14 Trading Terminologies You Need to Know

If you're new to trading, you'll quickly encounter a range of terms that may seem unfamiliar. Trading has its own unique language, particularly in CFDs trading, and understanding these terms is essential for navigating the markets with confidence and minimizing uncertainty.

Key Trading Terms Every Trader Should Know

1. Long Position:

In trading, to "go long" means buying an asset that you expect to increase in value. This strategy is also known as "taking a long position" or simply "going long." The goal is to sell the asset at a higher price later, for a profit. Note that "long" doesn't imply holding the asset for a long time—it's just about expecting price appreciation.

2. Short Position:

"Going short" involves selling an asset you don't own, typically through contracts like CFDs (Contracts for Difference). This is done with the expectation that the asset's price will drop, allowing you to buy it back at a lower price to make a profit. Also known as "short selling," this strategy can be risky if prices rise instead of falling. A "short squeeze" happens when market conditions cause a rapid increase in an asset’s price, forcing short sellers to buy back the asset at higher prices.
 

Source: IG.com

3. Leverage:

Leverage is the use of borrowed funds to amplify the size of your trading position meaning increasing the value of your purchasing power. This can magnify both potential gains and losses. Leverage can be different in each country as well. For example, with a 1:100 leverage ratio, a $100 deposit can control a $10,000 trade. While leverage allows you to control larger positions with less capital, it also increases risk.

4. Lots:

In Forex trading, currency pairs are traded in "lots." A standard lot is typically 100,000 units of the base currency in a currency pair (e.g., $100,000 in USD/GBP or £100,000 in GBP/USD). 

5. Pips:

A "pip" is the smallest price movement in Forex trading, used to measure changes in currency pairs. For instance, if EUR/USD moves from 1.1000 to 1.1050, that’s a 50pip movement.

6. Spread:

The spread is the difference between the "bid" price (the price a buyer is willing to pay) and the "ask" price (the price a seller is willing to accept). In Forex, the spread is measured in pips. For example, if GBP/USD is quoted as 1.2681/1.2686, the spread is 0.0005, or 5 pips. And "zero spreads" means: there is no difference between the bid and ask prices.

7. Stop Loss & Take Profit Orders:

Stop loss and take profit orders are very important risk management tools. A stop loss automatically sells your asset at a predetermined price to limit losses, while a take profit order locks in profits by selling at a set target price.

Technical Analysis Terms

Technical analysis is a popular trading method that involves studying past market data, such as price movements, to identify trends and make informed predictions.

8. Candlesticks:

Candlesticks are representations of price movements on a chart. Each candlestick shows the open, high, low, and close prices for a specific time period. A green candlestick typically indicates a bullish market (price increased), while a red or black candlestick signals a bearish market (price decreased). Candlestick patterns, like Doji or Hammer, are often used to forecast market direction.

9. Trendline:

A trendline is a line drawn on a chart that connects a series of price points (usually highs or lows) to identify the direction of the trend. Trendlines help traders visualize future price movements and potential entry/exit points.

10. Support and Resistance:

Support is a price level where an asset tends to find buying interest and stop falling, while resistance is a price level where selling interest tends to push the price down. These levels are used by traders to plan entries and exits.

Some Market Behavior and Sentiment Terms

Understanding market sentiment is important for making informed trading decisions. Here are some common terms traders use to describe market conditions:

11. Bull and Bear Markets:

A "bull market" refers to a market with rising asset prices and optimistic sentiment, while a "bear market" describes a period of falling prices and pessimistic sentiment.

12. Market Correction:

A market correction is a short-term decline in an asset’s price, usually caused by external factors like economic or political events. While corrections can be sharp, they are often brief and do not always signal a long-term trend reversal.

13. FOMO and FUD:

FOMO stands for "Fear of Missing Out," a psychological condition where traders rush into trades out of fear of missing potential profits. FUD stands for "Fear, Uncertainty, and Doubt," which describes negative emotions or rumors that can trigger panic selling.

Other Common Trading Terms

14. Whales:

Whales are traders or investors with significant capital, often able to influence the market with their large trades. Their actions are closely watched by other market participants.

Understanding these terms will help you communicate effectively in the trading world and make more informed decisions as you navigate the markets. By mastering the basics, you can build a stronger foundation for your trading strategies and improve your overall market performance.