Forex Terms & Definitions

Margin Call vs. Stop-Out Level

• Margin Call: A broker’s warning that your account balance has fallen below the required margin percentage. You must deposit more funds or close positions to avoid liquidation.
• Stop-Out Level: If no action is taken, the system automatically closes losing trades, starting with the least profitable, to meet margin requirements.

Example for UnitedPips Standard Account:
✔ Margin Call Level: 60% (Warning issued)
✔ Stop-Out Level: 30% (Auto-close of trades begins)

Forward Deal

A contract to buy or sell currency at a fixed future date and exchange rate. Used to hedge against exchange rate fluctuations.

Trailing Stop

A dynamic stop-loss order that adjusts upward as the market moves in your favor, locking in profits while protecting against losses.

Ask and Bid Price

• Bid Price: Highest price a buyer is willing to pay for a currency pair.
• Ask Price: Lowest price a seller is willing to accept.
• The bid price is always lower than the ask price.

Bullish & Bearish Markets

• Bullish: Prices are rising (buying pressure).
• Bearish: Prices are falling (selling pressure).

Currency Pair

Forex trades involve currency pairs, with:
✔ Base Currency: First currency in the pair.
✔ Quote Currency: Second currency in the pair, showing how much is needed to buy one unit of the base currency.

Example: GBP/JPY = 150.50 (1 British pound = 150.50 Japanese yen).

Leverage

Leverage allows traders to control larger positions with a small deposit.
✔ Example: 1:100 leverage – A $100 deposit controls $10,000 in currency.
✔ Higher leverage = higher profit potential & risk.

Lot Sizes in Forex

✔ Standard Lot: 100,000 units
✔ Mini Lot: 10,000 units
✔ Micro Lot: 1,000 units
✔ Nano Lot: 100 units

Order Types

✔ Market Order: Executes immediately at the current market price.
✔ Pending Orders: Execute only when price reaches a predetermined level.

Types of Pending Orders

✔ Buy Limit: Buy when the price drops to a set level.
✔ Buy Stop: Buy when the price rises to a set level.
✔ Sell Limit: Sell when the price rises to a set level.
✔ Sell Stop: Sell when the price drops to a set level.

Other Order Types

✔ Take Profit: Closes a position at a target profit level.
✔ Stop Loss: Closes a position to limit losses.

Pip (Percentage in Point)

A pip is the smallest price movement in forex, typically 0.0001 for most currencies (except JPY, where it’s 0.01).

✔ Example: EUR/USD moves from 1.3000 to 1.3010 = 10 pips.

Pip Value Calculation for 1 Standard Lot (100,000 units):
✔ USD/JPY: 112.40: (0.01 / 112.40) × 100,000 = $8.89 per pip
✔ EUR/USD: 1.1290: (0.0001 / 1.1290) × 100,000 = $8.85 per pip

Long vs. Short Positions

✔ Long Position: Buying an asset expecting its price to rise (also called “Buy”).
✔ Short Position: Selling an asset expecting its price to fall (also called “Sell” or “Short”).

Traders profit by going long in bullish markets and short in bearish markets.