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Going long means buying a currency pair because you expect its price to rise, aiming to profit from an increase. Going short means selling a pair you expect to fall, aiming to profit from a decline. With CFDs you can trade in both directions without owning the underlying currency. Either way, if the market moves against your position you make a loss, so both carry risk.

Every pair is quoted with two prices. The bid is the price at which you can sell, and the ask (or offer) is the price at which you can buy. The ask is always slightly higher than the bid. When you open a buy you pay the ask; when you sell you receive the bid. The gap between the two is the spread, an inbuilt cost of trading.

The spread is the difference between the bid (sell) price and the ask (buy) price of a currency pair, usually measured in pips. It is one of the costs associated with trading. When a position is opened, the market generally needs to move in the trader’s favour by at least the value of the spread before the position reaches break-even, excluding any other applicable costs such as commissions, financing charges (swaps), or fees.

Major currency pairs, such as EUR/USD, often have narrower spreads due to their higher trading activity and liquidity. Less frequently traded currency pairs may have wider spreads. Spreads can also widen during periods of increased market volatility, lower liquidity, or around significant economic announcements.

A lot is the standardised unit used to measure the size of a trade. A standard lot represents 100,000 units of the base currency, a mini lot represents 10,000 units, a micro lot represents 1,000 units, and a nano lot represents 100 units. The lot size determines the value of each pip movement: generally, the larger the lot size, the greater the value of each pip, which means both potential profits and potential losses increase accordingly. Choosing an appropriate lot size is an important part of managing trading risk.

In a currency pair such as EUR/USD, the first currency (EUR) is called the base currency, while the second (USD) is the quote currency. The exchange rate shows how much of the quote currency is needed to buy one unit of the base currency. For example, if EUR/USD is trading at 1.1000, it means 1 euro equals 1.10 US dollars. When you buy the pair, you are buying the base currency and simultaneously selling the quote currency. Conversely, when you sell the pair, you are selling the base currency and buying the quote currency.

A pip is the standard price increment for most currency pairs, typically the fourth decimal place (0.0001). The smallest price increment is a pipette (or point), which is one-tenth of a pip (0.00001). Pips are how traders measure price changes, profits and losses in a consistent way across pairs. Knowing your pip value, which depends on lot size, lets you work out what each movement is worth in money and helps you size positions and manage risk sensibly.