Forex terms you will hear every day.

A trader might say: "I'm long cable from 1.2700, stop under 1.2650, two mini lots." It sounds like code, yet it describes a complete trade.

It means the trader bought GBP/USD at 1.2700 and will exit if the price falls below 1.2650, which is 50 pips lower. Two mini lots is 0.20 lot, or 20,000 pounds.

Each word in that line has one fixed meaning, and the same small vocabulary covers almost everything you will read on a trading platform.

Which words describe the direction of a trade?

To be long is to have bought a currency pair, so you gain if its price rises. To be short is to have sold it, so you gain if the price falls. Going long and buying mean the same thing.

An open trade is a position. You open it with one order and close it with the opposite order: a long closes with a sell, and a short closes with a buy. With no open trades, you are flat.

Bullish means expecting a price to rise, and bearish means expecting it to fall. A trader can be bearish on the euro and still be flat, because the word describes a view and says nothing about any open trade.

Some pairs and currencies also have nicknames. They are slang, so your platform will still show the standard codes.

The lesson on buying and selling a currency pair works through long and short trades with numbers.

Which words describe prices and costs?

A platform shows two prices for every pair. The bid is the lower one, where you can sell. The ask is the higher one, where you can buy.

The gap between them is the spread. You pay it on every round trip, because you open at one price and close at the other.

Moves are counted in pips. On most pairs a pip is 0.0001, and on pairs quoted in Japanese yen it is 0.01. A pipette is one tenth of a pip, the last digit of a five-decimal quote.

So if EUR/USD shows a bid of 1.09990 and an ask of 1.10000, the gap is 0.00010, a spread of 1.0 pip. The spread lesson explains why that gap changes during the day.

MetaTrader uses point for the smallest price step. On a five-decimal pair that is a pipette, so 10 points make 1 pip, and a stop set 50 points away is only 5 pips from your entry.

Which words describe the size of a trade?

A lot is a standard trade size. One standard lot is 100,000 units of the base currency, the first currency in the pair. A mini lot is 10,000 units and a micro lot is 1,000 units.

Platforms write size in standard lots with decimals. An order of 0.10 is one mini lot, and 0.01 is one micro lot.

The full face amount of a trade is its notional. Buying 0.50 lot of EUR/USD gives a notional of 50,000 euros, even though your account puts up only a small deposit to hold it.

Size sets the pip value, the money one pip is worth. On EUR/USD in a US dollar account it is 0.0001 × units, so it scales in a straight line with the lot size.

Which words describe the money in your account?

Your balance is your deposits, minus withdrawals, plus the results of closed trades. Floating profit and loss is the result of trades still open, and it changes with every price tick.

Equity is balance plus floating profit and loss. It is what your account would be worth if you closed everything at current prices.

Leverage lets you hold a notional much larger than your deposit. At an illustrative 1:100, each $1 of your money supports $100 of position.

Leverage limits differ by broker and by country, so check the setting on your own account. The leverage lesson covers the risk side.

Margin, also called used margin, is the part of your equity the broker sets aside while a position is open. Free margin is equity minus used margin, the amount left for new trades or to absorb losses.

Margin level is equity divided by used margin, times 100. If it falls to your broker's margin call level, you get a warning.

At a lower level, the stop out, the broker starts closing your positions. Both levels differ between brokers, as the lesson on margin, margin level and stop out shows.

Which words describe orders and exits?

A market order buys or sells at the next available price. A pending order waits until the price reaches a level you set, and only then opens a trade. The order types lesson covers each kind.

A stop loss is an order that closes your position if the price moves against you to a chosen level. A take profit closes it when the price reaches a chosen gain. Both are optional, and you can move them while the trade is open.

Slippage is the gap between the price you expected and the price you got. It is most common in fast markets, such as after a major news release, and can fill a stop loss beyond its level.

Swap is interest charged or paid on a position held past the daily rollover. Commission is a fee per lot that some account types charge on top of the spread.

How do the terms fit together in one trade?

The numbers here are round and illustrative. You have a balance of $2,000 in a US dollar account with leverage of 1:100. EUR/USD shows a bid of 1.09990 and an ask of 1.10000, a spread of 1.0 pip.

1. You go long 0.50 lot with a market order. A buy opens at the ask, 1.10000.
2. The notional is 50,000 euros, worth 50,000 × 1.10000 = $55,000.
3. Used margin is $55,000 ÷ 100 = $550.
4. Pip value is 50,000 × 0.0001 = $5.00.
5. You set a stop loss at 1.09700, which is 30 pips below entry. That puts 30 × $5.00 = $150 at risk, before any slippage.
6. You set a take profit at 1.10600, 60 pips above entry, worth 60 × $5.00 = $300.

Right after opening, the position shows a floating loss of 1 pip, or $5.00, because a long can only close at the bid. Equity is $2,000 − $5 = $1,995.

Free margin is $1,995 − $550 = $1,445. Margin level is $1,995 ÷ $550 × 100 = 362.7%.

Later the bid rises to 1.10400. That is 40 pips above your entry, a floating profit of 40 × $5.00 = $200.

Equity is now $2,200 and margin level is $2,200 ÷ $550 × 100 = 400%. The balance is still $2,000, because the trade is open.

If you close here with a sell at the bid, the $200 becomes realised profit and the balance moves to $2,200, before any commission or swap. The used margin is released and you are flat again.

The margin calculator repeats step 3 for other pairs, sizes and leverage settings.