where it goes

Asset: Something you own that has value. The useful question is not what it is worth, but whether it produces anything or merely depreciates.
Budget: Deciding where money goes BEFORE it goes. Not a diet: it is swapping the order of deciding and spending.
Cash flow: The difference between what comes in and what goes out over a period. Positive means you can build something; negative means the rest of the plan is moot.
Fixed expense: The one that repeats identically each month regardless of daily choices. The hardest to cut and the one that frees the most room when cut.
Inflation: The general rise in prices. The reason idle money loses value even though the account balance never drops.
Liability: What you owe someone else. Not a failure in itself: it is a future claim on your cash flow, and it is planned as such.
Net income: What actually reaches your account, after everything is taken out. The only figure you can plan with: gross cannot be spent.
Net worth: Everything you own minus everything you owe. The real scoreboard: your salary says how much comes in, this says how much you kept.
Opportunity cost: What you give up doing with that money by doing this instead. Every expense has one, though it appears on no receipt.
Purchasing power: What your money actually buys, not the figure. Earning 3% more with 5% inflation is earning less.
Savings rate: What share of what comes in you do not spend. It matters more than returns for the first years, and by a wide margin.
Variable expense: The one that changes with what you do. Where everyone tries to save first, and where least is achieved if the fixed ones are out of control.

ASecureThe cushion and the cover, before anything else

Coverage: What the policy covers exactly and up to how much. What matters is not what it includes but what it excludes.
Deductible: The share of the blow you pay before cover kicks in. Raising it cheapens the premium, and it is sensible right up to what you can absorb without flinching.
Emergency fundcushion: Money available instantly to cover several months of expenses. Not an investment and not meant to earn: its job is to be there on the bad day.
Insurable risk: The unlikely but catastrophic kind. The likely and small kind is paid out of pocket: insuring it is expensive because the insurer knows it too.
Insurance: Paying a small certain amount to avoid exposure to a large unlikely one. It only makes sense when the blow it covers would ruin you.
Insurance premium: What you pay periodically to stay covered. Comparing premiums without comparing cover is comparing prices of different things.

PPlanThe big decisions and the distant ones

Compound interest: When what your money earns starts earning too. Slow and boring for years, and then abruptly not.
Debt-to-income ratio: What share of your monthly income goes to servicing debt. Above a third, any surprise turns into a problem.
Down payment: The share of the price you put in yourself. The larger it is, the less you owe and the less the loan costs in total.
Financial goal: An amount and a date. Without both it is not a goal but a wish, and there is no way to work out how much to set aside.
Mortgage: A very long-term loan secured on the home itself. The term matters as much as the rate: stretching it lowers the payment and raises the total enormously.
Retirement: The point where your income stops depending on your work. Planned from the amount you need each year, not from a round number.
Rule of 72: Divide 72 by the annual return in percent to get the years it takes money to double. At 6%, twelve years.
Simple interest: Always calculated on the initial amount. The gap with compounding is negligible in year one and vast by year twenty.
Time horizon: When you will need that money. It decides where it can sit: what you need in two years cannot be where it can fall 40%.
Time value of money: One unit today is worth more than one unit a year from now, because today it can be put to work. Everything else follows from this.
Withdrawal rate: What share of your portfolio you take out each year once you stop working. The higher it is, the sooner it runs out: it is the variable that decides whether it lasts.

IInvestPutting the surplus to work

Asset allocation: What proportion goes to each asset type. It explains most of how a portfolio behaves, far more than picking well within each type.
Bond: A loan sliced up and made tradable. When rates rise, existing bonds are worth less, because they pay less than new ones.
Diversification: Spreading out so no single failure takes you down. It does not raise expected return: it lowers how bad things can get.
Equities: Stakes in companies. They pay more over the long run and swing far more: those two are the same fact.
ETFexchange-traded fund: A fund bought and sold like a share. The ease of trading it is both its advantage and its trap.
Fixed income: Lending money for an agreed interest. 'Fixed' refers to the coupon, not the price: a bond's value does move.
Index fund: A fund that copies an index instead of trying to beat it. It charges little precisely because it is not trying to be right.
Management fee: What the manager charges every year, win or lose. One percentage point a year eats a huge share of the outcome over thirty years.
Portfolio: All your investments seen as one thing. Judging a position on its own leads to decisions that make the whole worse.
Real return: The return once inflation is stripped out. The only one that says whether you gained purchasing power or just figures.
Rebalancing: Returning to the proportions you decided, selling what rose and buying what fell. Uncomfortable by design: that is why it works.
Regular contribution: Investing the same amount every month regardless. It does not improve average returns: it removes the decision of when to enter, which is where people lose.
Return: What an investment gains or loses, in percent. Without saying over what period, a percentage means nothing.
Volatility: How much an investment's value swings. Not the same as risk: the real risk is needing the money at exactly the worst moment.

TTackle debtTelling the kind that builds from the kind that sinks

Consumer debt: The kind that funds something which produces nothing and loses value besides. The most expensive and the most urgent to clear.
Debt avalanche: Attacking the highest-rate debt first. Optimal in money terms, and therefore what the arithmetic recommends.
Debt snowball: Attacking the smallest debt first. It costs slightly more and is abandoned less often, because closing a whole debt motivates.
Effective annual rate: The true cost of a loan over a year, including fees and compounding. The number to compare two offers with; the headline rate will not do.
Minimum payment: The least you can pay without defaulting. Paying only that is designed to make the debt last as long as possible.
Productive debt: The kind that funds something generating income or saving a bigger cost. Still debt: making sense does not make it harmless.
Refinancing: Replacing a debt with another on better terms. It only improves things if the total cost falls: stretching the term almost always raises it.
Revolving credit: A line you can reuse as you repay it, with a very low monthly minimum. That minimum is the trap: it stretches the debt for years.

AAutomateSo the plan does not depend on your willpower

Deliberate friction: Deliberately putting obstacles between you and a bad decision. It works better than discipline because it does not depend on how you feel that day.
Pay yourself first: Setting aside savings on payday, not from what is left at month end. Nothing is ever left: that is why the order is the whole rule.
Scheduled transfer: An automatic recurring move between your accounts. It turns an intention into a fact without spending willpower.
Separate accounts: Keeping day-to-day spending, the cushion and savings in different places. Seeing a balance that is not spendable stops you spending it.

LLearn and improveReviewing, spotting traps and correcting

Confirmation bias: Seeking only what proves you right. In money it is expensive: it turns a bad decision into a defended one.
Lifestyle inflation: Spending more as soon as you earn more. It explains how the salary rises and net worth does not.
Loss aversion: Losing hurting more than winning the same amount feels good. It is what makes people sell at the worst moment and hold what is beyond saving.
Mental accounting: Treating money differently depending on where it came from. A windfall and a salary buy the same things, yet almost nobody spends them alike.
Periodic review: Looking at the numbers on a fixed schedule, not when you remember. What is not reviewed drifts without anyone noticing.
Ponzi scheme: Paying the old with the money of the new. It works while people keep joining and collapses the day they stop.
Pyramid scheme: You earn by recruiting, not by selling anything. Arithmetic condemns it: each level needs more people than all the previous ones combined.
Red flag: Promising a fixed, risk-free payout, rushing you, or being unable to explain where the money comes from. Any one of the three is reason enough to walk.