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Terminology

There is a large vocabulary used within the Forex trading industry but also across all assets, including stocks, shares, indices, commodities, and ETFs. We have listed many terminologies below that we hope will come in useful.

Bullish

A rising trend or rising prices within a certain market

Bearish

A falling trend or falling prices within a certain market

Pip

Calculating how many pips a currency pair moves by is how you determine your profit/loss. Example : GBP / USD moves from 1.3210 to 1.3215 = 5 pips gained

Lots

Depending on the lot ‘size’ you choose for your trade, for every pip move in either direction will result in profit/loss of amounts shown above.

Example – You buy 0.10 lots of EUR / USD at 1.30100

The price moves in your direction to 1.30150 gaining 5 pips

5 pips worth at 0.10 will result in £5 profit

Stop Loss

A price level set if your trade does not go to plan, you will be automatically exited from the trade to prevent a large loss of capital

Spread

Spread is the difference between the buy and sell price. This is one way of how brokers make money and it eliminates transaction costs for traders.

The smaller the spread, the more liquid the currency pair is.

Take Profit

Your target for which your trade will hit this price and close in profit, your position will shut and profit will be added to your capital total

Risk Reward Ratio

This is calculated by your Take Profit Distance ÷ Stop Loss Distance

Margin

The amount of money you need to have on deposit with a forex broker to make a forex trade in a certain amount. If your leverage ratio is 1:50 then you need to have $100 of margin on deposit to trade a forex position with a $5,000 notional amount.