Trading Terms You Must Know

Now you most likely won't be standing amidst a few hundred other screaming stockbrokers on Wall Street, but it is important that you understand some of the terms that you would be hearing if you were. You want to be sure to understand what these terms mean in your trading. These are some of the most common trading terms:

Stop – Limit Order – An order to buy or sell a certain quantity of a certain security at a specified price or better, but only after a specified price has been reached. A stop limit order is essentially a ombination of a stop order and a limit order.

Bid/ask spread – also known as the bid/offer spread, is the quote of the price at which the parties involved are willing to buy or sell. The "bid" price is the price that a party is willing to purchase, while the "ask" or offer price is the price at which the party is willing to sell the same. The difference between the two prices is considered the spread.

Currency Pair – since the value of one currency is only relevant when put in terms of another, forex traders will always deal in currency pairs. The first currency in the pair is considered the 'base' currency while the second currency in the pair is the 'counter' currency.

Leverage & Margin – Margin is a good faith deposit that a trader puts up as collateral to hold a position. The amount of margin that a trader puts up determines his leverage. In other words, when a trader opens a position larger than the amount of funds required to open it, the trader has put down margin to receive leverage.

Pip – (Percentage in Point) refers to the very last digit of a currency price. Just for illustrative purposes let's take the EUR/USD at 1.2635. If the sell price was 1.2638 then we have a 3 pip increase. Should the EUR/USD sell at 1.3635 then we have a 100 pip increase.

Those are just some of the most commonly used terms that I wanted you to be familiar with. It should help you to understand a bit about the market lingo before you get into actual trading.

To your success,