Forex Trading Definitions: Pips, Lots, Spreads, Leverage, Margin and Swaps, and How a Broker Sets Each One

Forex trading definitions describe the size, price and cost of a currency trade. A currency pair such as EUR/USD prices one unit of the base currency (the euro) in the quote currency (the US dollar). A pip is the standard price step: 0.0001 for most pairs and 0.01 for pairs quoted in Japanese yen. A lot is the trade size, and a standard lot is 100,000 units of the base currency. The spread is the gap between the bid and the ask price. Leverage is the ratio of the position's value to the deposit behind it, and margin is that deposit. A swap, also called rollover, is the financing charge or credit on a position held overnight. None of these values is set by the market alone. Each is a setting the broker configures for every instrument and account, inside limits written by its regulator; in the United States those limits work out at 50:1 on major currency pairs and 20:1 on all others.

The core forex terms at a glance

The table defines each term once and shows what it means on one standard lot of EUR/USD at an illustrative price of 1.1000, quoted in US dollars. The sections that follow explain how each value is produced and who controls it.

Currency pairs, base and quote currencies, and what "major" means

A quote of EUR/USD 1.1000 means one euro costs 1.10 US dollars. Buying the pair buys euros and sells dollars at the same time; selling it does the reverse, so every forex position is long one currency and short another. The bid is the price at which the client can sell the base currency and the ask is the price at which the client can buy it.

The Bank for International Settlements (BIS) measures the market behind these quotes every three years in its Triennial Central Bank Survey. According to BIS figures from the 2025 survey, trading in FX markets reached $9.6 trillion per day in April 2025, up 28% from 2022, with spot transactions accounting for 31% of turnover.

"Major pair" sounds like a market label, but it is also a regulatory definition, and regulators draw the line in different places. US rules apply the lower 2% deposit to ten currencies including the Australian and New Zealand dollars and the Scandinavian currencies. The UK Financial Conduct Authority (FCA) counts only six currencies as majors: the US dollar, euro, Japanese yen, pound sterling, Canadian dollar and Swiss franc. The Australian Securities and Investments Commission (ASIC) uses the same six plus the Australian dollar. The same pair can therefore be a major in one jurisdiction and a minor in another, and the leverage a broker may offer on it changes with that classification.

Pips, points and pipettes

A pip is the fourth decimal place on most pairs (0.0001) and the second on yen pairs (0.01). Many brokers quote one extra decimal, so EUR/USD shows five digits and USD/JPY three. That extra digit is the pipette, or point: one tenth of a pip.

The broker decides the quoting precision for each instrument. In the MetaTrader 5 platform, the symbol properties include "Digits after a decimal point" and the "Symbol point value", and the spread itself is stored as a "Spread value in points". On a five-digit EUR/USD feed, a spread shown as 12 points is therefore 1.2 pips.

Pip value converts price movement into money. It equals the pip size multiplied by the number of units traded, converted into the account currency:

• EUR/USD, one standard lot: 0.0001 × 100,000 = $10 per pip, because the quote currency is already US dollars.
• USD/JPY, one standard lot: 0.01 × 100,000 = ¥1,000 per pip, which is about $6.67 at an illustrative rate of 150.00.
• A micro lot of either pair carries one hundredth of those amounts.

Lots, contract size and trade-size limits

A lot is a contract, and the contract size decides how many units of the base currency one lot represents. The standard lot is 100,000 units, a mini lot 10,000 and a micro lot 1,000. MetaQuotes uses the same figure in its own margin example for buying one lot of EURUSD "while the size of one contract is 100,000".

Four settings define what a client can trade on each symbol. The trade contract size fixes the units per lot. The minimum volume fixes the smallest deal, so a broker that sets it at 0.01 lot lets clients open 1,000-unit positions. The volume step fixes the increments between sizes, and the maximum volume caps a single deal. MetaTrader 5 also offers an aggregate volume limit that caps the open position and pending orders in one direction on a symbol.

Bid, ask, spread and commission

The spread is the ask minus the bid. A client who buys at the ask and sells at the bid pays the spread once per round trip, so a 1.0-pip spread on one standard lot of EUR/USD costs $10 before the price has moved. A fixed spread stays the same in all conditions the broker allows; a floating spread widens and narrows with the underlying market, and MetaTrader 5 carries a separate "Indication of a floating spread" flag for each symbol.

The client-facing spread is built from two parts: the price the broker receives from its liquidity providers and the mark-up the broker adds on top. Some account types show the raw spread and charge a commission per lot instead, which moves the same revenue from the price into a visible fee. The choice between those models is central to how forex brokers make money, and the width of the raw price depends on the depth of the broker's liquidity provider arrangements.

Leverage and margin, and the limits on each

Leverage is the position's value divided by the margin held against it. According to MetaQuotes, which develops MetaTrader 5, the platform calculates forex margin as volume in lots multiplied by contract size and divided by leverage, so one lot of EUR/USD at 50:1 requires €2,000, or $2,200 at 1.1000. Leverage is a ceiling the broker sets per account or per symbol, and it can only be set within the regulator's limit for that client.

In the United States, federal rules require a minimum security deposit of 2% of notional value on major currency pairs and 5% on all other pairs, which caps retail leverage at 50:1 and 20:1. If the deposit falls short, the dealer must collect more or liquidate the customer's positions.

The National Futures Association (NFA) names the 2% currencies in its Financial Requirements and adds that "The Executive Committee may temporarily increase these requirements under extraordinary market conditions." A US client's maximum leverage can therefore fall without the broker changing anything.

In the United Kingdom, the FCA's PS19/18 rules, in force for CFDs from 1 August 2019, limit retail leverage to between 30:1 and 2:1 depending on the volatility of the underlying asset, require a close-out when a client's funds fall to 50% of the margin needed, and guarantee that a client cannot lose more than the funds in the account. ASIC's order, in force from 29 March 2021, sets 30:1 for major currency pairs and 20:1 for minor pairs in Australia.

Once a position is open, four related terms describe the account. Used margin is the deposit locked by open positions. Equity is the balance plus or minus floating profit and loss. Free margin is equity minus used margin, the room left for new positions. Margin level is "Equity / Margin * 100", expressed as a percentage. A margin call is the warning level and a stop out is the level at which the platform starts closing positions; both are broker settings, bounded in the UK and Australia by the 50% close-out rule.

Brokers can also set leverage below the regulatory cap and tighten it temporarily, for example before scheduled data releases. The guide to currency trading leverage covers how ratios translate into risk, and the dynamic leverage controls brokers set before news events show how those caps tighten temporarily.

The same pair under three rulebooks

Because each regulator defines "major" differently, one AUD/USD position needs a different deposit in each market. The figures below assume one standard lot (100,000 AUD) at an illustrative 0.6500, a notional value of $65,000.

• The US treats the Australian dollar as a major, so the deposit is 2% and leverage tops out at 50:1.
• The FCA leaves the Australian dollar off its list, so AUD/USD is a minor pair in the UK at 20:1.
• ASIC adds the Australian dollar to its majors, so AUD/USD carries 30:1 in Australia.

A brokerage serving clients in more than one jurisdiction therefore needs its leverage settings to follow the client group as well as the symbol, because the same symbol carries a different cap for each group of clients.

Swaps, rollover and overnight financing

The word "swap" means two different things in currency markets. In the interbank market an FX swap is an instrument, and according to BIS figures FX swaps remained the most traded instrument, at $4 trillion a day in April 2025. On a retail account, a swap is the overnight financing charge or credit applied when a position is held past the daily cut-off, reflecting the interest-rate difference between the two currencies plus the broker's own terms.

The broker chooses how the swap is calculated. MetaTrader 5 supports swaps "charged in points", swaps charged as money in the base, margin, deposit or profit currency, swaps charged as an annual interest rate on the current or opening price, and swaps applied by closing the position at the end of the trading day and reopening it at a shifted price. Long and short swaps are set separately, so a buyer and a seller of the same pair can face different charges. The broker also chooses "The day of week to charge 3-day swap rollover", the night that carries three days of financing to cover the weekend.

Orders, stops and the US FIFO rule

A market order fills at the current price; a pending order (a limit or a stop) waits for a price level. Stop loss and take profit are attached to a position, and in MetaTrader 5 "they are instructions for a broker to close a position when the price reaches a certain level". The broker also sets the stops level, the minimum distance in points between the current price and a new stop order.

US accounts carry one rule that most glossaries leave out. Under NFA Compliance Rule 2-43, "Forex Dealer Members may not carry offsetting positions in a customer account but must offset them on a first-in, first-out basis." A US client cannot hold a long and a short position in the same pair at once, and closing trades are matched against the oldest open position first (FIFO).

One EUR/USD trade, worked through every term

The example below follows one trade on a US account funded with $10,000. Prices are illustrative.

1. Quote and spread. EUR/USD shows 1.10000 bid and 1.10010 ask, a spread of 1.0 pip.
2. Size. The client buys 1.00 lot at 1.10010: 100,000 euros, worth about $110,000.
3. Pip value. Each pip is worth $10, so the position opens $10 down because of the spread.
4. Margin. At the US cap of 50:1 the platform locks €2,000, or $2,200. Free margin is $10,000 minus the $10 floating loss and the $2,200 margin, which leaves $7,790. Margin level is $9,990 divided by $2,200, or 454%.
5. Price move. The bid rises 25 pips to 1.10250. Closing at the bid realises (1.10250 − 1.10010) × 100,000 = $240.
6. Overnight. If the position stays open past the cut-off, the broker's long swap rate is credited or charged, and tripled on the configured rollover day.

The same trade needs $3,667 of margin in the UK or Australia at 30:1, against $2,200 in the US. The calculator below runs the same arithmetic for four pairs and the three rulebooks.

Where a broker sets each term

Every definition above maps to a setting that sits in the broker's platform configuration, and some of them also sit under a regulatory ceiling. The table pairs each client-facing term with the MetaTrader 5 setting that produces it and the outer limit that applies.

A client sees most of these values in the platform's symbol specification window, which MetaTrader 5 describes as showing "the symbol trading conditions (contract specification)", including swap type and swap long and short.

On the operator side, the same terms appear in the back office. In WxTrade's back office, for example, the symbols list shows each instrument's digits, execution mode and sector, and the list can be imported or exported as a file; the trading-account list shows each client account's group, margin, free margin, equity and leverage; and the positions list shows the swap on every open position alongside its stop-loss and take-profit levels.

Frequently asked questions

What are the basic terms in forex trading?

They fall into four groups. Price terms are the currency pair, base and quote currency, bid, ask and pip. Size terms are the lot, contract size and pip value. Cost terms are the spread, any commission per lot and the overnight swap. Risk terms are leverage, margin, free margin, margin level, margin call and stop out. A broker's contract specification for a single instrument shows most of them in one place.

What is a forex broker?

A forex broker is the firm that quotes prices to the client, holds the trading account and either takes the other side of each trade or passes it to liquidity providers. US federal rules address the firm that deals with retail forex customers as a futures commission merchant (FCM) or a retail foreign exchange dealer (RFED), and the security-deposit and liquidation duties in those rules apply to both.

How are financing rates on forex trades calculated?

Under an annual-interest swap model, the nightly charge is the position's value multiplied by the annual rate and divided by 360, the bank year MetaTrader 5 uses for that mode. One standard lot of EUR/USD at 1.1000 is worth $110,000, so an illustrative rate of 3% a year costs about $9.17 a night, and three times that on the triple-swap day. Where the broker quotes swaps in points or as money per lot, the charge is simply that amount per lot per night.

How does forex trading differ from stock trading?

Retail forex trades over the counter: the broker or its liquidity providers quote the price, rather than a central exchange order book, which is why spreads, swaps and stop distances are broker settings rather than exchange rules. Every trade is also a pair, so a forex position is always long one currency and short another, while a share purchase is a single holding. Leverage limits are written specifically for retail forex, such as the US 50:1 ceiling on major pairs.