Basic Terms
Spread
The spread is the difference between the bid and ask price. It represents the cost of trading and is how most brokers make money.
Short Position
A short position means selling an asset first, then buying it back later. Traders profit when the price falls. Also called shorting or going short.
Profit and Loss (P&L)
P&L measures the financial gain or loss from trading activity. Can be realized (closed trades) or unrealized (open positions).
Pip
A pip is the smallest standard unit of price change in forex trading. For most pairs, it equals 0.0001 (one ten-thousandth). Essential for measuring profit and loss.
Open Position
An open position is an active trade that has been executed but not yet closed. It carries unrealized profit or loss until it is settled.
Lot
A lot is the standard unit of measurement in forex trading. One standard lot equals 100,000 units of the base currency.
Long Position
A long position means buying an asset with the expectation that its price will rise. Profits increase as the price goes up.
Liquidity
Liquidity describes how easily an asset can be bought or sold without affecting its price. High liquidity means tight spreads and fast execution.
Leverage
Leverage allows traders to control large positions with small capital. Expressed as a ratio (e.g., 1:100), it amplifies both profits and losses.
Forex (Foreign Exchange)
Forex is the global decentralized market for trading currencies. It is the largest financial market in the world with a daily volume exceeding $7.5 trillion.
Equity
Equity is the current value of your trading account including unrealized profits and losses from open positions. It represents your real-time account worth.
Demo Account
A demo account is a practice trading account with virtual money. It replicates real market conditions, allowing traders to test strategies risk-free.
Currency Pair
A currency pair quotes two currencies against each other in forex trading. The first is the base currency, the second is the quote currency.
Commission
Commission is a fee charged by brokers for executing trades. It can be a flat rate per lot, a percentage of trade value, or built into the spread.
CFD (Contract for Difference)
A CFD is a derivative contract that lets traders speculate on price movements without owning the underlying asset. Popular for forex, stocks, commodities, and indices.
Bull Market
A bull market is a sustained period of rising prices, typically defined as an increase of 20% or more. Characterized by optimism, strong economy, and high investor confidence.
Broker
A broker is a financial intermediary that facilitates trades between traders and the market. In forex, brokers provide trading platforms, liquidity, and leverage.
Bid Price
The bid price is the highest price a buyer is willing to pay for a financial instrument. It represents the demand side of a market quote.
Bear Market
A bear market is a sustained period of declining prices, typically defined as a drop of 20% or more from recent highs. Characterized by pessimism and negative investor sentiment.
Balance
Account balance is the total cash in your trading account, excluding any open positions. It reflects deposits, withdrawals, and realized profit/loss.
Ask Price
The ask price is the lowest price a seller is willing to accept for a financial instrument. Also known as the offer price, it is one half of a currency quote.