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Glossary

Forex, in plain English.

Every term you'll meet in your first weeks of trading, defined simply, no jargon. Bookmark it and come back whenever a word trips you up.

The basics

Forex (FX)
The global market for buying and selling currencies. It's the largest, most liquid market in the world, trading around $7.5 trillion every day.
Currency pair
Two currencies quoted against each other, like EUR/USD. You're always buying one and selling the other at the same time.
Base & quote currency
In EUR/USD, the euro is the base (what you're buying) and the dollar is the quote (what it's priced in).
Pip
The smallest standard price move in a pair, usually the 4th decimal place. It's how gains and losses are measured.
Pipette
A fractional pip, one tenth of a pip (the 5th decimal). It lets brokers quote slightly tighter prices.
Lot
The size of a trade. A standard lot is 100,000 units of the base currency; a mini lot is 10,000 and a micro lot is 1,000.

Going long or short

Long (buy)
A position that profits if the pair rises in value.
Short (sell)
A position that profits if the pair falls. In Forex you can make money whether prices go up or down.
Bid & ask
The bid is what buyers will pay; the ask is what sellers want. You buy at the ask and sell at the bid.
Spread
The gap between the bid and ask price, effectively the broker's fee on every trade.

Managing risk

Leverage
Borrowed buying power that lets a small deposit control a much larger position. It magnifies both gains and losses.
Margin
The deposit your broker sets aside to keep a leveraged position open.
Margin call
A warning (or automatic close-out) when your account no longer has enough margin to hold a losing trade.
Stop-loss
An order that closes a trade automatically at a set loss, capping how much you can lose.
Take-profit
An order that closes a trade automatically once it reaches a target profit.
Drawdown
The drop from your account's peak balance to its lowest point, a key measure of risk.
Risk-to-reward
How much you stand to gain versus lose on a trade. For example, risking $1 to make $3 is a 1:3 ratio.

Market & mechanics

Liquidity
How easily a pair can be traded without moving its price. Majors like EUR/USD are highly liquid.
Volatility
How much and how fast a price moves. More volatility means more opportunity, and more risk.
Bull & bear market
A bull market trends upward; a bear market trends downward.
Slippage
When an order fills at a slightly different price than expected, usually during fast-moving markets.
Swap (rollover)
A small interest charge or credit for holding a position overnight. Swap-free “Islamic” accounts avoid it.
Majors, minors & exotics
Majors pair USD with another big currency (EUR/USD); minors are big currencies without USD (EUR/GBP); exotics pair a major with a smaller-economy currency (USD/TRY).
Broker
The regulated platform you actually trade through. With Vault FX, your funds always stay in your own broker account.

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