If you’re new to forex trading, there are a lot of terms and concepts that you need to learn in order to be successful. To help you out, we’ve compiled a list of five essential forex trading terms that you should know.
Pips – A pip is the smallest unit of price movement in the forex market. In most currency pairs, one pip is equal to 0.0001 of the quote currency. For example, if the EUR/USD moves from 1.3550 to 1.3551, that would be a one pip move.
Lot – A lot is the standard unit size for transactions in the forex market. There are three different lot sizes that are commonly traded: standard, mini, and micro. A standard lot is equal to 100,000 units of the base currency, a mini lot is 10,000 units of the base currency, and a micro lot is 1,000 units of the base currency.
Leverage – Leverage is a loan that is provided by a broker to a trader in order to allow them to trade with more money than they have in their account. Leverage can be either positive or negative depending on the direction of the trade. For example, if a trader has $5,000 in their account and they use 100:1 leverage, they can trade up to $500,000 worth of currency.
Margin – Margin is the amount of money that must be in a trader’s account in order to place a trade. When trading on margin, traders are only required to put down a small percentage of the total value of the trade. The rest is provided by the broker as leverage.
Spread – The spread is the difference between the bid and ask prices of a currency pair. For example, if EUR/USD has a bid price of 1.3550 and an ask price of 1.3551, then the spread would be 1 pip. Spreads can vary depending on liquidity and other factors.
Trading forex can be both rewarding and challenging at times.. By understanding key terms like pips, lots leverage , margin and spreads , you’ll be well on your way towards becoming a successful trader . happy trading!