The risk terms behind the plan.

01 / The glossary

Start with the words, then check the assumptions.

Forex terms can describe a position, a cost, an execution condition, or a way of thinking about repeated losses. They are connected, but one term does not replace the others. Broker specifications and market conditions can change, so verify current details before relying on them.

Leverage

A way to control a larger market position with less of your own capital. It can magnify both gains and losses. Leverage does not make the underlying market less uncertain, and a smaller margin requirement is not the same as a smaller possible loss.

Exposure

The amount of market movement that can affect a position or account. Exposure can come from one position or from several positions that respond to the same currency, theme, or market event, even when those trades look separate.

Margin

Capital a broker may require as collateral to open or keep a leveraged position. Margin is the amount tied up under the broker’s rules; it is not a cap on how much the position could lose. Current broker terms determine the actual requirement.

Position sizing

The process of choosing how many units or lots a position represents. Size affects how much a price movement can change the account value, alongside the stop distance, pip or point value, currency conversion, and trading costs. The appropriate size depends on a person’s own plan and circumstances; this glossary does not prescribe one.

Pip or point value

The amount an instrument’s quoted price change represents for a given position size, usually expressed in the account currency. The value can differ by instrument, size, quote currency, and broker contract details, so the current specification needs to be checked rather than assumed.

Stop-loss

A planned instruction or price level intended to limit a loss if price moves against a position. It is a planning tool, not a guarantee of an exact fill: a gap, spread change, thin liquidity, slippage, or a fast market can produce a different result.

Drawdown

A decline from a prior account or equity high to a later lower value. For an illustrative example only, a move from $10,000 to $9,000 is a $1,000 decline, or 10% from that prior high. That arithmetic defines the term; it is not a forecast, risk limit, performance claim, or promise of recovery.

Spread

The difference between the price available to buy and the price available to sell. It is a trading cost built into the quoted prices, and it can change with the instrument, broker, liquidity, and market conditions.

Slippage

The difference between the price expected for an order and the price at which it actually executes. It can happen when prices move quickly, liquidity is limited, or an order cannot be filled at the displayed level. Slippage can increase or decrease the result, so it adds uncertainty to planning.

Risk-to-reward

A comparison between a trade’s planned potential loss and its hypothetical potential gain. It describes the relationship between two planning estimates; it does not predict whether either amount will occur, and a favorable-looking ratio does not remove execution risk, costs, or uncertainty.

Risk of ruin

A way of describing the possibility that a sequence of losses could reduce an account substantially or make a chosen trading plan no longer feasible. It depends on assumptions about losses, size, available capital, and other conditions, so it is a risk concept rather than a promise that an outcome will or will not happen.

Gap

A jump from one quoted price to another without trades at every price in between. If a market gaps past a planned exit, an order may execute at a different level than expected, which is why a stop-loss cannot guarantee an exact loss amount.

Liquidity

How readily a position can be bought or sold near the currently quoted price. Lower liquidity can mean wider spreads, more slippage, or more difficulty executing an order at the level a trader expected.

Commission and financing

Additional costs that may apply to a position. Commission is a broker’s charge for executing or maintaining a trade, while swap or financing is a charge or credit that may apply when a position is held under the broker’s terms. Current contract details determine how these costs work.