Forex (Foreign Exchange) - The global marketplace for trading one currency for another. Forex trading involves buying and selling currency pairs to profit from changes in exchange rates.
Broker - A platform or company that facilitates forex trading by providing access to the market, tools, and leverage. (OANDA & Forex.com)
Leverage - Borrowed capital provided by a broker to increase trading position size. For example, 100:1 leverage means you control $100 for every $1 of your own money. High leverage increases both potential profits and risks.
Margin - The amount of money required in your account to open a leveraged position. It acts as collateral for the borrowed funds.
Margin Call - A broker’s demand to add funds to your account when losses reduce your margin below a required level.
Bid Price - The price at which you can sell the base currency.
Ask Price - The price at which you can buy the base currency. The difference between bid and ask is the spread, a key trading cost.
Spread - The difference between the bid and ask prices, measured in pips. A tighter spread means lower trading costs.
Currency Pair - Two currencies traded against each other. The first currency is the base currency, and the second is the quote currency. Example: EUR/USD (Euro vs. US Dollar).
Pip - The smallest price movement in a currency pair, typically the fourth decimal place (0.0001). For example, if EUR/USD moves from 1.1050 to 1.1051, that’s a 1-pip change.
Lot - A standardized unit of trading. Common lot sizes:
Standard Lot: 100,000 units of the base currency. ($1.00 lot) ($10/pip)
Mini Lot: 10,000 units. (.10¢ lot) ($1/pip)
Micro Lot: 1,000 units. (.01¢ lot) (10¢/pip)
Long: Buying a currency pair, expecting the base currency to rise in value.
Short: Selling a currency pair, expecting the base currency to fall in value.
Stop Loss - An order to automatically close a trade at a set price to limit potential losses.
Take Profit - An order to automatically close a trade at a set price to lock in profits.
Liquidity - The ease with which a currency pair can be traded without affecting its price. Major pairs (e.g., EUR/USD, USD/JPY) have high liquidity.
Volatility - The degree of price fluctuations in a currency pair. High volatility can offer more trading opportunities but also increases risk.
Technical Analysis - Using charts, indicators (e.g., moving averages, RSI), and patterns to predict future price movements.
Fundamental Analysis - Evaluating economic indicators (e.g., interest rates, GDP, inflation) and news events to forecast currency price movements.
Risk:Reward Ratio - A measure comparing potential profit to potential loss in a trade. For example, a 2:1 ratio means you aim to earn $2 for every $1 risked.