Confused by pips, lots and spreads? This glossary explains the most important forex trading terms every beginner should know.
Pip
A pip is the smallest standard price move in a currency pair, usually the fourth decimal place. It is how traders measure gains and losses.
Spread
The spread is the difference between the buy (ask) and sell (bid) price. It is one of the main costs of trading and is usually measured in pips.
Leverage
Leverage lets you control a large position with a smaller deposit. It magnifies both profits and losses, so it must be used carefully.
Lot Size
A lot is a unit of trade size. A standard lot is 100,000 units of the base currency; mini and micro lots are smaller and better for beginners.
Margin
Margin is the amount of money required to open a leveraged position. If the market moves against you and margin runs low, you may face a margin call.
Stop-Loss and Take-Profit
These are automatic orders that close a trade at a set price to limit losses or lock in profits.