Terms used in forex trading

Currency pair

In forex, currencies are quoted in pairs. For example EURUSD (Euro vs US Dollar). It gives the value of Euro in terms of US Dollar. In every foreign exchange transaction, you will buy one currency and sell another currency at the same time. If you buy EURUSD, you are buying Euro and selling USD.  If you sell EURUSD, you are buying  USD and selling Euro. The first symbol in a currency pair is called the base currency. The second symbol is called the quote currency.

Long/Short Position

Long position means a trade that is opened to buy a currency pair. In other words, if you are long on USDJPY, you are holding buy position of USDJPY. You are buying USD, selling Japanese Yen. You are long on USD, short on Yen.

Short position means you re selling a currency pair. In other words, if you are short on CADJPY, you are selling the pair. You are selling CAD and Buying Yen. You are short on CAD, long on Yen.


A pip is often described as the smallest increment or decrement that a pair can make. This description was given when the brokers mostly quoted currency pairs in 4 digits. However, a pip is no longer the smallest movement. Most brokers now quote exchange rate in 5 decimal points for most pairs. Therefore, for a major pair like EURUSD, the pip value is the fourth decimal place of the quote. For example 1.173568. in this quote, 6 is in the pip place, 8 is the point value. A Point is also known as a pipette. If EURUSD moves from 1.73568 to 1.73598, we can say it has gone up by 3 pips or 30 points. for Yen pairs like USDJPY, the pip value is the 2nd decimal place of the quote.


Spread is the difference between the Bid and Ask price given by the broker. When we open a trading position, initially it always opens in a small loss, that is the spread that had been charged to the position. This difference is often the profit the broker makes out of the activities of the retail traders.


Margin is the amount of equity required to be in a trading account in order to open and hold a position. The higher the leverage, the smaller is the required margin to open a trading position.


Leverage is the availability of funds that a trader can use in excess of the funds available in his trading account. For example if a trader has $1000 equity in his trading account, he can open a trading volume of $100,000 if his account leverage is 1:100.