Forex Glossary
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Forex Glossary
Forex Resources: Tools Glossary Forex School Best of 2026 Compare Brokers Regulation & Safety Why Trust Us Avoid Scams Regional GuidesA quick-reference glossary of the forex terms you will meet on this site and in any trading platform. Use it alongside ourForex School.
Pip
The smallest standard price move in a forex quote. For most pairs a pip is 0.0001 of the quote currency; for JPY pairs it is 0.01. Pip value depends on position size and the pair.
Lot
A standardized trade size. A standard lot is 100,000 units, a mini lot 10,000, and a micro lot 1,000. Lot size directly drives pip value and risk.
Leverage
Borrowed capital that lets you control a larger position than your deposit. 1:100 leverage means $1,000 controls $100,000. It amplifies both profits and losses.
Margin
The collateral your broker holds to keep a leveraged position open. Required margin = notional value ÷ leverage. A margin call occurs when losses erode your free margin.
Spread
The difference between the bid and ask price. It is the primary cost of a trade with most brokers. Spreads may be fixed or variable, and tighten with liquidity.
Commission
A per-trade fee charged separately from the spread, common with ECN/RAW accounts. Total cost = spread + commission.
Bid / Ask
The bid is the price a buyer will pay; the ask is the price a seller will accept. You sell at the bid and buy at the ask.
Base / Quote Currency
In EUR/USD, EUR is the base currency and USD is the quote. A price of 1.0800 means 1 EUR equals 1.08 USD.
Major Pairs
The most liquid pairs involving USD and a major currency: EUR/USD, GBP/USD, USD/JPY, USD/CHF, USD/CAD, AUD/USD, NZD/USD.
Cross Pairs
Pairs that do not include USD, e.g. EUR/GBP or EUR/JPY. They are derived from the relevant USD pairs.
ECN
Electronic Communication Network — a broker model that passes orders to liquidity providers with raw spreads plus commission, instead of marking up the spread.
STP
Straight-Through Processing — client orders are sent directly to liquidity providers with no dealer intervention.
Market Maker
A broker that takes the other side of client trades and may internalize order flow. Not inherently bad, but incentives differ from agency models.
NDD
No Dealing Desk — orders routed to the market without a dealing desk, covering STP and ECN execution.
Hedging
Opening offsetting positions to reduce risk. Some jurisdictions prohibit hedging (e.g. FIFO rules in the US); others allow it.
Swap / Rollover
The interest adjustment applied when a position is held overnight, reflecting the rate differential between the two currencies.
Stop Loss
An order that closes a trade at a predetermined price to limit losses. Core to risk management.
Take Profit
An order that closes a trade at a predetermined price to lock in gains.
Slippage
The difference between the expected execution price and the actual fill, common during fast markets or low liquidity.
Liquidity
The ease of entering/exiting a position at a stable price. Major pairs are highly liquid; exotics are not.
Volatility
The rate at which a price moves. Higher volatility means larger opportunities and larger risk.
Drawdown
The decline from a peak to a trough in account equity. Max drawdown is a key risk metric for any strategy.
Equity
Account balance plus/minus the unrealized profit or loss of open positions.
Free Margin
Equity minus used margin. It is the buffer available to open new trades or absorb losses.
Margin Call
A broker notice (or automatic action) when your free margin falls below a required threshold, often leading to stop-outs.
Regulated Broker
A broker authorized and supervised by a recognized financial authority (FCA, ASIC, CySEC, etc.), with segregated client funds and reporting duties.
Segregated Account
A client fund account kept separate from the broker's own operating funds, reducing misuse risk if the broker fails.
FIFO
First-In-First-Out — a US rule requiring the oldest open position in a pair to be closed first; it effectively prohibits hedging.
Scalping
A strategy that aims to profit from very small price moves over seconds to minutes, often with high trade frequency.
Swing Trading
A medium-term approach holding positions for days to weeks to capture larger price swings.
Position Sizing
Deciding how many units/lots to trade so that a stop loss costs only a small, predefined percentage of your account.
Risk/Reward Ratio
The planned potential reward divided by the planned risk on a trade. A 2:1 ratio targets twice the risk as reward.
Demo Account
A simulated account using live prices but virtual money — essential for testing a broker and a strategy risk-free.
MetaTrader 4 (MT4)
The most widely used retail forex trading platform, known for Expert Advisors (EAs) and custom indicators.
MetaTrader 5 (MT5)
The successor to MT4 with more order types, more instruments, and an economic calendar built in.
cTrader
A competitor platform favored for transparent ECN execution and a clean interface.
Copy Trading
Mirroring the trades of another trader (e.g. via eToro, ZuluTrade, or Myfxbook AutoTrade). Past performance is not a guarantee.
PAMM / MAM
Percent Allocation Management Module / Multi-Account Manager — structures letting a manager trade on behalf of multiple investors.