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Trading glossary
Plain-language definitions of the terms you keep meeting in forex and CFD trading.
- Ask (offer)
- The price at which the market will sell an instrument to you. The higher of the two quoted prices.
- Base currency
- The first currency in a pair, whose single unit the quote currency is measured against. In EUR/USD, the euro is the base.
- Bid
- The price at which the market will buy an instrument from you. The lower of the two quoted prices.
- CFD
- Contract for difference: a leveraged contract to exchange the change in an asset's price, without owning the asset itself.
- Contract
- A standard unit of trade size, defining how much of an instrument a position represents.
- Leverage
- The ratio allowing a position larger than the capital deposited. It multiplies both gains and losses.
- Limit order
- An instruction to trade only at a specified price or better.
- Liquidity
- How easily an instrument can be traded without significantly moving its price.
- Long
- A position that profits if the price rises.
- Margin
- The capital a broker requires to open and maintain a leveraged position.
- Margin call
- A demand to add funds when losses erode the margin supporting an open position; positions may be closed automatically if unmet.
- Market order
- An instruction to trade immediately at the best available price.
- Pip
- The standard smallest quoted increment of a currency pair, usually the fourth decimal place.
- Quote currency
- The second currency in a pair, in which the price of one base unit is expressed. In EUR/USD, the US dollar is the quote.
- Short
- A position that profits if the price falls.
- Slippage
- The difference between the expected price of a trade and the price at which it actually executes.
- Spread
- The difference between the bid and ask prices; an immediate cost of entering a position.
- Stop
- A pre-set price at which a position is closed to limit a loss or protect a profit.
- Volatility
- A measure of how much and how quickly a price moves over time; a source of both opportunity and risk.
Risk warning. Trading foreign exchange and contracts for difference (CFDs) is high risk and can lead to the loss of all invested capital. The majority of retail investor accounts lose money when trading CFDs. The material on this website is general education only, is not financial advice, and is not an offer or solicitation to trade.