Forex Trading Terminology: Key Terms Explained

This guide explains the forex trading terminology you will see on charts and trading platforms. The terms are grouped by topic, so you can jump to the one you need.

Why Forex Trading Terminology Matters

Every trading platform uses these words. They appear on order tickets, account pages and charts. If you do not know what a word means, you cannot follow your own trading plan.

Each term below has a short definition. Some also have an example with made-up numbers.

Currency Pairs and Prices

Currency Pair

In forex, you always trade one currency against another. The two currencies together are called a currency pair. They are written with a slash between them.

Example: EUR/USD is the euro against the US dollar.

Base Currency

The base currency is the first currency in a pair. It is the currency you buy or sell. The price shows how much one unit of it costs.

Example: In EUR/USD, the euro is the base currency.

Quote Currency

The quote currency is the second currency in a pair. The price of the pair is shown in this currency.

Example: If EUR/USD is at 1.1000, one euro costs 1.1000 US dollars.

Major Pairs

Major pairs are currency pairs that include the US dollar and one other large currency. They are EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD, USD/CAD and NZD/USD.

Bid Price

The bid price is the price at which you can sell. It is the lower of the two prices your platform shows.

Ask Price

The ask price is the price at which you can buy. It is the higher of the two prices your platform shows. Some platforms call it the offer price.

Measuring Price Moves and Trade Size

Pip

A pip is a unit used to measure how far a forex price moves. For pairs quoted to four or five decimal places, one pip is 0.0001. For pairs that include the Japanese yen, one pip is 0.01.

Example: If EUR/USD moves from 1.1000 to 1.1010, it has moved 10 pips.

Point

A point is a small step in price. Its size depends on the platform and the market. On a five-decimal forex price, one point is often one tenth of a pip. Check what a point means on your own platform.

Lot

A lot is a set amount of the base currency. It is how many platforms measure trade size:

• Standard lot: 100,000 units of the base currency.
• Mini lot: 10,000 units.
• Micro lot: 1,000 units.

Example: One micro lot of EUR/USD is 1,000 euros.

Position Size

Position size is how large your trade is. It can be shown in lots or in units. A larger position size means each pip of movement gains or loses more money.

Example: A trade of 1 mini lot is ten times larger than a trade of 1 micro lot.

Trade Direction and Orders

Long

Going long means you buy. You make money if the price goes up. You lose money if it goes down.

Example: You buy EUR/USD at 1.1000. You close the trade at 1.1020. You gained 20 pips.

Short

Going short means you sell. You make money if the price goes down. You lose money if it goes up.

Example: You sell EUR/USD at 1.1000. Price falls to 1.0980, and you close the trade. You gained 20 pips.

Market Order

A market order opens or closes a trade at the next available price. You choose the trade, but not the exact price.

Limit Order

A limit order opens a trade only at your chosen price or a better one. You use it to buy below the current price, or to sell above it.

Example: EUR/USD is at 1.1000. You place a buy limit order at 1.0980. The trade opens only if price falls to 1.0980 or lower.

Stop Order

A stop order opens a trade once price reaches a level you choose. You use it to buy above the current price, or to sell below it.

Example: EUR/USD is at 1.1000. You place a buy stop order at 1.1020. The trade opens only if price rises to 1.1020.

Stop Loss

A stop loss is an order that closes your trade if price moves against you to a set level. It sets your planned loss before you enter. Learn more in [INTERNAL LINK: Day Trading Stop Loss Explained].

Take Profit

A take profit is an order that closes your trade once price reaches your target. It locks in a gain at a level you choose in advance.

Example: You buy at 1.1000 and set a take profit at 1.1050. If price reaches 1.1050, the trade closes with a 50-pip gain.

Trading Costs

Spread

The spread is the difference between the ask price and the bid price. It is a cost you pay on each trade. A wider spread means a higher cost.

Example: If the bid is 1.1000 and the ask is 1.1002, the spread is 2 pips.

Swap

A swap is a charge or a payment for holding a trade open past the daily rollover time. It is based on the interest rates of the two currencies. Some platforms call it overnight financing. If you close every trade on the same day, you avoid swaps.

Slippage

Slippage is the gap between the price you expect and the price you get. It can happen in fast markets. Slippage can work against you or, at times, in your favour.

Margin and Leverage

Balance

Your balance is the money in your account from closed trades. It does not include gains or losses on trades that are still open.

Equity

Your equity is your balance plus or minus the gain or loss on your open trades. It changes as prices move.

Example: Your balance is $1,000. Your open trade is down $50. Your equity is $950.

Leverage

Leverage lets you open a trade larger than the money you put up. Gains and losses are both based on the full size of the trade. This means leverage can increase both your gains and your losses.

Example: You open a trade worth $10,000, but only a small part of that amount is set aside as margin. If price moves 1%, you gain or lose $100. That amount is based on the full $10,000.

Margin

Margin is the money set aside from your account to open and hold a trade that uses leverage. It is not a fee. It is returned to your free margin when you close the trade.

Example: You open a trade, and your platform sets aside $200 as margin. That $200 stays in your account, but you cannot use it until you close the trade.

Free Margin

Free margin is the money in your account that is not tied up in open trades. It is your equity minus the margin you are using. You need free margin to open new trades.

Example: Your equity is $950. Your open trade uses $200 of margin. Your free margin is $750.

Margin Call

A margin call is a warning from your platform. It happens when your equity falls close to the margin your open trades need. Each provider sets its own margin call level.

Stop Out

A stop out happens when your equity falls below a set level. Your platform then starts closing your open trades to stop further loss. Each provider sets its own stop out level.

Market Conditions

Volatility

Volatility is how much and how fast price moves. High volatility means large, fast moves. Low volatility means small, slow moves. Higher volatility can bring larger gains and larger losses.

Liquidity

Liquidity is how easily you can buy or sell without a big change in price. High liquidity often means tighter spreads. Low liquidity can mean wider spreads and more slippage.

Trend

A trend is the general direction of price over time. An uptrend makes higher highs and higher lows. A downtrend makes lower highs and lower lows.

Range

A range is when price moves sideways between a high level and a low level. It does not break above or below them for a period of time.

Funded Account Terms

Funded Account

A funded account is a trading account where a prop firm provides the trading capital. You trade that capital under a set of rules. FXIFY offers funded forex and CFD accounts.

Evaluation

An evaluation is a test account with set rules. You trade it to show your skills before you receive a funded account.

Performance Split

The performance split is the share of profit you receive from a funded account. The firm keeps the rest. Each program sets its own split.

Loss Limit

A loss limit is a rule that sets how much a funded account can lose. If the account goes past this limit, the rules are broken. Each FXIFY program lists its own loss limits on the FXIFY programs page.

FAQ

What Is the Difference Between a Pip and a Point?

A pip is a set unit for measuring forex price moves. A point is a smaller step, and its size depends on your platform. On a five-decimal forex price, one point is often one tenth of a pip.

What Does a Spread of 1 Pip Mean?

It means the ask price is 1 pip higher than the bid price. You start each trade with this small cost. Price must move 1 pip in your favour to cover it.

Is Leverage the Same as Margin?

No. Leverage lets you open a larger trade than the money you put up. Margin is the money set aside to open and hold that trade.

Do I Need to Learn All These Terms Before I Trade?

Learn the terms on your order ticket first: lot, spread, stop loss and take profit. Then learn margin and leverage before you open a live trade.