The Vocabulary to Know — Pip, Lot, Spread, Leverage

This chapter is the "dictionary" you will open most often. These 4 words — if you do not understand them, you will trade in a fog and be unable to calculate your risk.

1. Pip — the unit that measures price movement

Currency prices move in decimals. A pip is the standard unit used to measure how far the price moved.

- For most pairs — a pip is the 4th decimal place · EUR/USD moving from 1.0850 → 1.0851 = a move of 1 pip - For pairs with JPY — a pip is the 2nd decimal place · USD/JPY moving from 150.20 → 150.21 = 1 pip

A pip tells you how far the price moved — but not yet how much money that is. The money depends on the Lot.

2. Lot — the size of the trade

A lot is the quantity you trade. The bigger the lot → the more money 1 pip is worth.

The standard lot sizes: - Standard lot (1.0) → 1 pip ≈ $10 - Mini lot (0.1) → 1 pip ≈ $1 - Micro lot (0.01) → 1 pip ≈ $0.10

This is the most important point of the chapter: the lot size you choose decides how much money you gain or lose for every 1 pip the price moves.

Example: you Buy EUR/USD at 0.10 lot — the price runs up 20 pips → profit 20 × $1 = $20 · if it runs down 20 pips → a $20 loss.

A beginner must start at the micro lot (0.01) — a mistake costs little, you get to practise without getting hurt.

3. Spread — the cost you pay the broker

Open the platform and you will see 2 prices: - Bid — the price at which you can sell - Ask — the price at which you can buy

The Ask is always slightly higher than the Bid · that difference is the Spread — and it is the broker's fee.

The moment you open a trade you are already "in the red" by the spread — the price has to move your way beyond the spread before you start to profit.

A narrower spread = a lower cost · Major pairs have narrow spreads — another reason a beginner should trade Majors. (Money returned from this cost is called a "rebate" — that is what TradingEdge does for you.)

4. Leverage & Margin — the most dangerous double-edged sword

Leverage = "borrowed power" from the broker · leverage of 1:100 means $1 of yours can control a position worth $100.

Margin = the real money of yours that is "set aside" as collateral for the position.

It sounds great — a little money controlling a big position · but this is the trap that kills the most beginners.

Why it is dangerous: leverage magnifies both profit and loss equally · high leverage + a big lot = the price moving a tiny bit against you and your account is gone.

The correct understanding: what truly determines your risk is the lot size you open, not the leverage number · leverage merely opens the door for you to open a lot that is too big — your discipline in controlling the lot is what protects you.

> Pip = how far the price moves · Lot = how much money 1 pip is · Spread = the cost · Leverage = borrowed power that magnifies both profit and loss · understand these 4 words and you can calculate your risk

Next chapter — we learn to read the "chart"