This is a short glossary of the terms you meet most often when you trade currencies and gold. They are grouped by prices and costs, orders, position size, risk and gold. Where a term needs more than a line, it links to the full guide. Nothing here is a trade recommendation. It is a reference.
Prices and costs
- Pip. The standard smallest price increment for a currency pair, usually the fourth decimal place (0.0001), or the second for yen pairs. See what is a pip.
- Spread. The gap between the bid, where you can sell, and the ask, where you can buy. Your position starts at a loss equal to the spread, so it is a cost, not a detail. See the spread.
- Slippage. The difference between the price you expected and the price you got. It widens around news and thin liquidity. See execution and slippage.
Orders
- Market order. Buy or sell now at the best available price. Certain to fill, uncertain on price.
- Limit order. Trade only at a set price or better. Certain on price, uncertain on fill. See order types.
- Stop loss. A stop order placed to cap the loss on a position. It is the single most important order you will use. See how to set a stop loss.
- Gap. A jump between one price and the next with no trading in between, typically at the weekly open or after major news. Stops can fill well beyond their level in a gap.
Position size and leverage
Lot. The standard unit of position size. A standard lot is 100,000 units of the base currency, a mini lot 10,000 and a micro lot 1,000. See lot sizes.
Leverage. Borrowed capital that lets a small deposit control a larger position. It multiplies gains and losses identically. See what leverage really is.
Margin. The deposit your broker requires to hold a leveraged position. It is collateral, not a fee. A margin call is a demand for more funds. A stop out is the broker closing positions automatically.
Risk
- Risk-reward ratio. Your potential loss compared with your potential gain. It means little without a win rate attached. See risk-reward.
- Expectancy. The average amount you can expect to win or lose per trade. It is the number that tells you whether a strategy makes money. See expectancy.
- Edge. A genuine, repeatable reason your expectancy is positive. Most traders assume they have one without testing.
- Drawdown. The decline from an equity peak to a trough, usually as a percentage. See drawdown.
- Risk of ruin. The probability of losing so much capital that you cannot continue. It is driven by risk per trade, not bad luck.
Gold terms
- XAU/USD. The price of one troy ounce of gold in US dollars. XAU is the ISO code for gold. See XAUUSD explained.
- Spot and futures. Spot is the price for immediate delivery. Futures are exchange-traded contracts for a later date.
- Real yield. A bond yield minus expected inflation. It is the most important macro variable for gold. See real yields and gold.
Questions
What is the difference between a lot and leverage?
A lot is the size of your position. Leverage is the borrowed capital that lets a small deposit control it. Lot size is what you trade. Leverage is how it is funded.
What is drawdown in trading?
The decline from a peak in account equity to a later trough, usually a percentage. Recovery is asymmetric. A 50% drawdown needs a 100% gain to get back.
70–80% of retail investor accounts lose money trading CFDs. This page is education, not advice. All trade examples are constructed composites.
