Common forex terms, explained plainly.
Pip
The smallest standard price move a currency pair can make — usually the fourth decimal place (or second, for pairs involving the Japanese yen).
Lot
A standardized trade size. A standard lot is 100,000 units of the base currency; mini and micro lots are 10,000 and 1,000 units.
Leverage
Borrowed capital that lets you control a larger position than your account balance alone would allow. It magnifies both gains and losses.
Margin
The amount of your own capital set aside as collateral to open a leveraged position.
Spread
The difference between the buy (ask) price and sell (bid) price of a currency pair — effectively the cost of entering a trade.
Bid / Ask
The bid is the price you can sell at; the ask is the price you can buy at.
Long / Short
Going long means buying, expecting the price to rise. Going short means selling first, expecting the price to fall.
Stop Loss
A pre-set order that automatically closes a trade at a specific loss level, limiting downside.
Take Profit
A pre-set order that automatically closes a trade once it reaches a specific profit level.
Drawdown
The decline in account value from a previous peak, usually expressed as a percentage.
Volatility
How much and how quickly a price moves over a given period. Higher volatility means bigger, faster price swings.
Support / Resistance
Price levels where an asset has historically struggled to fall below (support) or rise above (resistance).
Fundamental Analysis
Evaluating an asset’s value based on economic data, news, and broader macroeconomic conditions.
Technical Analysis
Evaluating an asset’s likely future price based on historical price charts and patterns.
Slippage
The difference between the price you expected a trade to execute at and the price it actually filled at, usually during fast-moving markets.
Swap / Rollover
The interest paid or earned for holding a leveraged position open overnight.
Currency Pair
Two currencies quoted against each other, e.g. EUR/USD — the price shows how much of the second currency is needed to buy one unit of the first.
Risk-Reward Ratio
A comparison of how much you stand to lose versus how much you stand to gain on a trade, e.g. a 1:2 ratio means risking $1 to potentially make $2.
CFD
Contract for Difference — a derivative product that lets you speculate on price movement without owning the underlying asset.