Glossary

Do you know your candlesticks from your line charts? Brush up on all the essential trading terminologies and get ready to put it all into practice.

Ask price

The lowest price a buyer will accept for an asset.

Balance

Your deposits and profits, minus any losses. Use it to earn even more on the markets or withdraw some and enjoy your spoils.

Base currency

The first currency in a currency pair, this always represents a single unit. For example, if the USD/JPY is 115.7, that means $1 is ¥115.7.

Bear market

This is a falling market.

Bid price

The highest price a buyer will pay for an asset.

Bull market

The opposite of a bear market, this is a rising market.

Candlestick chart

Quickly see the opening and closing price, and the highest and lowest value, of an asset over a pre-specified time frame.

Equity

The amount in your account you can use to trade. Derived from your balance and your P/L, it’s also the collateral used to calculate your margin amount. When you have open positions, your equity fluctuates. When all your positions are closed, your equity and balance are equal.

Free margin

Your equity, minus any margin that has already been used to open a position. Your free margin fluctuates as your equity changes.

Future order

This order isn’t triggered until an asset hits a certain price level. For example, if your analysis shows that $50 is a resistance level for a certain asset, you can place a future order with a price of $50.25. Your order won’t open until the price reaches $50.25.

Hedging

Take a precaution against your trade and open two positions in the opposite direction.

Instant execution

Open a position at the exact price listed and you’ve made an instant execution. To make sure you receive the contract at your desired price, the position won’t open if there’s any change in price.

Leverage

Magnifying both profits and losses, leverage is the amount of margin you can use on a trade. For example, if you trade on shares valued at $10,000 with 10:1 leverage, you can control that position with just $1,000. If your position increases by 10% to $11,000, you get the entire $1,000 profit – a 100% return on your $1,000 investment.

Line chart

Select a time frame and see the movement of an asset by plotting its value on a graph.

Lot

The standard transaction size in forex and CFD transactions, the value of a lot varies depending on the asset.

Margin

The capital your broker loans you so you can control a far larger position in a financial asset than you can with your own capital or equity alone.

Margin call

Always to be avoided, this can wipe out your account fast. Occurring anytime your equity falls below your margin, a margin call results in your broker liquidating your open positions to cover your margin requirements, regardless of your profit or loss on the transaction.

Margin level

Dependant on the leverage available in your account, a margin call is the ratio of your equity to your margin. If your margin level hits 10%, a margin call is triggered.

Market execution

Open a position at the best available price when you trade with market execution. If that price isn’t available, get a contract at the next best price.

Open positions

All of your trades that are active are called open positions.

P/L

Profit and Loss breaks down the funds you have earned and the funds you have spent. See how you’re racking up your money and where you’re spending it.

Pip

The smallest unit of a currency pair, usually equal to one ten-thousandth of that pair. That means a change from 1.3500 to 1.3501 is a one pip change. When you’re trading a lot or a full contract (equal to 100,000 units of base currency), a pip is worth roughly $10. The value of a pip changes with each currency pair, but when the U.S. dollar is the quote currency, a pip is always $10. When the U.S. dollar is the base currency, you can get the value of one pip by dividing the current exchange rate by 0.0001 and multiplying it by the notional amount (contract value) of the trade.

For example, ((0.0001 / 1.3500) * 100,000) means that one pip worth €7.407 or $10.

Quote currency

Representing how much of this currency it would take to buy a single unit of the base currency, the quote currency is second in a currency pair. For example, if the USD/JPY is 115.7, that means $1 is ¥115.7.

Stop loss

Designed to keep losses at a minimum, a stop loss automatically sells your position once it hits a certain price level. For example, if you purchase an asset at $100 but are not willing to lose more than 5%, you can place a stop loss at $95. Once it hits that price, your position closes automatically.

Take profit

Like a stop loss, a take profit automatically sells your position once it hits a certain price. However, this is designed to ensure a certain amount of profits are locked in. For example, if you purchase a $50 contract and want to make a 20% profit, you can place a take profit at $60. Once it hits that price, your position closes automatically.

Technical analysis

The key to better understanding the movement of an asset, technical analysis is the study of statistics.