Top 10 Must-Know Trading Terms

Top 10 Must Know Trading Terms for New Traders

If you’re new to trading, the sheer number of terms and jargon might feel overwhelming. But don’t worry! Understanding the basics is the first step towards building your trading confidence. Whether you’re diving into forex, stocks, or CFDs, mastering these 10 essential trading terms will set you on the right path. Let’s break them down in a friendly, easy-to-follow way.

Bid and Ask

Bid: This is the highest price a buyer is willing to pay for an asset.
Ask: This is the lowest price a seller is willing to accept.

Think of it like a marketplace: the bid is what buyers offer, and the ask is what sellers demand. The difference between these two prices is called the spread.

Spread

The spread is the gap between the bid and ask prices. For example, if the bid price for a stock is $10 and the ask price is $10.05, the spread is $0.05.

The spread represents the cost of trading. Lower spreads are better because they mean less cost for you as a trader.

At Pride Wealth we provide some of the industry’s lowest spreads starting at 0.01 Pips

Scenario 1:

You are looking at the USD/JPY currency pair, where USD is the base currency and JPY is the quote currency. The broker provides the following prices:

Bid Price (157.20):
This is the price at which the broker is willing to buy USD from you.
If you are selling 1 USD, you will receive 157.20 JPY.
Ask Price (157.25):
This is the price at which the broker is willing to sell USD to you.
If you are buying 1 USD, you will pay 157.25 JPY.
Spread = Ask Price – Bid Price = 157.25 – 157.20 = 0.05 JPY.

Pip

Short for “percentage in point,” a pip is the smallest price movement in forex trading. For most currency pairs, one pip equals 0.0001.

Pips are used to measure price changes and calculate profits or losses. For instance, if the EUR/USD moves from 1.1000 to 1.1010, it has increased by 10 pips.

Leverage

Leverage allows you to control a large position with a smaller amount of money. For example, with 1:10 leverage, you can trade $10,000 with just $1,000 in your account.

Leverage can be used to profit from relatively small change in the prices in the currency market. Even a 0.001 change in forex price can lead to significant amount of profit or loss for traders. The fund for leverage is usually provided by the broker, we provide leverage up to 1:400.

Margin

Margin is the amount of money you need to deposit to open a leveraged trade. It’s essentially your collateral.

For example, if you’re trading with 1:100 leverage and want to open a $100,000 position, you’ll need $1,000 in margin.

Margin Requirement = Position Size / Leverage

Lot Size

Assets are bought and sold in predefined amounts called lots. The standard lot size in forex is 100,000 units, but you can also trade mini lots (10,000 units) or micro lots (1,000 units).

Understanding lot sizes helps you manage your trade size and risk exposure.

Stop Loss and Take Profit

Stop Loss: A tool to automatically close a trade if the market moves against you, limiting your losses.
Take Profit: A tool to automatically close a trade when it reaches your desired profit level.

These tools help you manage risk and emotions while trading.

Bull and Bear Markets

Bull Market: A market where prices are rising or expected to rise.
Bear Market: A market where prices are falling or expected to fall.

Think of a bull thrusting its horns upward (rising market) and a bear swiping its paw downward (falling market). These terms describe overall market sentiment.

CFD (Contract for Difference)

A CFD is a financial instrument that allows you to speculate on the price movement of an asset without actually owning it. You can profit from both rising and falling markets.

We offer leveraged trading of CFDs using Meta Trader 5 Trading software.

CFDs are popular for their flexibility, but they come with risks, especially when combined with leverage. Consider learning some of the Strategies of CFD Trading for any market conditions.

Volatility

Volatility refers to how much and how quickly an asset’s price moves. High volatility means big price swings, while low volatility indicates more stable prices.

Volatility creates opportunities for profit, but it also increases risk. Understanding an asset’s volatility helps you choose the right trading strategy.

Final Thoughts

CFD trading offers flexibility and opportunities to profit in any market condition, but it also carries risks. Choosing the right strategy depends on your trading style, market knowledge, and risk tolerance. Start by practicing on a demo account to refine your approach before trading with your capital.

By learning these terms you’ll be better equipped to navigate the markets confidently and consistently.

Ready to trade smarter? Visit PrideWealth.com to explore advanced CFD trading tools and resources that can take your trading to the next level.