Forex Basics & Terminology
Essential Forex Terms
Pips
A pip (percentage in point) is the smallest price move in forex. For most pairs, it's the 4th decimal place (0.0001). For JPY pairs, it's the 2nd decimal (0.01).
EUR/USD moves from 1.0850 to 1.0855 = 5 pips
USD/JPY moves from 148.50 to 148.75 = 25 pips
Lot Sizes
| Lot Type | Units | Pip Value (USD pairs) |
|---|---|---|
| Standard | 100,000 | $10 per pip |
| Mini | 10,000 | $1 per pip |
| Micro | 1,000 | $0.10 per pip |
| Nano | 100 | $0.01 per pip |
Leverage
Leverage allows you to control a larger position with less capital. Common ratios: 50:1, 100:1, 500:1.
With 100:1 leverage, a 1% move against you = 100% loss of margin. High leverage amplifies both gains AND losses. Start with low leverage (10:1 or less).
Spread
The difference between bid (sell) and ask (buy) prices. This is the broker's commission. Tighter spreads = lower trading costs.
Margin
The amount required to open a position. With 100:1 leverage, you need $1,000 margin to control $100,000. Margin call occurs when equity drops below required margin.
Order Types
- Market Order: Execute immediately at current price
- Limit Order: Execute at specific price or better
- Stop Order: Triggers when price reaches level
- Stop-Loss: Closes position to limit losses
- Take-Profit: Closes position to secure gains
đ Key Takeaways
- Review this lesson's material before moving on
- Practice the concepts on a demo account
- Take notes on what you've learned