Module 2: Trading Terminology
Key Takeaways
- Bull markets rise; bear markets fall.
- Spread, margin and leverage directly affect your costs and risk.
- Bid is the sell price, ask is the buy price.
- Orders (market, limit, stop) control how and when you enter and exit.
- Stop loss and take profit automate your risk and reward.
Bull market and bear market
A bull market is a sustained period of rising prices and optimism — picture a bull thrusting its horns upward. A bear market is a sustained decline of roughly 20% or more, marked by pessimism — a bear swiping its paws downward. Knowing which environment you are in shapes whether you look for buying or selling opportunities.
Pip and spread
A pip is the smallest standard price move in forex, usually the fourth decimal place (0.0001). If EUR/USD moves from 1.1000 to 1.1005, that is 5 pips.
The spread is the difference between the buy and sell price — effectively the broker’s fee. A tighter spread is cheaper to trade. If the bid is 1.1000 and the ask is 1.1002, the spread is 2 pips.
Margin and leverage
Margin is the deposit required to open a leveraged position. Leverage lets you control a larger position than your capital alone allows. With 1:100 leverage, $100 controls $10,000 of an asset.
Leverage multiplies both gains and losses. A 1% move against a 1:100 position wipes out your entire margin. Use it sparingly while learning.
Volatility and liquidity
Volatility measures how much and how fast a price moves. High volatility means bigger swings (more opportunity and more risk). Liquidity is how easily you can buy or sell without moving the price. Major forex pairs are highly liquid; obscure altcoins are not.
Bid and ask
The bid is the highest price buyers will pay (the price you sell at). The ask (or offer) is the lowest price sellers will accept (the price you buy at). The gap between them is the spread.
Long and short
Long means you buy expecting prices to rise. Short means you sell first expecting prices to fall, then buy back lower. Being able to go short lets you profit in down markets.
Lot size
A lot is a standardised trade size. In forex: a standard lot = 100,000 units, a mini lot = 10,000, a micro lot = 1,000. Larger lots mean larger profit or loss per pip.
Order types
- Market Order: Buy or sell immediately at the current price.
- Limit Order: Buy or sell only at a specified price or better (you wait for your price).
- Stop Order: Triggers a market order once a set price is reached, often used to enter on breakouts.
- Take Profit (TP): Automatically closes a winning trade at your target price.
- Stop Loss (SL): Automatically closes a losing trade to cap your loss.
Always set a stop loss the moment you enter a trade. It is the single most important habit a beginner can build.
Frequently Asked Questions
You will absorb them naturally as you trade. Bookmark this page and the Glossary in Resources as a reference.
As little as possible — many pros use 1:5 or less. High leverage is the fastest way to lose your account.