Trading glossary
The concepts you need to understand risk, position size and trading costs.
Drawdown
The decline in your account from a peak to a subsequent low, expressed as a percentage.
Equity
The current value of your account: balance plus floating profit or loss on open positions.
Leverage
Lets you control a position larger than your capital by depositing only a fraction as margin.
Lot
The standard trade size: 1 lot equals 100,000 units of the base currency.
Margin
The money your broker sets aside from your account as collateral to keep a position open.
Margin call
A broker warning that your free margin is too low to sustain your open positions.
Pip
The standard minimum price movement in a currency pair (usually 0.0001; 0.01 for JPY pairs).
Position sizing
Calculating the right lot size from your balance, the risk you accept and your stop loss distance.
Risk/reward ratio
How much you expect to gain for each unit you risk. A 1:2 ratio means winning twice what you risk.
Slippage
The difference between the price you requested for an order and the price at which it was actually executed.
Spread
The difference between the buy (ask) and sell (bid) price; it is the basic cost of trading.
Stop loss
An order that automatically closes your position when price reaches a loss level you define.
Swap (rollover)
Interest charged or paid for holding a position open overnight.
Take profit
An order that automatically closes your position when it reaches your profit target.