In the world of online trading, familiarity with key terms and concepts is essential for every trader. In this article, we will review the most important trading terms used in the trading world.
In Forex, a lot is the unit of measurement for trade volume. A standard lot equals 100,000 units of the base currency, but smaller sizes such as mini lots (10,000 units) and micro lots (1,000 units) are also available.
Margin is the amount of money a trader must have in their account to open a trading position. This amount is held as collateral by the broker to allow the use of leverage.
Leverage is a type of trading credit that allows traders to open larger positions with a small capital. For example, a leverage of 1:100 means controlling $10,000 with $100 of capital.
The spread is the difference between the Ask (buy price) and Bid (sell price) of an asset in the market. This difference represents the trading cost for the trader and can be either fixed or variable.
Swap in Forex refers to the interest a trader must pay or receive when holding a position overnight. This amount is calculated based on the interest rate difference between two currencies in a currency pair and can be positive or negative.
Stop Loss is an order set by the trader to automatically close a position at a specific loss level to prevent further losses.
Take Profit is an order that automatically closes a position at a predetermined profit level to secure realized gains.
Slippage is the difference between the trader’s expected price and the price at which the trade is actually executed. It usually occurs during high market volatility or slow order execution.
Requote happens when the price a trader wants for execution is no longer available, and the broker provides a new price that the trader must accept or reject. This usually occurs during high volatility or delayed order execution.
Pending orders are trading instructions executed in the future when the price reaches a specified level. Types of pending orders include:
Buy Limit: Buy at a price lower than the current market price
Sell Limit: Sell at a price higher than the current market price
Buy Stop: Buy at a price higher than the current market price
Sell Stop: Sell at a price lower than the current market price
The margin level is the ratio between account equity and used margin, expressed as a percentage. If this level reaches a certain threshold (e.g., 20%), the broker automatically closes open positions (Stop Out) to prevent further losses.
Balance: The total funds in the trading account, excluding profits or losses from open trades.
Equity: The sum of account balance and profits or losses from open trades.
Free Margin: The amount of capital available for opening new trades after subtracting the used margin.
A position refers to an open trade in the market. Positions can be Long (buy) or Short (sell), and profits or losses are realized only when the position is closed.
Pip: The unit of measurement for price changes in Forex, usually 0.0001 for four-decimal currency pairs.
Pipette: A smaller unit, equal to one-tenth of a pip (0.00001), used on platforms displaying five decimal places.
A price gap occurs when an asset's price moves abruptly between two levels without trading in between. This often happens at market open after holidays or important economic news.
A Swap-Free Account is a type of trading account where overnight swap fees are removed to comply with Islamic Sharia law. At Trendo, Islamic accounts are available for Forex and gold trading.
Stop Out is a margin level at which the broker automatically starts closing open positions to prevent the account from going negative. This level is usually set as a percentage of the required margin.
A Margin Call is a warning from the broker indicating that the account balance has fallen below the required level to maintain open positions, prompting the trader to deposit funds or close positions to avoid Stop Out.
A Partial Close refers to closing a portion of an open position to secure some realized profit or loss, while the remaining part of the position remains open.
Server Time is the clock and date set on the broker’s trading server, serving as the reference for order execution, candle opening/closing, and market events on the platform.
Trading sessions are time periods during the day when Forex markets are active in major financial centers, including the Sydney, Tokyo, London, and New York sessions.
Copy Trading allows traders to automatically copy the trades of a professional trader into their account, without making direct buy or sell decisions.
A PAMM Account is a managed Forex account where a professional trader trades with their own and investors’ funds. Profits and losses are distributed proportionally to each investor's share.
An ECN Account connects trades directly to the Electronic Communication Network without intermediaries, giving access to real market prices, low spreads, and specified commissions.
A CFD is a derivative trading instrument allowing traders to speculate on price changes of an asset (currency, stock, gold, or oil) without owning it. Profit or loss is calculated based on the price difference between opening and closing the trade.
Altcoins are all cryptocurrencies other than Bitcoin, including Ethereum, Ripple, Litecoin, and others, each developed with different goals and technologies.
A Trader is an individual who buys and sells assets in financial markets such as Forex, cryptocurrency, stocks, or commodities, aiming for profit. Trades can be short-term, medium-term, or long-term.
Pump & Dump is a market manipulation method where a group artificially inflates an asset’s price (Pump) and then sells it at a profit, causing a sharp price drop (Dump).
Hedging is a risk management strategy where a trader opens an opposite or complementary position to reduce or prevent potential losses from their main trades.
Correlation in financial markets describes the statistical relationship between two assets, showing how they move relative to each other. Correlation can be positive, negative, or zero.
An NDD (No Dealing Desk) Broker executes orders directly to the interbank market or liquidity providers without dealing desk intervention, offering transparency, fast execution, and direct access to real market prices.
A DD (Dealing Desk) Broker acts as the counterparty to client trades, reviewing and executing orders, which can create conflicts of interest between broker profit and client profit.
Scalping is a short-term trading style where traders open multiple trades in very short timeframes to capture small but frequent price movements.
Day Trading involves opening and closing all trades within the same day, avoiding overnight positions, and aiming to profit from daily market fluctuations.
Swing Trading is a medium-term trading style where positions are held for several days to weeks to benefit from larger price swings and market trends.
Position Trading is a long-term style where positions are held for weeks, months, or even years, primarily based on fundamental analysis and long-term market trends.
Risk-to-Reward Ratio measures the risk a trader takes to achieve a specific profit. It is calculated by dividing potential loss by expected profit. For example, a 1:2 ratio means risking $1 for a $2 profit target.
Maximum Drawdown is the largest percentage decline in account equity from a peak to a subsequent trough during a specific period, indicating potential losses from consecutive trades.
A Trailing Stop is a dynamic stop-loss order that moves with the price in a profitable direction and activates at a defined distance if the price reverses, preserving gains.
Market Sentiment reflects the overall attitude or perception of traders and investors regarding market direction. It can be bullish (positive), bearish (negative), or neutral, influencing price movements.
Tick Size is the minimum price increment that a trading instrument can move. It represents the smallest possible change in price for a security or commodity. For example, if the tick size of a stock is 0.01, the price can move from 10.00 to 10.01, but not 10.005. Tick size is important for calculating price fluctuations, spreads, and trading costs.