Forex Glossary
24 terms defined in plain English.
A
- Ask price
- The ask price, also called the offer, is the price at which you can buy a currency pair. It is normally higher than the bid price.
B
- Bid price
- The bid price is the price at which you can sell a currency pair. It is normally lower than the ask price; the difference is the spread.
C
- Contract size
- Contract size is the number of units of the base currency in one lot. For a standard forex lot it is commonly 100,000 units.
E
- Equity
- Equity is the current value of a trading account, including open trades. It equals the balance plus the unrealised profit, or minus the unrealised loss, of all open positions.
F
- Free margin
- Free margin is the money in your account that is not being used to support open positions. It equals equity minus used margin.
L
- Leverage
- Leverage lets you control a trading position larger than the money you put up. It is the ratio between the position size and the margin required — at 30:1, $1 of margin controls $30.
- Limit order
- A limit order is an order to buy or sell at a set price or better. A buy limit is placed below the current price and a sell limit above it.
- Liquidity
- Liquidity is how easily a currency pair can be bought or sold without moving its price much. Highly liquid pairs tend to have tighter spreads and less slippage.
- Lot
- A lot is a standardised trade size in forex. A standard lot is 100,000 units of the base currency, a mini lot 10,000 units and a micro lot 1,000 units.
M
- Margin
- Margin is the money a broker sets aside from your account to keep a leveraged position open. It is collateral, not a fee, and the blocked amount is released when the position closes.
- Margin call
- A margin call is a warning that your account is running low on equity to support your open positions. Technically, it is reached when the margin level falls to a threshold set by the broker, and it can come as a notification or only as a warning in the platform.
- Margin level
- Margin level shows how much equity you have compared with the margin your open positions use. It is equity ÷ used margin × 100%, and brokers typically use it to decide when to issue a margin call and when to close positions.
- Market order
- A market order is an order to buy or sell straight away at the best available price. Buy orders fill at the ask and sell orders at the bid.
P
S
- Slippage
- Slippage is the difference between the price you expect when placing an order and the price at which it is actually filled. It can work against you (negative slippage) or in your favour (positive slippage).
- Spread
- The spread is the difference between the bid (sell) price and the ask (buy) price of a currency pair. It is one of the main trading costs and is usually measured in pips.
- Stop loss
- A stop loss is an order that closes a position automatically if the price moves against you to a set level. It is designed to limit the loss on a trade, but it does not guarantee the exit price.
- Stop order
- A stop order is an order to buy once the price rises to a set level (buy stop) or to sell once it falls to a set level (sell stop). When triggered, it typically becomes a market order.
- Stop out
- A stop out is when the broker automatically closes your positions because your account no longer has enough equity to support them. It happens when the margin level reaches or falls below the broker’s stop-out level.
- Swap
- A swap is the overnight fee or credit for keeping a forex position open past the broker’s daily cut-off. It is based on the interest-rate differential between the two currencies as priced in the market, plus broker adjustments.
T
- Take profit
- A take profit is an order that closes a position automatically when the price reaches a set profit target.
- Trailing stop
- A trailing stop is a stop loss that moves with the price as a trade goes in your favour. It keeps a set distance from the price and does not move back.
V
- Volatility
- Volatility is how much and how quickly a currency pair’s price moves over a period. Higher volatility means larger price swings and, for the same position size, greater risk.