Forex Glossary

In order to better understand when learning Forex trading, you have to learn the basic language used by Forex traders.

Following is a list of everyday terms used in the forex trading industry:

Margin: is the actual amount of money in your trading account.

Leverage: Forex brokers let you select a level of leverage which tipically ranges between 1:20 to 1:200. This leverage amplify both your profit and your loses.

Trading Pair: Several pairs are traded, i.e. EUR/USD, USD/JPY. Pairs are reported as rates resulting from dividing the first component by the second one. When you open a position in any specific pair you either buy or sell it depending on what you think the trend will be. This operation, whether it is a buy or sell order will be immediately taken from your account (the actual amount taken is a function of the leverage you trade with). Then when you close the trade your account will receive the resulting amount (after returning all the money borrowed from the leverage system).

Lot: Is the measure of currency traded. Conventionally a standard lot (or simply a lot) is the equivalent to USD$100,000. A minilot is USD$10,000 and a microlot is USD$1,000.

PIP: Short for percentage in point. The smallest number in the rate of a pair: i.e. EUR/USD pair=1.5526. Here pip is referring to the number 6. An increase of 3 pips is in this case will be EUR/USD pair=1.5529.

PIP value: is the translation in currency for each earned/lost pip.

Long: To take a long position means to open a trade with a buy order, hoping that the pair rate will further increase.

Short: To take a short position means to open a trade with a sell order, hoping that the pair rate will further decrease.

Stop Loss (S/L) Order: An instruction for the broker to close the trade immediately if the loss reaches a determinate number of pips, thus limiting the loss.

Take Profit (T/P) Order: An instruction for the broker to close the trade immediately if the profit reaches a determinate number of pips, thus realizing the profit.