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Trading glossary
Plain-English definitions, no jargon.
- Ask
- The price at which the market will sell a currency pair to you. Always slightly higher than the bid.
- Base currency
- The first currency in a pair (EUR in EUR/USD). The quote tells you how much of the second currency one unit of the base buys.
- Bid
- The price at which the market will buy a currency pair from you.
- Bull / Bear
- Bull = rising market sentiment. Bear = falling market sentiment.
- CFD
- Contract for Difference — a derivative letting you speculate on price moves without owning the underlying.
- Drawdown
- Peak-to-trough decline in account equity, expressed as a percentage.
- ECN
- Electronic Communication Network — routes orders directly to liquidity providers, no dealing desk.
- Equity
- Account balance plus or minus floating P&L from open positions.
- Hedge
- Holding offsetting positions to reduce exposure to adverse price moves.
- Leverage
- Borrowed capital expressed as a ratio (e.g. 1:500) that amplifies both gains and losses.
- Limit order
- Order to buy below or sell above current price at a specified level.
- Lot
- Standard FX trade size. 1 lot = 100,000 units of base currency. Mini = 0.1, micro = 0.01.
- Margin
- Capital reserved as collateral to keep a leveraged position open.
- Margin call
- Broker warning that your equity has fallen below the required margin level.
- Pip
- Smallest price increment for a pair. 0.0001 for most pairs, 0.01 for JPY pairs.
- Slippage
- Difference between expected execution price and actual fill, common around news.
- Spread
- Difference between bid and ask, measured in pips. Your immediate cost to enter a trade.
- Stop loss
- Pre-set order to close a trade at a specified loss to cap downside.
- Swap
- Overnight interest charged or paid for holding a position past rollover (5pm New York).
- Take profit
- Pre-set order to close a trade at a specified profit target.
- Volatility
- Magnitude of price swings over a given period. Higher volatility = larger ranges.