Basic Forex Trading Terminology
Pip (Percentage in Point):
The smallest unit of price movement in a currency pair.
Most commonly 0.0001 for major forex pairs.
Lot:
The standard unit for trading volume in forex.
Standard Lot = 100,000 units
Mini Lot = 10,000 units
Micro Lot = 1,000 units
Nano Lot = 100 units
Spread:
The difference between the bid (sell) price and ask (buy) price. This is a key concept in forex trading terminology.
Account Metrics in Forex Trading
Leverage :
Allows traders to control a large position using a small amount of capital.
Margin:
The amount required to open or maintain a trading position.
Balance:
The total funds in your account, excluding current open trades.
Equity:
The account balance plus or minus any profit or loss from open positions.
Free Margin:
Available funds that can be used to open new trades.
Margin Level:
Ratio of equity to used margin, shown as a percentage.
Stop Out:
The margin level at which your broker may automatically close positions to avoid negative balance.
Forex Order Types Explained
Buy (Long) / Sell (Short):
Buying = expecting price to rise.
Selling = expecting price to fall.
Market Order:
An order executed instantly at the current price.
Pending Order:
An order set to be executed in the future when price hits a target level.
Stop Loss (SL):
Automatically closes a trade at a specific loss level.
Take Profit (TP):
Automatically closes a trade at a specific profit level.
Trailing Stop:
A dynamic stop loss that follows the price movement in your favor.
Swap:
Interest charged or earned for holding a position overnight.
Market Behavior & Forex Price Action
Bullish / Bearish:
Bullish = Expecting price to go up
Bearish = Expecting price to go down
Trend:
Overall direction of the market: uptrend, downtrend, or sideways.
Support & Resistance:
Key levels where price tends to reverse or consolidate.
Breakout:
Price moving beyond a key support or resistance level.
Pullback / Retest:
A temporary price reversal to re-test a broken level.
Consolidation:
Sideways movement in price before the next big move.
Technical Forex Analysis Terms
Candlestick:
A visual representation of price action showing open, high, low, and close.
Moving Average (MA):
Smooths out price data to identify trends.
RSI (Relative Strength Index):
Indicates overbought or oversold market conditions.
MACD:
Shows momentum and potential trend reversals.
Fibonacci Retracement:
Helps predict possible support/resistance using Fibonacci levels.
Divergence:
Occurs when price moves differently than an indicator—can signal reversals.
Risk Management in Forex Trading
Risk/Reward Ratio:
Compares how much you’re risking versus the potential reward.
Drawdown:
Measures how much capital is lost before a new high is reached.
Position Size:
The amount you trade based on your account size and risk.
Forex Broker Terms You Must Know
Broker:
A company that provides access to the forex market.
Dealing Desk (DD) / No Dealing Desk (NDD):
DD processes trades internally, NDD sends them to the market.
ECN / STP:
Execution models that offer direct access to liquidity.
Slippage:
Difference between expected and actual execution price.
Requote:
When a broker asks for trade confirmation at a new price due to volatility.
Advanced Forex Trading Strategies
Hedging:
Opening a second position to reduce risk from the first one.
Scalping:
Making lots of small trades for tiny profits.
Day Trading:
All trades opened and closed within the same day.
Swing Trading:
Holding trades for several days to capture market swings.
News Trading:
Using economic data releases to trade volatility.
Volatility:
How much the price of a pair moves over time.
Liquidity:
How easily a currency can be bought or sold.
