Forex glossary: the most important terms explained simply
Updated on 2026-09-19
Pip, lot, leverage, spread, stop loss, margin call and other forex trading terms explained clearly, with short definitions.
- Pip
- Standard unit for measuring price changes: 0.0001 on most pairs, 0.01 on pairs involving the yen.
- Lot
- Unit for measuring position size. A standard lot equals 100,000 units of the base currency.
- Leverage
- The ratio between the value of the position and the margin required. It magnifies both gains and losses.
- Margin
- Money the broker sets aside in your account to keep a leveraged position open.
- Margin call
- A warning, or automatic closing of positions, when available capital falls below the minimum level required by the broker.
- Spread
- The difference between the buy (ask) and sell (bid) price. It is the main cost of many trades.
- Bid and Ask
- The bid is the price at which you can sell; the ask is the price at which you can buy.
- Stop loss
- An order that automatically closes a losing position at a preset level to limit risk.
- Take profit
- An order that automatically closes a winning position when a preset target is reached.
- Slippage
- The difference between the requested price and the price at which the order is actually filled, common during news and high volatility.
- Drawdown
- The decline in account capital from its recent peak, usually expressed as a percentage.
- Equity
- Account value including the profits and losses of open positions.
- Swap (rollover)
- A cost or credit applied for holding a position past the end of the day, linked to the interest rate difference between the two currencies.
- Market order
- An order executed immediately at the best available price.
- Limit order
- An order to buy or sell only at a price equal to or better than the one specified.
- Stop order
- An order that becomes active only when price reaches a specified level, used to enter on a breakout or to exit a losing trade.
- Risk/reward
- The ratio between the potential loss and the potential gain of a trade. A 1:2 ratio means risking 1 to make 2.
- Volatility
- A measure of how large price movements are over a given period.
- Liquidity
- How easily you can buy or sell without moving the price. The major pairs are the most liquid.
- Base and quote currency
- In a pair like EUR/USD, EUR is the base currency and USD the quote currency: the price shows how many dollars one euro costs.
- Breakout
- A break through an important price level, such as support or resistance.
- Pullback
- A temporary retracement against the main move before price resumes its previous direction.
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Educational content, not financial advice. Trading involves risk.