Forex Glossary

Forex Glossary

The most important financial terms from A to Z.

A

ADX (Average Directional Index)
A standard technical indicator that measures the strength of a trend.

Arbitrage
The simultaneous buying and selling of a currency in different markets to profit from price discrepancies.

Ask Price
The price at which a currency pair can be bought.

ATR (Average True Range)
A standard technical indicator that measures the currency pair's volatility.

Aussie
A Forex slang name for the Australian dollar.

B

Balance
The total amount of money in a trading account before any open positions.

Bank Rate
The percentage rate at which central bank of a country lends money to the country's commercial banks.

Base Currency
The first currency in a currency pair.

Bear Market
A market condition in which prices are generally falling.

Bid / Price Sell
Price of the demand, the price you sell for.

Breakout
A situation where the price moves beyond a defined support or resistance level.

Broker
A firm or individual that facilitates the buying and selling of currencies for traders.

Bull Market
A market condition in which prices are generally rising.

C

Cable
A Forex traders slang word GBP/USD currency pair (Great Britain pound vs. US dollar).

Candlestick
A charting method displaying the high, low, open, and close prices of a security for a specific period.

Carry Trade
In Forex, holding a position with a positive overnight interest return in hope of gaining profits without closing the position in order to gain from the central banks interest rates difference.

CCI (Commodity Channel Index)
A cyclical technical indicator that is often used to detect overbought/oversold states of the market.

Central Bank
A national bank that manages a country’s currency, money supply, and interest rates.

CFD
A Contract for Difference, special trading instrument that allows financial speculation on stocks, commodities, and other instruments without actually buying or selling those assets.

Commission
A fee charged by a broker for executing a trade.

Correlation
The relationship between two currency pairs, showing how they move in relation to each other.

CPI
Consumer Price Index, a statistical measure of inflation based upon changes of prices of a specified set of goods.

Cross Currency Pair
A currency pair that does not include the US dollar (e.g., EUR/GBP).

Currency Pair
Two currencies that are traded in forex (e.g., EUR/USD).

D

Day Trading
Opening and closing trades within a single trading day.

Drawdown
The difference between the peak and the lowest point of a trader’s capital, indicating potential losses.

E

EA (Expert Advisor) or Robot
An automated script that is used by the trading platform software to manage positions and orders automatically without (or with little) manual control.

ECB (European Central Bank)
The main regulatory body of the eurozone's financial system.

ECN Broker
A type of Forex brokerage firm that provide its clients direct access to other Forex market participants. ECN brokers do not discourage scalping, do not trade against the client, do not charge spread (low spread is defined by the current market rates) but instead charge commission for every executed order.

Economic Calendar
A tool listing upcoming economic events and data releases that may impact currency markets.

Elliott Waves
A set of principles for chart analysis based on 5-wave and 3-wave patterns.

Equity
The total value of a trader’s account, including the current balance and any unrealized profits or losses.

F

Fed (Federal Reserve)
The main regulatory body of the United States of America financial system, whose division — FOMC (Federal Open Market Committee) — regulates, among other things, the federal interest rates.

Fibonacci Retracements
Levels with a high probability of trend break or bounce, calculated as the 23.6%, 32.8%, 50%, and 61.8% of the trend range.

Fibre
A Forex traders slang word EUR/USD currency pair (euro vs. US dollar).

Flat (Square)
Neutral state when all your positions are closed.

Floating Leverage
A leverage that changes depending on the total size of open positions.

Fundamental Analysis
An analysis method using economic indicators and news events to predict currency movements

G

Gap
A difference between the previous period's close price and the next period's open price. In Forex, usually only occurs during weekends — between the Friday's close and the Monday's open price.

GDP (Gross Domestic Product)
A measure of the national income and output for the country's economy; it is one of the most important fundamental indicators in Forex.

GTC (Good 'Til Canceled)
An order to buy or sell of a currency at a fixed rate or worse. The order is alive (good) until its execution or cancellation.

H

Hedging
Maintaining a market position which secures the existing open positions in the opposite direction.

J

Jobber
A slang word for a trader who is aimed toward fast but small and short-term profit from intraday trading. Jobber rarely leaves open positions overnight.

K

Kiwi
A Forex slang name for the New Zealand currency — the New Zealand dollar.

L

Leading Indicators
A composite index (year 2010 = 100%) of ten most important macroeconomic indicators that predicts future (6-9 months) economic activity.

Leverage
Borrowed capital that allows a trader to open larger positions.

Limit Order
An order for a broker to buy a lot for fixed or lesser price or sell a lot for fixed or better price. Such price is called a limit price.

Liquidity
A measure of markets that describes relationship between the trading volume and the price change.

Liquidity Provider
An entity, usually a bank or financial institution, that supplies liquidity to the forex market.

Long Position
A position which is in a Buy direction. In Forex, the primary currency when bought is long and another is short.

Loss
A loss from closing a long position at a lower rate than opening or from closing a short position with a higher rate than opening. Loss may also occur if the profit from a position's closing was lower than the broker's commission on it.

Lot
A definite amount of units or amount of money accepted for operations handling (usually, it is a multiple of 100).

Lot Size: The volume of a trade, usually in units of the base currency.

M

Margin
Money that the investor needs to keep at a broker's account to execute trades. Margin supplies the possible losses that may occur in margin trading.

Margin Account
An account that is used to hold investor's deposited money for trading.

Margin Call
A broker's demand to deposit more margin money to the margin account when its size falls below a certain minimum.

Market Order
An order to buy or sell a lot at a current market rate.

Market Price
A current rate, at which the currency is traded in the market.

Martingale
A position sizing strategy that involves doubling the bet after each loss.

Momentum
A measure of the currency's ability to move in a given direction.

Moving Average (MA)
One of the most basic technical indicators. It shows the average rate calculated over a series of time periods. Exponential moving average (EMA), weighted moving average (WMA), adaptive moving average (AMA), etc. differ by the way of weighing rates and periods in calculation.

O

Offer (Ask)
A rate of the offer — the rate you buy for.

Open Position (Trade)
A position on buying (long) or selling (short) of a currency pair.

Order
An order for a broker to buy or sell a currency at a certain rate.

Over-the-Counter (OTC)
A decentralized market where trading is done directly between parties without a central exchange.

P

Percentage Allocation Management Module (PAMM)
A broker-side system that allows investors to invest with traders, and allows traders to manage investors' funds using the broker's platform.

Pivot Point
A primary support/resistance point calculated based on the previous trend's High, Low, and Close rates.

Pip (Point)
The last digit in a currency rate (e.g., for EUR/USD, 1 point = 0.0001). The smallest price movement in a currency pair.

Position Size
The total size of a trader’s open positions in the market.

Position Trading
A long-term strategy that involves holding trades for weeks, months, or years.

Profit (Gain)
A positive amount of money gained for closing the position.

Prop firm
A proprietary trading firm (or a scouting firm) is a company that provides funds for financial traders to trade with. In other words, a prop firm trades with its proprietary funds. In retail FX trading, prop firms allow profitable traders earn substantial gains without risking too much of traders' own money.

Principal Value
The initially invested amount of money.

Q

QE (Quantitative Easing)
A monetary policy employed by central banks. It involves buying and holding the financial assets from the country's financial institutions to provide money supply and keep the prices of those financial assets from falling.

Quote Currency
The second currency in a currency pair.

R

Realized Profit/Loss
A gain or loss of an already closed position.

Resistance
A price level where an uptrend can pause due to selling interest.

Risk Management
Strategies to minimize potential trading losses.

Risk-to-Reward Ratio
A measure used to assess the potential profit of a trade relative to the potential loss.

RSI (Relative Strength Index)
A technical indicator that measures the power of a directional price movement by comparing the bullish and bearish portions of the trend.

S

Scalping
Making numerous small trades to profit from minor price changes.

Settled (Closed) Position
A closed position, for which all needed transactions have been made.

Short Position
Selling a currency pair, expecting its value to fall.

Stop Loss
An order to automatically close a position to limit losses

Slippage
Execution of an order at a rate different from expected (ordered). The main reasons for slippage are "fast" market, low liquidity, and poor execution quality by broker.

Spread
The difference between the bid and ask price.

Standard Lot
100,000 units of the base currency of a currency pair you are buying or selling.

Stop-Limit Order
An order to sell or buy a lot at a certain rate or worse after it first reaches some opposite price level. It is a combination of a stop-order and a limit-order.

Stop-Loss Order
An order to close a position when the market reaches a certain rate. Normally, it is used to avoid extra losses when the market moves in the opposite direction. Sometimes, it can be used to lock in some amount of profit

STP (Straight Through Processing)
A type of order processing that does not require any manual intervention and is fully automatic. In fact, 90% of all online Forex brokers support order handling with STP.

Support
A price level where a downtrend can pause due to buying interest.

Swap
An overnight payment for holding a position in Forex. Since you are not physically receiving the currency you buy nor delivering the currency you sell, the broker should pay or charge an interest rate difference between the pair's two currencies. Swaps can be be negative or positive.

Swing Trading
A medium-term strategy capturing price swings over days or weeks.

T

Take-Profit Order
An order to close a position when the market reaches a certain price. It is used to realize your profit.

Technical Analysis
A analysis method based only on the technical market data (rates, time, and volume) with the help of various technical indicators.

TP
An order to automatically close a position to secure gains.

Trailing Stop-Loss
A stop-loss level that is moved closer to the current market rate as the position's loss decreases or its profit increases.

Trend
The overall direction in which the market is moving.

U

Unrealized (Floating) Profit/Loss
Profit/loss on your open positions.

Usable Margin (Free Margin)
Amount of money in a margin account that can be used for trading.

Used Margin
Amount of money in a margin account already used to hold open positions.

V

Volatility
The degree of variation in the price of a financial instrument.

VPS (Virtual Private Server)
A virtual environment hosted on a dedicated server that can be used to run the programs independent on the user's PC. Forex traders use VPS to host trading platforms and run expert advisors without unexpected interruptions.

VSA (Volume Spread Analysis)
A chart analysis method that focuses on the trading volume and the price range.