MOST COMMON JARGONS IN ONLINE TRADING

• Pip (Percentage in Point)

A pip is one of the most common online trading terminologies. It refers to the smallest price movement in currency trading, usually representing 0.0001 of a currency pair. For example, if the EUR/USD moves from 1.1050 to 1.1051, that’s a 1 pip movement. Understanding pip movements is crucial in measuring profit or loss in forex trading.

• Spread

The spread refers to the difference between the buy (ask) and sell (bid) price of a trading asset. It’s essentially the cost you pay to execute a trade. A tighter spread means a lower trading cost, while a wider spread can indicate less liquidity or more volatility in the market.

• Leverage

Leverage allows traders to control a large position with a relatively small amount of capital. For instance, with a leverage of 100:1, you can control a $10,000 trade with only $100 in your account. While leverage amplifies potential profits, it also increases the risk of significant losses, so it must be used carefully.

• Margin

A trader must have a minimum amount of capital in their account to open and maintain a leveraged position, known as the margin. For example, if you have a leverage of 100:1, you only need 1% of the total value of the trade to open a position. Proper margin management is crucial to avoid margin calls or account liquidation.

• Bull Market vs. Bear Market

These two terms describe overall market conditions. A bull market is when prices are generally rising, indicating optimism and confidence among traders. In contrast, a bear market is when prices are falling, often signaling pessimism and fear. Understanding these market trends helps traders align their strategies accordingly.

• Bid and Ask Price

The bid price is the highest price a buyer is willing to pay for an asset, while the ask price is the lowest price a seller is willing to accept. Traders refer to the difference between the bid and ask prices as the spread. Knowing how these prices work allows traders to time their entry and exit points more effectively.

• Stop-Loss Order

Traders use a stop-loss order as a risk management tool to automatically close a trade once the asset reaches a specified price. This helps traders limit their potential losses in case the market moves against their position. It’s a key part of a disciplined trading strategy, especially in volatile markets.

• Take Profit Order

Traders use a take-profit order to automatically close a trade when the asset reaches a predetermined profit level. This ensures that you lock in gains before the market can reverse. Combining take-profit and stop-loss orders is a common strategy to manage risk and reward effectively.

• Liquidity

Liquidity refers to how easily an asset can be bought or sold without significantly affecting its price. Highly liquid markets, like forex, tend to have tighter spreads and more predictable price movements. Low liquidity, on the other hand, can lead to price gaps and higher volatility, making it riskier for traders.

• Volatility

Volatility measures the degree of price movement in a market or asset over a period of time. A highly volatile asset has large and frequent price swings, while a less volatile one has more stable movements. Volatility is a double-edged sword because while it creates opportunities for profit, it also increases risk.

• Candlestick Chart

Traders widely use candlestick charts to analyze price movements. Each “candle” represents the price action of an asset over a specific time frame (e.g., 1 minute, 1 hour, 1 day). Candlesticks show the opening, closing, high, and low prices of an asset, providing valuable insights into market sentiment.

• Slippage

Fast-moving markets can cause slippage, leading to trades being executed at a different price than expected. It can happen during high volatility or low liquidity and can result in traders getting a worse price than anticipated. Understanding slippage helps traders set realistic expectations, especially during major news events.

• Requote

In trading, brokers issue a requote when the price changes after a trader submits an initial request. This typically happens in fast-moving markets where the price of an asset can change rapidly.