What does pip stand for in forex?

Pip is usually said to stand for percentage in point or price interest point. In practice it simply means the standard unit for measuring price moves: the fourth decimal place on most pairs and the second on yen pairs. Traders count profit, loss, spread and stop distance in pips, which makes different pairs easy to compare.

What is the difference between leverage and margin?

They are two views of the same thing. Leverage is the ratio that lets a small deposit control a large position; margin is the deposit itself. Leverage of 1:100 means a 1% margin requirement, so a $10,000 position needs $100 of margin. Higher leverage means less margin per trade, not less risk.

What does 0.01 lot mean in forex?

A size of 0.01 lots is a micro lot: 1,000 units of the base currency, the smallest trade most brokers allow. On EUR/USD each pip is then worth about $0.10, so a 50-pip move is about $5. It is the usual starting size for small accounts because it keeps early mistakes cheap.

Is a stop order the same as a stop-loss?

No. A stop-loss closes a trade you already hold once price moves against you by a set amount. A stop order, such as a buy stop or sell stop, opens a new trade when price reaches a level beyond the current one. Both are filled at the market price once triggered, so some slippage is possible.

Forex Trading Terms: A Plain-English Glossary for Beginners

Beginner9 min read

What are the basic forex trading terms?

The ten basic forex trading terms to learn first are currency pair, bid and ask, spread, pip, lot, leverage, margin, long, short and stop-loss. Together they tell you what you are trading, what it costs, how big the trade is, how much money it ties up and where your loss stops.

This forex glossary groups 55 terms by the job they do, in roughly the order you will meet them on a trading platform. Where a term needs more than two sentences, a link takes you to the full guide.

Forex terms for prices and quotes

Every forex price is a quote for two currencies at once. Our guide to how currency pairs work goes deeper, and spreads and pips shows what these terms cost you.

Currency pair: Two currencies priced against each other, such as EUR/USD. You always buy one and sell the other in a single trade.
Base currency: The first currency in the pair, the one you are buying or selling. In EUR/USD it is the euro.
Quote currency: The second currency in the pair. The price shows how much of it one unit of the base currency costs.
Major pairs: The most traded pairs, such as EUR/USD and USD/JPY. All include the US dollar. Minor pairs (crosses) leave the dollar out; exotic pairs include a less-traded currency.
Bid: The price at which you can sell. It is the lower of the two prices on your screen.
Ask: The price at which you can buy, also called the offer. It is the higher of the two prices.
Spread: The gap between the bid and the ask. You pay it on every trade, because you buy at the higher price and sell at the lower one.
Pip: The smallest standard price step: 0.0001 on most pairs and 0.01 on yen pairs. A move from 1.1000 to 1.1005 is 5 pips.
Pipette: One tenth of a pip, shown as the fifth decimal place on most quotes. Platforms often call it a point.

Forex terms for trade size and costs

Trade size decides how much money each pip is worth. Read lot sizes and order types for the detail, and check any pair in the pip calculator.

Lot: The standard unit of trade size. One standard lot is 100,000 units of the base currency.
Mini lot and micro lot: A mini lot is 0.10 lots (10,000 units) and a micro lot is 0.01 lots (1,000 units). Most beginners start with micro lots.
Pip value: What one pip is worth in money at your trade size. On EUR/USD it is about $10 for a standard lot, $1 for a mini lot and $0.10 for a micro lot.
Commission: A fixed fee per lot that some accounts charge, usually in return for a tighter spread.
Swap: A small overnight fee or credit for holding a trade past the daily cut-off, also called rollover. It comes from the interest-rate gap between the two currencies.
CFD: Short for contract for difference: a deal with your broker that pays the difference between your entry and exit price, so you never own the currency. Most retail forex trading works this way.

Forex order terms: how you get in and out

An order is an instruction to your broker. These seven cover almost everything a beginner needs.

Market order: An instruction to buy or sell now at the best available price.
Limit order: An order that waits for a better price than the current one: buy lower or sell higher. It is a pending order, which sits on the platform until price reaches your level.
Stop order: A pending order that opens a trade once price moves beyond the current level: a buy stop sits above the price, a sell stop below.
Stop-loss: An order that closes your trade automatically at a loss you chose in advance. It is your main safety tool.
Take-profit: An order that closes your trade automatically at a profit you chose in advance.
Trailing stop: A stop-loss that follows the price as the trade moves in your favour, so part of the gain is protected.
Position: An open trade. Closing a position means making the opposite trade, which makes the running profit or loss final.

Leverage and account terms

These are the numbers at the bottom of your platform. See leverage and margin for worked examples, and margin call and stop-out for what happens when they run low.

Leverage: Trading a position larger than your deposit. At 1:100, $1,000 controls $100,000. It multiplies losses exactly as much as gains.
Margin: The part of your money the broker sets aside to keep a leveraged trade open. It is a deposit, not a fee, and is released when the trade closes.
Balance: The money in your account counting closed trades only.
Equity: Your balance plus or minus the running profit or loss on open trades: what the account is worth right now.
Free margin: Equity minus the margin in use: what you have left to open new trades or absorb losses.
Margin level: Equity divided by used margin, shown as a percentage. Brokers use it to decide when to step in.
Margin call: A warning that your margin level has dropped to the broker’s alert point. Add money or reduce your trades.
Stop-out: The margin level at which the broker starts closing your trades for you, usually the biggest loser first.

Chart and analysis terms

If candlesticks are new to you, start with how to read a forex chart.

Candlestick: A chart bar that shows the open, high, low and close for one period. The colour of its body tells you whether price rose or fell.
Timeframe: The period each candle covers, such as 5 minutes (M5), 1 hour (H1) or 1 day (D1).
Trend: The general direction of price. Higher highs and higher lows make an uptrend; lower highs and lower lows make a downtrend.
Support: A price area where falling prices have tended to stop and bounce, because buyers step in.
Resistance: A price area where rising prices have tended to stall, because sellers step in.
Breakout: A move through support or resistance. Many breakouts fail and reverse, which traders call a false breakout.
Indicator: A formula drawn on the chart from past prices, such as a moving average. Indicators summarise what has happened; they do not predict.
Technical analysis: Making trading decisions from charts, patterns and indicators.
Fundamental analysis: Making trading decisions from economic data, interest rates and news.

Market and news terms

These words describe the market’s mood and the events that move it. The economic calendar guide shows where to find the dates.

Liquidity: How easily you can trade without moving the price. High liquidity usually means tighter spreads and cleaner fills.
Volatility: How far and how fast price moves. High volatility means bigger chances and bigger risks.
Session: One of the main trading windows of the day, named after the financial centre that is open: Sydney, Tokyo, London or New York.
Central bank: The institution that sets a country’s interest rates, such as the US Federal Reserve or the European Central Bank. Its decisions are among the biggest movers of currencies.
Economic calendar: A timetable of coming data releases and central bank meetings, with a forecast for each.
NFP: Non-Farm Payrolls, the monthly US jobs report, usually released on the first Friday of the month. It often causes sharp moves in dollar pairs.
CPI: The Consumer Price Index, the most widely watched measure of inflation. A surprise reading shifts what traders expect from the central bank.
Gap: A jump from one price to the next with no trading in between. Gaps are most common when the market reopens after the weekend.

Trader slang: bullish, bearish, hawkish, dovish and more

You will hear these in every market report. Going long and going short explains the first two with worked examples.

Long: You have bought the pair and you profit if it rises.
Short: You have sold the pair and you profit if it falls.
Bullish: Expecting prices to rise. A bull market is a rising one.
Bearish: Expecting prices to fall. A bear market is a falling one.
Hawkish: Describes a central bank leaning towards higher interest rates to fight inflation, which tends to support its currency.
Dovish: The opposite: leaning towards lower rates to support growth, which tends to weaken the currency.
Drawdown: The fall in your account from its highest point to a later low, usually given as a percentage. A $1,000 account that drops to $850 is in a 15% drawdown.
Slippage: The difference between the price you asked for and the price you got. It happens in fast markets and can work for or against you.

How to learn forex terminology faster

Do not try to memorise the list. Open a demo account (a practice account with pretend money) and place one tiny trade. You will meet bid, ask, spread, lot, margin and stop-loss in the first five minutes, and words stick once you have used them.

Learn the ten basic terms first, then one group a day.
Say each definition out loud in your own words. If you cannot, read it again.
Read a broker’s fees page and see how many terms you now recognise. Our independent broker comparison is a good place to practise.

Knowing the vocabulary does not make trading safe or profitable; it only means you understand what you are clicking. Forex and CFDs are leveraged products with a high risk of loss. Only trade with money you can afford to lose.