Trading can feel like learning a whole new language. Terms like “leverage” and “margin” may sound complicated at first, but understanding them is necessary to making smart decisions. In this guide, AURUM GROUP will break down some of the most important trading words you need to know, using clear and simple language.
Leverage
Leverage is a tool that allows traders to control a larger position in the market with a smaller amount of their own money.
- Example: With 1:10 leverage, you can open a $10,000 trade with only $1,000 of your own funds.
- Why it matters: Leverage can increase both your potential profits and your potential losses. Beginners should use it carefully to avoid taking on too much risk.
Spread
The spread is the difference between the buy price and the sell price of an asset. It’s one of the main costs of trading.
- Example: If the buy price of a currency is 1.1050 and the sell price is 1.1048, the spread is 0.0002 (or 2 pips).
- Why it matters: A lower spread means lower trading costs. Wider spreads can eat into profits if you trade frequently.
Margin
Margin is the amount of money you need to open and maintain a trading position. Think of it as a security deposit that ensures you can cover potential losses.
- Example: If you want to open a $5,000 position with 1:50 leverage, you might only need $100 in margin.
- Why it matters: If your account balance falls too low, you may receive a margin call asking you to add more funds or close some positions.
Signals
AURUM GROUP experts tell us that trading signals are suggestions for when to buy or sell an asset based on market analysis.
- Generally, there are two types:
Manual signals are created by experienced traders. In contrast, automated ones are generated by algorithms and trading software.
- Why it matters: Signals can help beginners learn market timing, but they should be combined with personal research rather than followed blindly.
Volatility
Volatility describes how much and how quickly the price of an asset changes.
- High volatility: Prices move up and down rapidly, creating more opportunities but also more risk.
- Low volatility: Prices change slowly, meaning fewer trading opportunities but also more stability.
Stop-Loss
A stop-loss is an order that automatically closes your trade when the price reaches a certain level.
- Example: If you buy an asset at $100 and set a stop-loss at $95, your trade will close if the price drops to $95, limiting your loss.
- Why it matters: Stop-losses help control risk and protect your account from big losses.
Learning the basic language of trading is the first step toward making confident decisions. Terms like leverage, spreads, margin, signals, and stop-loss are not only jargon, but they are also the building blocks of every trade.
AURUM GROUP believes that knowledge is one of the most valuable tools a trader can have. No matter what you’re trading, getting a good grasp of these concepts will help you navigate the market more effectively and reduce costly mistakes. By taking the time to learn the basics, you can approach trading with clarity, confidence, and control.
Disclaimer: Trading Forex, CFDs, and other financial instruments involves significant risk of loss and may not be suitable for all investors