⏬APP LINK⏬
If Forex feels like it’s written in code, you’re not alone. The foreign exchange market has its own vocabulary, and learning it will make charts, broker platforms, and videos instantly easier to understand. This guide breaks down the must-know terms in clear, everyday language so you can navigate Forex with confidence even if you’re just getting started at 18.
Why it matters: knowing the lingo helps you avoid costly mistakes, communicate clearly with your broker or community, and build a strategy that actually makes sense.
1) Currency pairs: what you’re actually trading
Currency pair: Forex is always traded in pairs (like EUR/USD, GBP/JPY). You’re buying one currency and selling the other at the same time.
Base currency: the first currency in the pair (EUR in EUR/USD). You’re buying or selling this.
Quote (or counter) currency: the second currency (USD in EUR/USD). The price shows how many units of the quote currency you need to buy one unit of the base currency.
Example:
If EUR/USD = 1.1000, that means 1 euro costs 1.10 US dollars.
If you go long (buy) EUR/USD, you’re betting the euro will rise against the dollar. If you go short (sell), you’re betting the euro will fall.
Types of pairs:
Majors: involve USD and one other big economy (EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD, USD/CAD, NZD/USD).
Minors (crosses): major currencies without USD (EUR/GBP, EUR/JPY, GBP/JPY).
Exotics: one major + one smaller/emerging economy (USD/TRY, USD/ZAR). These can have wider spreads and bigger swings.
2) Price quotes, bid/ask, and the spread
Bid price: the price at which you can sell the base currency.
Ask price (or offer): the price at which you can buy the base currency.
Spread: the difference between the ask and bid. It’s one of the main trading costs.
Example:
EUR/USD shows 1.1000/1.1002. Bid = 1.1000, ask = 1.1002, spread = 0.0002 (2 pips).
Tight spreads are common during busy sessions (London/New York). Spreads may widen during news, low-liquidity hours, or on exotic pairs.
Other helpful terms here:
Liquidity: how easy it is to get in/out of trades at your price. Higher liquidity often means tighter spreads and less slippage.
Slippage: when your order fills at a different price than expected (often during fast moves or news).
Requote: the platform asks you to accept a new price before execution (more common with “instant execution” brokers).
3) Pips, pipettes, and lot sizes
Pip: the standard unit to measure price movement.
For most pairs, 1 pip = 0.0001.
For JPY pairs (like USD/JPY), 1 pip = 0.01.
Pipette: one-tenth of a pip (0.00001 or 0.001 for JPY pairs). Some brokers quote to 5 decimals (or 3 for JPY pairs).
Point: sometimes used to mean a pip, but platforms may use “point” for the smallest increment (pipette). Check your broker’s terms.
Lot sizes (position size units):
Standard lot: 100,000 units of the base currency.
Mini lot: 10,000 units.
Micro lot: 1,000 units.
Nano lot: 100 units (offered by some brokers).
Approximate pip values for pairs quoted in USD (like EUR/USD):
Standard lot (100k): $10 per pip
Mini lot (10k): $1 per pip
Micro lot (1k): $0.10 per pip
Tip: For pairs where USD is not the quote currency (e.g., USD/JPY, GBP/JPY, or EUR/GBP), pip value varies with the exchange rate. Your platform or a position size calculator will do the math.
4) Long vs. short and the main order types
Long (buy): you profit if price goes up.
Short (sell): you profit if price goes down.
Core order types:
Market order: buys or sells immediately at the best available price.
Limit order: sets a better price than the current market to enter or exit.
Buy limit: below current price.
Sell limit: above current price.
Stop order: triggers only if price moves to a certain level and then becomes a market order.
Buy stop: above current price (for breakouts up).
Sell stop: below current price (for breakouts down).
Risk controls:
Stop-loss (SL): automatically closes your trade to cap losses.
Take-profit (TP): automatically closes your trade to lock profits.
Trailing stop: moves your stop-loss with price, helping protect gains in trends.
5) Leverage and margin: powerful but risky
Leverage: lets you control a bigger position with a smaller amount of money. Expressed as a ratio, like 1:30 or 1:100.
1:100 means $1 in your account controls $100 in the market.
Margin: the amount of your capital set aside by the broker to keep a leveraged trade open.
Used margin: margin currently tied up in open trades.
Free margin: the amount left to open new trades or absorb losses.
Equity: your account balance plus or minus open trade P/L (profit/loss).
Margin level: equity divided by used margin, shown as a percentage.
Risk alerts:
Margin call: a warning from your broker that your margin level is too low; you may need to add funds or close trades.
Stop-out level: the point at which the broker automatically closes trades to protect against negative balances.
Example:
With 1:100 leverage, opening a 0.10 lot (mini lot) EUR/USD position might require roughly $100–$200 of margin, depending on your broker. If the trade moves against you and equity falls, your margin level drops—risking a margin call if it gets too low.
6) Account balance, equity, commissions, and swaps
Balance: your account after closed trades (doesn’t include open trades).
Equity: real-time value including open P/L.
Floating P/L: profit or loss on open trades.
Commission: some accounts charge a fixed fee per trade plus tight spreads.
Spread-only accounts: no commission, but wider spreads.
Swap (rollover): interest paid or received when you hold trades overnight, based on the two countries’ interest rates and your position direction (long or short).
Carry trade: strategy that tries to earn positive swaps by buying higher-interest currencies and selling lower-interest ones. It still carries market risk.
7) Trading sessions and timing
24/5 market: open from Monday to Friday, across time zones.
Main sessions:
Asian (Tokyo)
London (most liquid)
New York (big moves, overlaps with London)
Overlaps: London–New York overlap often has the strongest volume and tighter spreads.
Weekend gaps: price can open on Sunday evening (Monday morning in some regions) at a different level than Friday’s close.
Rollover time: the daily cutoff when swaps are applied; spreads can widen briefly.
8) Technical and fundamental terms
Technical analysis (price-based):
Trend: general direction (uptrend, downtrend, range).
Support/resistance: zones where price historically stops or reverses.
Candlestick: shows open, high, low, close for a time period.
Indicators: math tools like moving averages (trend), RSI (momentum), MACD (trend/momentum), ATR (volatility).
Breakout: price moves beyond a key level.
Pullback: temporary move against the trend.
Consolidation: sideways action before a new move.
Fundamental analysis (economy/policy-based):
Central banks: like the Fed (USD), ECB (EUR), BoE (GBP), BoJ (JPY), RBA (AUD), BoC (CAD), RBNZ (NZD).
Interest rates: higher rates often support a currency; expectations matter.
CPI/inflation, GDP, unemployment, NFP (US jobs), PMI: key data that move currencies.
Hawkish vs. dovish:
Hawkish: prefers higher rates to fight inflation (often bullish for the currency).
Dovish: prefers lower rates to support growth (can be bearish).
9) Risk management and psychology
These aren’t “terms” for decoration—they keep you in the game:
Risk per trade: the percentage of your account you’re willing to lose on one trade (commonly 0.5%–2%).
Risk-reward ratio (R:R): how much you aim to make vs. how much you risk. Example: risking 20 pips to target 40 pips = 1:2.
Position sizing: deciding lot size based on your stop-loss and risk per trade. Many traders use a position size calculator.
Drawdown: the drop from your account’s peak to its lowest point during a losing streak. Smaller drawdowns are easier to recover from.
Diversification: not putting all your risk into one pair or one idea.
Psychology:
FOMO: fear of missing out—chasing trades after the move.
Revenge trading: trying to win back losses with impulsive trades.
Trading plan: predefined rules for entries, exits, and risk. Stick to it.
10) Brokers, execution, and platforms
Broker types:
Market maker (dealing desk): may take the opposite side of your trade; often offers fixed spreads.
STP/ECN: routes orders to liquidity providers; variable spreads, usually tighter, plus commission.
Execution models:
Market execution: fills at best available price (may have slippage).
Instant execution: aims to fill at your price; if not available, you may get a requote.
Platform basics:
MT4/MT5, cTrader, TradingView: popular platforms to chart and place trades.
VPS: virtual private server used by algorithmic or frequent traders for stable connections.
11) Practical examples to cement the terms
Example A: Reading a quote and the spread
Quote: GBP/USD = 1.2500/1.2503
Spread = 0.0003 = 3 pips
If you buy at 1.2503 and the price moves to 1.2510, that’s +7 pips. Your trade must first cover the 3-pip spread before net profit.
Example B: Position size with risk per trade
Account: $1,000
Risk per trade: 1% = $10
Stop-loss distance: 25 pips
On EUR/USD, micro lot pip value ≈ $0.10
You need 25 pips × $0.10 = $2.50 risk per micro lot. To risk $10, trade 4 micro lots (0.04 lots), risking ≈ $10 total.
12) Quick cheat sheet (save this)
Base/quote: first vs. second currency (EUR/USD → base = EUR, quote = USD)
Bid/ask: sell price vs. buy price
Spread: ask − bid (your cost)
Pip: 0.0001 (0.01 for JPY pairs)
Lot sizes: standard 100k, mini 10k, micro 1k
Long/short: buy vs. sell
Market/limit/stop orders: instant vs. set price vs. trigger into market
SL/TP: automatic exit to limit loss or lock profit
Leverage: control larger positions with smaller capital (e.g., 1:30, 1:100)
Margin: capital set aside to keep a trade open
Equity: balance + open P/L
Margin call/stop-out: warnings and forced closures when equity is too low
Swap: overnight interest paid/received
Sessions: Asia, London, New York (watch London–NY overlap)
13) Extra tips to avoid beginner traps
Start small: use micro or demo accounts to get used to pips, spreads, and slippage.
Know your costs: spreads + commission + swaps add up. Check your broker’s fee structure.
Respect news: high-impact events (like NFP, CPI) can cause slippage and wider spreads. If you’re new, consider standing aside during major releases.
Use alerts: set price alerts for levels you care about to avoid staring at charts all day.
Journal your trades: write down why you entered, where you set SL/TP, and how you felt. Patterns (good and bad) will appear quickly.
Keep it simple: one or two pairs, one timeframe, and one clear strategy beats jumping around.
Wrapping up
Learning Forex terminology is like getting the legend for a map: suddenly everything else becomes easier to read. Now that you can define pips, lots, spreads, leverage, margin, and order types, you’re ready to practice with intention. Bookmark this guide, keep the cheat sheet handy, and add new terms as you grow. With solid vocabulary and disciplined risk management, you’ll trade with clarity not confusion.
If you want, I can turn this into a downloadable one-page glossary or help you build a position sizing worksheet you can reuse on every trade.
Post a Comment