Here you will find some of the most common forex trading terms and a simple meaning.
Broker – The company who hold your funds and execute the forex trades on your behalf. Visit our brokers page to choose yours!
Leverage– The funds you are allowed to trade with beyond your capital. Effectively a loan from the broker. However, due to brokers margin restrictions, despite being able to trade a higher amount, you cannot usually lose more than your deposit as the broker will close all trades before this occurs.
Balance– Your current deposited capital in your forex trading account.
Equity- Your balance, plus or minus your open trades.
Margin Percentage– Your current account standing, the higher the percentage when you have open trades, the better. Brokers have individual rules when it comes to margin requirements, but many will margin call when your margin percent reaches 100.
Margin Call– When your margin percentage reaches a specified level (individual to brokers) all trades will be closed at a loss. You want to always avoid this by using correct risk management.
Spread– One of the ways brokers make money. Every trade you enter is subject to spread. This is the difference between the ‘bid’ and the ‘ask’ price. Spreads vary from broker to broker, and also during times of volatility (unless you use a fixed spread broker) and can vary from 0 pips up to quite high numbers of pips during news events.
Commission– A fee brokers charge for executing the trades on your behalf, not all brokers charge this. Often the ones that do have lower spread options to the ones that do not.
Swap- A fee that is incurred at market switchover. You will find this fee is added the same time every day if you leave your trades open, the time this is is dependant on the broker.
Market Execution- Getting instantly into a trade.
Sell Stop-A pending order, where you expect price to come down, hit your entry and then continue to come down.
Buy Stop– A pending order where you expect price to come up, hit your entry and then continue to come up.
Sell Limit– A pending order where you expect price to come up, hit your entry, bounce off it and head back down.
Buy Limit– A pending order where you expect price to come down, hit your entry, bounce off it and head back up.
Pip– Movements in the market are measured in pips.
Stop Loss– If price goes against you, and reaches your pre-specified stop loss, the trade will close. This is a protective measure to stop a trade continuing going into deeper draw down against you.
Trailing Stop– A stop loss that gradually moves as price moves in your favour, mitigating the risk.
Drawdown– Negative open trades.
EA / Expert Advisor– A tool that is generally used with MT4/MT5 platforms to automate certain tasks, such as getting you into or out of trades.
NFP– Non Farm Payroll, a monthly event that causes massive volatility in the market, particularly on USD pairs. Check the Economic Calendar to avoid this event.
FOMC– Federal Open Market Committee, a decision making body that have regular meetings which can have high impact on market volatility. Check the Economic Calendar to avoid this event.
Scalp– A forex strategy that involves getting in and out of trades very quickly for small pip moves.
Swing– A forex strategy that involves staying in trades for a number of hours/days or even weeks to gain large pip moves.
Intraday– A forex strategy that involves staying in trades longer than a scalp, but less than a day, also sometimes called ‘day trading’
Compound- The process of re-investing your profits, to create higher returns on future trades. (View our YouTube Video on this!)