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Forex & CFD glossary
Plain-English definitions of the terms behind every award and article.
SpreadThe difference between the buy (ask) and sell (bid) price of an instrument — a core cost of every trade.
PipThe smallest standard price move in a currency pair, usually the fourth decimal place (0.0001). Used to measure spreads and gains or losses.
LeverageBorrowed exposure that lets a trader control a larger position than their deposit. It magnifies both gains and losses and is capped by regulators for retail clients.
MarginThe deposit required to open and maintain a leveraged position. If losses erode it past a threshold, the position may be closed automatically (margin call).
CommissionA separate per-trade or per-lot fee, common on raw-spread accounts. True cost = spread + commission combined.
ECNElectronic Communication Network — a model that routes orders to a pool of liquidity providers for direct, transparent pricing rather than an in-house dealing desk.
Market makerA broker that takes the other side of client trades in-house, quoting its own prices, rather than passing them to the market.
SlippageThe difference between the expected price of a trade and the price at which it actually executes, common in fast or illiquid markets.
ExecutionHow an order is filled — the speed, price quality and reliability with which a broker completes your trade.
LiquidityHow easily an instrument can be traded without moving its price. Deeper liquidity generally means tighter spreads and better fills.
LotA standard trade size. In forex, one standard lot is 100,000 units of the base currency; mini and micro lots are smaller fractions.
CFDContract for Difference — a derivative that tracks an asset’s price movement without owning it, allowing long or short positions with leverage.
Negative-balance protectionA safeguard ensuring a retail client cannot lose more than their account balance, even after a sharp market move.
Segregated fundsClient money held in accounts separate from the broker’s own funds, protecting it if the broker becomes insolvent.
Prop firmA proprietary trading firm that funds traders (usually after an evaluation challenge) to trade its capital for a share of the profits.
DrawdownThe peak-to-trough drop in an account or strategy, a key measure of risk and of how much pain a trader would have endured.
SwapThe interest paid or earned for holding a leveraged position overnight, based on the interest-rate difference between the two currencies.
Stop lossA pre-set order that closes a position at a chosen price to cap a loss.
Take profitA pre-set order that closes a position once it reaches a chosen profit level.
VolatilityThe degree of price movement over time. Higher volatility means bigger swings — more opportunity and more risk.
RegulatorAn official authority (e.g. FCA, ASIC, CySEC, ESMA) that licenses and supervises brokers and enforces client protections.
MetaTraderThe MT4 and MT5 platforms by MetaQuotes — the most widely used retail trading software, known for charting and automated trading.