Terminal space is the number of terminal Action cards a player can play on a turn. This is an important concept in building an engine in which you aim to play most of the valuable cards in your deck on any given turn. Terminal Actions often have valuable effects as the sources of draw or payload for an engine, but if you add more terminals to your deck than you can play on a turn, the extra terminals will take up space as dead cards and impede your engine's effectiveness. Villages are necessary to increase a deck's terminal space. A deck that has excess terminals and not enough terminal space to play them all may be described as "overterminaled".
In building an engine, it can often be useful to avoid gaining even cards that will benefit your deck in the short term if they will later on take up terminal space needed by other, more useful cards. For example, although Chancellor speeds up your deck cycling in the early game, which is a benefit, it is usually a bad buy because it ends up competing for terminal space with other, more powerful terminals.
Terminal space is dependent on the cards available in each kingdom. For example, in the absence of any villages, a player can only expect to play one terminal per turn. Even in kingdoms that provide a village of some kind, you may find yourself competing with your opponents to gain copies of it and find your terminal space accordingly limited. Some kingdoms create a hard limit on the amount of terminal space available—for instance, if Snowy Village is the only village available, you're limited to four terminals per turn during your Action phase no matter what.
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