You wouldn’t walk into a French café and start ordering in perfect English and expect to be understood. Well, you might but you’d get a lot of raised eyebrows and a coffee that’s probably not what you wanted. Same with trading. It has its own language – part jargon, part coded signals – all designed to make it just hard enough for newcomers to feel a little foolish for not knowing what a pip is.

The problem, of course, is if you don’t learn the language you’ll find yourself nodding along in conversations you don’t understand and making trades based on gut instinct rather than actual knowledge. And while there are some areas of life where a well-timed nod can get you through, trading is not one of them. So here’s your guide to the key terms you need to grasp if you’re going to stand a chance in this world of charts, trends and numbers that never seem to sit still.

The Terms That Make Trading Sound More Mysterious Than It Is

If you’ve been looking around the forex trading world you’ve probably come across NFP which sounds like something you’d find on an important government document. In reality if you’re wondering what is NFP in forex, it stands for Non-Farm Payrolls, a key economic indicator that tells traders how many jobs were added in the US outside of the farming sector. It’s released once a month and tends to send the markets into a tizz. Strong job growth? US dollar might strengthen. Weak job growth? Panic ensues. You don’t need to remember the exact numbers each month but you do need to know that when NFP day rolls around volatility is pretty much guaranteed.

Then, of course, there’s leverage and margin, two terms that sound harmless enough but can be the making or breaking of a trader. Leverage allows you to control a large position with a small amount of money. Think of it as a bank loan, except instead of buying a house you’re betting on the direction of the market. Margin is the amount of money you need to put up to open that leveraged trade. It’s the collateral that keeps your broker from worrying too much if you can cover your losses. This is the wild world of finance.

Leverage is tempting – after all why settle for small gains when you can magnify them? But as anyone who’s ever taken out a loan they couldn’t afford will tell you borrowed money is only fun until it needs paying back. High leverage means higher risk and if the trade goes against you your account can be wiped out before you’ve even had time to blink.

Pips, Lots and Spreads: The Basics You Need to Know

First things first: pips. You’ll hear the word thrown around in trading circles as though everyone has an instinctive understanding of what it means and perhaps they do but you don’t – at least not yet. Pip stands for “percentage in point” or “price interest point” depending on who you ask and it refers to the smallest movement in a currency pair. If EUR/USD moves from 1.1000 to 1.1001 that’s a one-pip movement. It’s not much but in the grand scheme of trading, tiny movements like this are what fortunes are built – or lost – on.

Then there are lots which are essentially the size of the trade you’re making. A standard lot is 100,000 units of a currency which sounds absurdly large until you remember you’re not expected to put up all that money yourself. That’s where leverage and margin come in – but more on that later.

Finally, the spread is the difference between the buy price and the sell price of an asset. Brokers make their money by widening this gap slightly which means you’re always at a slight disadvantage when you enter a trade. It’s a bit like stepping into a casino where the house always has a small edge – something to keep in mind before you start throwing money around.

Bull and Bear Markets: The Mood Swings of Trading

You’ll hear traders talk about bull and bear markets as if they’re discussing the weather. “It’s a bit of a bull market today” someone will say nodding sagely at their screen as if they’ve been watching this for years. In reality, it’s quite simple: a bull market is when prices are going up and a bear market is when they’re going down. Bulls charge forward, bears hibernate – there’s your mental shortcut.

The key is not to get too carried away in either direction. People make money in both kinds of markets provided they don’t think one will last forever. The dot-com bubble? Bull market madness. The 2008 financial crisis? A brutal bear market. Neither lasted forever but both caught out traders who thought they would.

Support, Resistance and Why Markets Never Move in a Straight Line

One of the first things you’ll notice when looking at price charts is that markets never just move up or down in a straight line. There are always moments when they pause, reverse slightly or bounce off certain levels. These aren’t random – they’re what traders call support and resistance.

Support is where the price stops falling as people start buying at that level. Resistance is the opposite – where the price struggles to rise as people start selling. Imagine a bouncing ball. It hits the floor (support), bounces back, hits the ceiling (resistance) and then falls back down again. That’s how markets work.

Smart traders pay attention to these levels because they can help you predict where the price might turn. It’s not foolproof – nothing in trading is – but it’s a useful tool to have in your back pocket.