Otterpedia
Trading has a vocabulary problem. Here is every term you meet as a beginner, each defined in one plain sentence, with a link to the lesson that explains it properly. 19 terms so far, growing with the school.
B
Base currency
The first currency in a pair, and the one you are buying or selling.
In EUR/USD, the euro is the base currency. Buying EUR/USD means buying euros and paying for them with dollars. The price always tells you how much of the second currency one unit of the base is worth.
Lesson: What Is Forex Trading and How Does It Work? →Bid and ask
The two prices you are always quoted: what you can sell at, and what you can buy at.
The bid is the lower price, where you can sell. The ask is the higher price, where you can buy. You always buy at the higher one and sell at the lower one, which is why a trade starts slightly negative.
Lesson: What Is a Spread in Trading? →C
Currency pair
Two currencies quoted against each other, because a currency only has a price relative to another one.
You never buy a currency on its own. Every forex trade means buying one currency and selling another at the same time, which is why prices are always shown as a pair such as EUR/USD or USD/JPY.
Lesson: What Is Forex Trading and How Does It Work? →D
Demo account
A practice account that uses live prices and fake money.
Demo accounts let you learn the platform and test a plan without risk. The one thing they cannot simulate is how differently you behave when the money is real, which is why the step after demo should still be small.
Lesson: How to Start Forex Trading, One Step at a Time →E
Exotic pair
A pair featuring a smaller or emerging-market currency, such as USD/TRY or USD/ZAR.
Exotics move dramatically, which looks like opportunity. They also carry much wider spreads and thinner liquidity, so a large part of that movement is eaten by the cost of getting in and back out.
Lesson: What Are the Major Currency Pairs? →L
Leverage
Borrowed size from your broker, letting you control a position far larger than your deposit.
Leverage of 1:30 means $1,000 of your money can control $30,000 of currency. It is a size tool, not a profit tool: it multiplies losses by exactly the same factor as gains. Retail leverage on major pairs is capped at 1:30 in the EU and UK and 1:50 in the US.
Lesson: Forex Leverage and Margin, Explained Simply →Liquidity
How easily you can get in and out of a market without moving the price against yourself.
High liquidity means many buyers and sellers, tight spreads and fills close to the price you expected. Low liquidity means the opposite, and it is why exotic pairs and quiet hours cost more to trade.
Lesson: What Are the Major Currency Pairs? →Lot
The standard unit of trade size. One standard lot is 100,000 units of the base currency.
A mini lot is 10,000 units and a micro lot is 1,000. On EUR/USD, one pip is worth about $10 on a standard lot, $1 on a mini and $0.10 on a micro. Lot size is how you control risk.
Lesson: What Is a Pip in Forex, and What Is One Worth? →M
Major pair
One of the most heavily traded pairs, setting the US dollar against another large developed economy.
EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD and NZD/USD. Having the dollar in a pair is not enough on its own: USD/TRY contains the dollar but is an exotic.
Lesson: What Are the Major Currency Pairs? →Margin
The deposit your broker sets aside to keep a leveraged position open.
Margin is not a fee and it is not your maximum loss. It is collateral, held while the trade is open and released when you close it. Losses come out of the rest of your balance too.
Lesson: Forex Leverage and Margin, Explained Simply →Margin call
A warning that your margin level has fallen too low to safely support your open positions.
It means the account no longer has comfortable room to absorb losses. If the level keeps falling, the broker will start closing positions itself at the stop out level.
Lesson: Forex Leverage and Margin, Explained Simply →P
Pip
The standard unit of price movement, 0.0001 on most pairs and 0.01 on yen pairs.
A pip is how traders count profit and loss. On EUR/USD it is the fourth decimal place. A move from 1.0850 to 1.0851 is one pip, worth about $10 on a standard lot.
Lesson: What Is a Pip in Forex, and What Is One Worth? →Pipette
One tenth of a pip, the extra decimal most brokers now quote.
The fifth decimal on EUR/USD, the third on USD/JPY. MetaTrader calls these points, not pips, so a stop of 200 points is only 20 pips of room. Getting this backwards is a classic beginner mistake.
Lesson: What Is a Pip in Forex, and What Is One Worth? →Position size
How many lots you trade, worked out from your risk and your stop distance.
Divide the money you are willing to lose by your stop in pips multiplied by the pip value per lot. It is the single most important number in risk management, and it should never be chosen by how confident you feel.
Lesson: Forex Leverage and Margin, Explained Simply →Q
Quote currency
The second currency in a pair, the one the price is expressed in.
In EUR/USD the dollar is the quote currency, so the price 1.0850 means one euro costs 1.0850 dollars. Your profit and loss on that pair is naturally counted in dollars.
Lesson: What Is Forex Trading and How Does It Work? →S
Spread
The gap between the bid and the ask, and the cost you pay to open a trade.
If EUR/USD is quoted 1.0850 / 1.0851, the spread is one pip. You pay it the moment you enter, which is why a new position starts slightly in the red. Spreads widen around news and at session gaps.
Lesson: What Is a Spread in Trading? →Stop loss
A pre-set order that closes a losing trade at a price you chose in advance.
It turns an unknown loss into a decided one. Note that a normal stop loss is not guaranteed: in fast markets or weekend gaps it can fill at a worse price than requested.
Lesson: How to Start Forex Trading, One Step at a Time →Stop out
The point where your broker starts closing your positions automatically.
It happens when margin level falls below the broker's threshold. It is not a punishment, just the mechanical consequence of running out of margin, and it is what position sizing exists to prevent.
Lesson: Forex Leverage and Margin, Explained Simply →Swap
The interest adjustment applied for holding a position overnight.
Also called rollover. Depending on the pair and direction it can be a small charge or a small credit. It is easy to forget, and it quietly adds up on trades held for days or weeks.
Lesson: What Is a Spread in Trading? →