Positive trading experiences come from building confidence through understanding fundamental concepts, whether you're new to trading or an experienced trader.
Orders: An order is a single instruction from the trader to the broker to execute a trade (buy or sell). Orders are placed using a trading platform and can include different types, such as:
Market orders: Execute immediately at the current market price.
Pending orders: Set to execute at a specific price level in the future.
Currency: Understanding key currency terms is essential when trading forex instruments:
Currency pair: A combination of the currencies of two countries used for forex trading, e.g., USD/GBP, GBP/JPY, NZD/CAD.
Cross pairs: Any currency pair that does not include USD, e.g., GBP/JPY, EUR/AUD.
Base currency: The first currency in a pair, e.g., in GBP/USD, GBP is the base currency.
Quote currency: The second currency in a pair, e.g., in GBP/USD, USD is the quote currency.
Bid and Ask Price: The bid price is the price at which the base currency is bought by a broker and sold by a trader. The ask price is the price at which the base currency is sold by a broker and bought by a trader.
Trading Instrument: An instrument falls under one of many categories of assets on which an order is opened. The asset is a CFD (Contract for Difference) product where the order cares about the value of the asset.
Profit and Loss: Profit or loss is the difference between the closing and opening price of an order.
Profit/Loss = difference of closing and opening price (in pips) x Pip Value
Market and Pending Orders: A market order is an order that is executed immediately at the current market price. During volatility, slippage may occur, where the actual executed price is either higher or lower than the requested market price. Learn more about requotes, the notification sent whenever slippage occurs. A pending order is a request to execute an order only when specific price conditions are met. There are 3 main types of pending orders:
Limit Orders: Buy limit is an order to buy at or below the current ask price. Sell limit is an order to sell at or above the current bid price.
Stop Orders: A buy stop is an order to buy at a price above the current ask price, and a sell stop is an order to sell at a price below the current bid price.
Stop Limit Orders (MT5 only): Buy stop limit is an order combination of buy stop and buy limit and requires two prices which must both be reached before this order is executed. Sell stop limit is an order combination of sell stop and sell limit and requires two prices which must both be reached before this order is executed.
Order Execution: When an order is created, it is done with either one of two executions: market or instant. These execution types determine the method by which the order is fulfilled.
Market execution is an order opened within moments of a trader opening the order, and in certain circumstances, may experience slippage.
Instant execution is an order where the order is opened at the price shown in the trading platform, or not at all. Should the price change, a requote notification will be sent to you before the order is opened.
Instant execution is only available for professional trading account types.
Hedged Orders: Hedged orders, also known as offsetting orders, are orders made for the same instrument in opposite directions. For example, 1 lot Buy EURUSD and 1 lot Sell EURUSD. Read more about hedged orders in our article, which goes into greater detail about them.
Order Price: Orders are opened at a price specified by the trader. These are terms used to describe parts of the order price:
Order price is typically shown as a number with up to 5 decimals, i.e. 12.34213, 1.53212
Pip: the 4th decimal place of a price, i.e. 12.34213, 1.53212
Point: the 5th decimal place of a price, i.e. 12.34213, 1.53212
Price change is measured in pips and/or points, so a price change from 1.11115 to 1.11135 is measured as 2 pips or 20 points. It’s helpful to remember that 1 pip = 10 points.
Please note: some instruments approach pips and points uniquely based on the price format of that trading instrument. See the table below for these specific instruments:
| Standard currencies | Gold, Silver, JPY | Cryptocurrencies |
Price format example | EURUSD: 1.21568 | USDJPY: 113.115 | BTCUSD: 6845.25 |
Pip | 4th decimal | 2nd decimal | 1st decimal |
Point | 5th decimal | 3rd decimal | 2nd decimal |
Pip size | 0.0001 | 0.01 | 0.1 |
Pip Size and Pip Value: These terms are often used when the price of an order is discussed:
Pip size is the value of 1 pip in the price of an instrument. The term is used both as a value, as in the pip size of the price 1.11115 is 0.0001, and as a solution, as in the pip size of a price changing from 1.11115 to 1.11145 is 0.0003.
Pip value is how much is earned or lost if a price changes by 1 pip, and is calculated as: Pip value = number of lots X contract size X pip size.
Order Volume: The volume of an order, which is the quantity of an instrument in an order, is often determined by the lot size and contract size of the specific trading instrument.
Lot: A lot refers to the amount of the instrument in an order, i.e., 3 lots of USDGBP is how much of this currency pair is included in the order. A standard lot is typically 100,000 units of the base currency, but several lot types exist, including:
Standard lot: 1 lot = 100,000 units
Mini lot: 0.1 lot = 10,000 units
Micro lot: 0.01 lot = 1,000 units
Nano lot: 0.001 lot = 100 units
Cent lot: 1 cent lot = 100,000 cent units (Standard Cent accounts only)
The contract size is a fixed amount of base currency in 1 lot, commonly fixed at 100,000.
Spread: Spread is the difference in pip value between the bid and ask price of a trading instrument, which is the amount charged by the broker for opening the order; this is the primary source of profit for market maker brokers. Taurex offers dynamic spreads.
Balance: Balance is the total monetary value of a trading account, including all completed transactions, deposits, and withdrawals. It is the total funds in a trading order before opening orders and after closing open orders. Balance doesn’t change while orders are open, as it doesn’t include the profit or loss of open orders.
Equity: Equity is the balance of a trading account, but it includes accrued profit or loss and swaps. Equity also includes free margin (see below).
Equity = Balance +/- Floating Profit/Loss + Swaps
Margin: Margin is the amount of money reserved to keep an order open; it is calculated in the trading account currency. Margin is also important to understand when free margin, margin level, and margin call are discussed, which we define below.
Free margin is the balance of funds in a trading account that is not being held as margin for open orders; new orders require enough free margin to cover the margin cost and spread.
Margin level is the ratio of equity (see above) to margin, denoted as %, calculated: Margin level = (Equity / Margin) x 100.
Margin call is a notification sent to traders by their trading platform when equity and margin drop to when it may be necessary to deposit funds or close open orders to avoid stop out (discussed below). The margin call is sent when margin and equity fall to a predetermined margin level; the margin call is determined by trading account type.
Stop out: Stop-out is the method of automatically closing orders when the margin level of a trading account drops to the stop-out level (20%).
Leverage: Leverage is the ratio of equity to capital provided by the broker, which affects the margin required for an open order. It is expressed as 1:2, 1:200, etc., based on the trader's margin against the broker's loaned capital. We highly recommend learning more about leverage, as it carries unique risks for traders who use it.
Swap: Swap is the interest applied to open orders overnight. It is applied to trading accounts at 21:00 GMT+0 each day until the order is closed. Our article about swap provides much more detailed information about this topic.
Risk Management: Risk management involves limiting the exposure of your trading account to potential losses. Traders typically develop comfort with a trading strategy that suits their risk appetite. Trading always carries a certain level of risk, so it may not be suitable for all investors. Having a risk management strategy before trading is essential.