Trading is the act of buying and selling financial instruments such as currencies, commodities, or indices with the goal of profiting from price movements. Traders speculate on whether an asset’s price will rise or fall and open positions accordingly.

A financial derivative is a contract whose value is based on an underlying asset, such as a currency pair, stock, commodity, or index. Derivatives allow traders to speculate on price movements without owning the actual asset.

A Contract for Difference (CFD) is a type of derivative that allows you to trade price movements without owning the underlying asset. You can profit from rising or falling markets by opening long (buy) or short (sell) positions.

CFDs use leverage, meaning you only need to deposit a fraction of the trade’s value (margin). While this can amplify gains, it also increases the risk of losses.

Key points:

Spot trading involves buying or selling an asset for immediate delivery at the current market price. Unlike CFDs, spot trading requires full capital and ownership of the asset, and there is no leverage.

A long position means you buy an asset because you expect its price to rise.

A short position means you sell an asset because you expect its price to fall.

Both long and short positions are standard in CFD trading.

Leverage allows you to control a larger position with a smaller amount of capital. It multiplies both potential profits and potential losses. For example, 1:100 leverage means you can control $10,000 of exposure with $100 of margin.

Margin is the amount of money required to open and maintain a leveraged position. It acts as a security deposit. If your equity falls too low, the platform may issue a margin call or close positions automatically.

A trading account is an account you open with a broker to access financial markets. It allows you to deposit funds, place trades, use trading platforms, and manage your positions.

A trading platform is software such as MT4, MT5, or a web terminal that lets you analyse prices, place orders, manage positions, and access trading tools.

Pips, lots, and spreads are core units used to measure price movement, trade size, and transaction costs.

Pip: The smallest price movement in most currency pairs.

Lot: The standard trade size (e.g., 1.00 lot = 100,000 units in forex).

Spread: The difference between the buy and sell price of an instrument, representing trading cost.

These measurements help traders calculate position size, risk, and potential profit or loss.

Slippage occurs when your trade executes at a different price than expected, usually due to fast market movements or low liquidity. It can be positive (better price) or negative (worse price).

Common causes:

Slippage is normal in fast markets and can affect your trading costs and outcomes.

Trading sessions refer to the major market hours across the world: the Sydney, Tokyo, London, and New York sessions. Together, they form the 24-hour forex and CFD market cycle, with liquidity peaking when sessions overlap.