TERMS & DEFINITIONS

LONG/SHORT:

Long and short are used to describe buying and selling. If

someone says “I’m going long on EUR/USD”, they are buying.
If they say “I’m going short on EUR/USD’, then they are selling.

BULLISH/BEARISH:

If someone says “EURO is bullish right now”, that means

currency is rising, as bulls represent growth in the market. If they
say “EURO is bearish right now”, that means the currency is
dropping, as bears represent a decline in the market.

HAWKISH/DOVISH:

Not many people use this phrase but it is the same as Bullish
(Hawkish) and Bearish (Dovish)

PIPS:

Are a unit of measurement to show the change in value between

two currencies. A pip is usually the last decimal place of a price
quote for a currency pair. Most pairs go out to 4 decimal places,
unlike Japanese Yen Pairs which go out to 3 decimal places.

TICKS:

They are not really important in Forex, as your money is counted

by the number of pips achieved.

GBP/USD moves from 1.30250 to 1.30260 - moved ONE pip

GBP/USD moves from 1.30250 to 1.30260 - moved TEN ticks
BID PRICE:

All forex quotes are quoted with two prices: the bid & the ask.
The bid is the price at which your broker is willing to buy the base
currency in exchange for the quote currency.
If you want to sell something, the broker will buy it from you at the
bid price.

Example: If GBP/USD reads 1.8812/15, the bid price is at 1.8812

(You sell one British pound for 1.8812 US Dollars)

ASK PRICE:

The ask is the price at which the broker will sell the base
currency in exchange for the quote currency. If you want to buy
something, the broker will sell it to you at the ask price.

Example: If EUR/USD reads 1.2812/15, the ask price is 1.2815.

(You can buy one Euro for 1.2815 US Dollars)

You will see them on MetaTrader4 when you are trading.

If you like a pair and you have a strong bias towards it
(uptrend/downtrend), then trade it.

BID before / ASK after

1.8812 / 1.8815

The difference between the bid & ask price is called the
SPREAD.
LOTS:

Forex is only traded in specific amounts called lots, which is the

number of currency units you will buy/ sell.

Standard lot size - 1.00 (100 000 units)

Mini lot size - 0.10 (10 000 units)
Micro lot size - 0.01 (1000 units)

If you use 1.00 lot size, that means everytime price moves from
1.10000 to 1.10001 - you get $1.

If price jumps from 1.10000 to 1.10100 - you get $100

LEVERAGE:

You may be thinking how a small trader like yourself can trade
and potentially make large amounts of money. Think of your
broker as a bank who essentially gives you $100,000 to buy
currencies. All the bank asks from you is that you give $1000 as a
good faith deposit, which it will hold for you but not keep.
This is how Forex trading using leverage works. It is the ability
to control large dollar amounts of a financial instrument with a
relatively small amountof capital. The amount leverage you have
depends on what your broker offers.

1:20
1:50
1:100+ (unregulated)

This means you deposit $1000 in your account, you can trade
up to 20, 50, 100+ x that amount. You can control between
$100 000 - $500 000 with just your $1000. Be careful! With
controlling that much, comes much responsibility.
Over-leveraging can be a gift and a curse.
SPREAD:

The spread x your lot size is what you will pay your broker as
commission for getting you in the trade.

Ask price - bid price x your lot size = amount broker will take

Example: If you see GBP/AUD - 1.8061/76 =15 and you use a

standard lot size of 1.00. 1.00 x 15 = $15

The minute you open the trade, you will automatically be -$15.
Whatever money you make after that, will be yours.

Do not worry because this is not a big deal for reasons such as:

• If you are using a standard lot, your account size is bigger

than a small account, so -$15 to start a trade does not seem
so bad. With a standard lot, you could make that ground up
back to profit very quick. Remember if your trade ends up
going wrong and you end up losing -$150, $165 will come out
of your trading account because of the initial -$15. If you end
up winning $675, $660 will only be credited to your account
due to that initial -$15.

• Most currency pairs do not have a huge separation between

the bid and ask price. Only the exotic and minor pairs. Pairs
such as EUR/USD that are widely traded, usually have a
seperation of between 3-7. So if you see EUR/USD 1.1205/09,
9 - 5 = 4. If you use a lot size (1.00), 1 x 4 = $4. So if you
were to buy/sell EUR/USD, you would automatically be -$4
the minute you open the trade as that would be the brokers
commission.
MARGIN:

The broker will require a deposit, which is also known as the

margin. The brokers will also specify how much margin is required
per lot traded. The minimum security (margin) for each lot will
vary from broker to broker. It can be as low as $100 or as high as
$100 000. This basically means you maintain your account’s
equity (absolute value of your trading account) at all times in
order to be allowed to keep the trade open.
Each time you execute a new trade, a certain percentage of the
account balance in the margin account will be set aside as the
initial margin requirement for the new trade.
The amount is based upon the currency pair, it’s current price,
and the lot size you are using. If your trade plummets and your
trading lossess cause your accounts equity to fall below the
minimum requirement the broker set aside as margin, the broker’s
system would automatically close out of your trade to prevent
further losses.

This is a safety mechanism to prevent your account balance

from going negative.

Example: You open one standard lot (GBP/USD). buying with

the British pound at 2% margin and wait for the exchange rate to
climb. When you buy one lot of GBP/USD at a price of 1.50000,
you are buying 100 000 pounds, which is worth US $150 000
(100 000 units of GBP 1.50000). If the margin requirement was
2%, then US $3000 would be set aside in your account to open
up the trade (US $150 000 2%). You now control 100 000 pounds
with just US $3000.

If your account balance ever falls below the 2% margin, your

trade will automatically be closed to prevent further losses!