1. Base vs Quote currency in EUR/USD*
In any pair `Base / Quote`:
- *Base currency*: The first one. This is what you’re buying or selling.
Ex: EUR in EUR/USD
- *Quote currency*: The second one. This is what you use to price it.
Ex: USD in EUR/USD
So `EUR/USD = 1.10` means *1 Euro = 1.10 US Dollars*.
You’re always buying/selling the base, and paying/receiving the quote.
*2. What’s a pip?*
*Pip* = "percentage in point". It’s the smallest standard price move in a currency pair.
For most pairs: 1 pip = 0.0001
Ex: EUR/USD moves from 1.1000 → 1.1001 = 1 pip move
For JPY pairs: 1 pip = 0.01 because the price has fewer decimals
Traders use pips to measure profit/loss instead of dollars.
*3. How is a pip used to measure price movement?*
You just count how many pips the price moved.
Ex: GBP/USD goes from 1.2500 to 1.2530 = 30 pips
If you traded 1 "lot" and each pip = $10, then 30 pips = $300 profit/loss
It makes it easy to compare moves across pairs.
*4. How does leverage amplify both profits and losses?*
*Leverage* is borrowed money from your broker. Ex: 1:100 leverage
With $100, you can control $10,000 worth of currency.
- *Profit amplified*: 1% move on $10,000 = $100. That’s 100% return on your $100
- *Loss amplified*: 1% move against you = -$100. You just lost your whole $100
So leverage makes small moves big. That’s why risk management is everything.
*5. Margin vs Free Margin*
- *Margin*: The amount of your money that’s "locked" as collateral to open a trade.
Ex: To open a $10,000 trade at 1:100, you need $100 margin
- *Free Margin*: Your money that’s _not_ locked. It’s available to open new trades.
`Free Margin = Equity - Used Margin`
- *Equity*: Account balance + floating profit/loss
If free margin hits zero, you can’t open new trades. If equity < margin, you get a margin call.
*6. Pending order vs Market order*
- *Market order*: Buy/Sell immediately at the current price. "I want it now"
- *Pending order*: An instruction to buy/sell later _if_ price reaches a certain level.
Types: Buy Limit, Sell Limit, Buy Stop, Sell Stop
Use pending orders when you don’t want to watch the charts all day.
*7. What’s a bearish market?*
*Bearish* = prices are going down, or traders expect them to go down.
Name comes from a bear swiping _down_.
Mood: pessimistic. People are selling.
*8. What’s a bullish market?*
*Bullish* = prices are going up, or traders expect them to go up.
Name comes from a bull charging _up_.
Mood: optimistic. People are buying.
*9. What’s consolidation?*
*Consolidation* = when price moves sideways in a tight range instead of trending up or down.
It’s like the market is "catching its breath" before the next big move.
On the chart it looks like a box or rectangle.
Breakouts often happen after consolidation.
*10. Stop Loss vs Take Profit*
Both are automatic exit orders to manage risk:
- *Stop Loss (SL)*: "Close my trade if I lose X amount"
Purpose: Limit losses. Keeps one bad trade from blowing your account
- *Take Profit (TP)*: "Close my trade if I make X amount"
Purpose: Lock in profits. Don’t get greedy and watch it reverse
Think of them as your seatbelt + destination in a trade.
