Forex Glossary for Beginners


Glossary

If you are new to forex, learn these terms to get an idea how forex trading works:

Pip

In forex trading, a “Pip” is short for “percentage in point” and it’s equal to 0.0001.
It is used as the measurement of price movement or price distance of an underlying asset, which ultimately measures profit and loss.

Forex traders often quote the movements, profit or loss in pips.
For example, if the price of EurUsd was 1.2000 and stating “EurUsd has just gained 30 pips” would means the price of EurUsd now is 1.2030.

TriumphFX’s global currency prices are displayed in fractional of pips i.e. one-fifth decimal place for improved precision.

Points (pts)

In forex trading, a point is the measurement of the smallest change possible made by an underlying asset.

If an instrument is quoting with price in five decimal places, then 1 pip = 0.00010 = 10 points.

Bid price

Bid price is the price of the demand.

Sell positions are opened by Bid price;
whereas Buy positions are closed by Bid price.

When EurUsd is quoted at 1.20000/1.20006, it means the bid price is 1.20000.

Ask price

Ask price is the price of offer.

Buy positions are opened by Ask price;
whereas Sell positions are closed by Ask price.

When EurUsd is quoted at 1.20000/1.20006, it means the bid price is 1.20006.

Open order

When you open an order, you are placing a position in the market,
and your account will profit or loss depends on the floating positions of the underlying asset.

Close order

When you close an order, you are realizing the position in the market;
when all positions are closed, your account profit and loss will no longer affected by the market.

Buy

Execute OPEN BUY an order essentially place a long position in the market;
whereas execute CLOSE BUY the order would short position in the market.

Sell

Execute OPEN SELL an order essentially place a short position in the market;
whereas execute CLOSE SELL the order would long position in the market.

Spread

A spread is the pip difference between the bid price and the ask price of an underlying asset.
The spread essentially are one of the major costing in making trading.

To find the spread, we minus the Bid (Sell) Price from the Ask (Buy) Price.

For instance, when EurUsd is quoted at the price of 1.20000/1.20006:-

Spread = 1.20006 – 1.20000 = 0.00006 = 0.6 pips

Volume

Also commonly known as “order size” or “lot size”.

It is the measurement of order size, with measurement unit usually in “Lot” term.

Lot

Lot is the measurement unit of volume of an order.

Contract size

Contract size defines the number of unit of underlying asset (the base currency or the product) you are are actually trading per 1.00 standard lot.

For instance, the contract size of, and essentially the actual trade volume for 1.00 standard lot would be as followed:

  • Forex pairs: 100,000 unit base currency
  • Spot Gold, XAU: 100 troy ounce
  • Spot Silver, XAG: 5,000 troy ounce

Whereas other securities, including but not limited to, indices, shares, energies, cryptocurrencies will come with different quote currency and may be offered with vary contract size.

Attention: Always check the contract specification from MetaTrader 4 Client Terminal before placing an order.

Leverage

Leverage allows traders to trade the larger amounts of underlying assets through having a smaller trading capital.

Margin = (Volume × ContractSize) / Leverage

For instance, the initial margin required to enter into a position of 1.00 lot EurUsd would require cash of 100,000 USD and the broker is providing the trader with 1:50 leverage.

Margin = 1.00 × 100,000 / 50 = 2,000 USD

Attention: Leverage can be a double-edged sword.
It has the ability to amplify your gain and also your loss.

Attention: When the market become volatile, brokers may further increase margin requirement to mitigate risk.

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