Forex trading can be confusing at first because of the many terms traders use every day.
To help beginners build a strong foundation, this AURUM GROUP guide explains some of the most common words you will see on trading platforms and in market analysis.
1. Currency Pair
In forex, you trade one currency against another. This combination is called a currency pair.
Example: EUR/USD shows the value of the euro compared to the US dollar. If EUR/USD rises, it means the euro is becoming stronger than the dollar.
2. Bid and Ask Price
Every currency pair has two prices:
- Bid price: The price at which you can sell.
- Ask price: The price at which you can buy.
The ask is slightly higher than the bid. This difference helps brokers operate trading services. Understanding this gap is important because it affects the cost of each trade.
3. Spread
The spread is the difference between the bid and ask prices.
For instance, if EUR/USD has a bid of 1.1000 and an ask of 1.1002, the spread is 2 pips.
Tighter spreads mean lower trading costs. Spreads can change depending on the market’s activity, especially during major news events.
4. Pip
A pip (short for “percentage in point”) measures how much a currency pair moves. Most pairs are priced to four decimal places, and one pip is the last digit.
Example: If EUR/USD moves from 1.1000 to 1.1005, it has moved 5 pips.
Pips help traders calculate profit, loss, and risk.
5. Lot Size
A lot refers to the size of your trade. There are three common lot types:
- Standard lot: 100,000 units
- Mini lot: 10,000 units
- Micro lot: 1,000 units
The larger the lot, the bigger the effect of each pip movement. AURUM GROUP users who are new to forex start with smaller lot sizes to manage risk more comfortably.
6. Leverage
Leverage allows traders to control a larger position with a smaller amount of money. It works like a temporary loan from the broker.
With 1:100 leverage, a $100 deposit lets you trade a $10,000 position.
Leverage can increase potential profits, but it can also increase losses. Understanding how Leverage works is essential before opening any position.
7. Margin
To open a leveraged trade, you must set aside a portion of your balance as margin. Margin works as a guarantee when your trade is active.
If your account drops below a required margin level, the platform may issue a margin call, warning you to add more funds or close positions to avoid automatic closure.
8. Stop-Loss and Take-Profit
These two tools help traders control outcomes:
- Stop-loss (SL): Automatically closes your trade if the price moves against you.
- Take-profit (TP): Automatically closes your trade when the price reaches your target.
Both are essential parts of risk management. Many traders nowadays rely on SL and TP to maintain discipline in fast markets.
Learning forex terms is an important first step toward understanding how the market works. This complete AURUM GROUP guide provides a simple glossary for beginners who want to build confidence before entering real trades. The more familiar you become with these terms, the easier it will be to read charts, manage risk, and follow market updates.
Read more:
Basic Forex Terms Explained: The Complete AURUM GROUP Guide