Glossary
Forex Glossary: 58 Trading Terms Explained
Every forex term you'll meet, in plain words. Tap a term for examples and related lessons.
A
- Ask
- The price at which you can buy a currency pair. Always higher than the bid.
B
- Base currency
- The first currency in a pair, for example EUR in EUR/USD. The quote shows how much of the second currency one unit of it costs.
- Bid
- The price at which you can sell a currency pair.
- Break of structure (BOS)
- A candle close beyond the last swing point in the direction of the trend, confirming continuation.
- Broker
- The company that gives you access to prices, executes your orders and holds your funds.
C
- Candlestick
- A chart bar showing the open, high, low and close of a period.
- Carry trade
- Buying a high-interest-rate currency against a low-rate one to earn the positive swap, as well as any price gain.
- CFD
- Contract for difference: a derivative that lets you trade price changes without owning the underlying asset.
- Change of character (CHoCH)
- The first break of structure against the current trend; an early reversal signal.
- Commission
- A fixed fee per lot charged on raw-spread or ECN accounts, in addition to the spread.
- Correlation
- How closely two markets move together, from −1 (opposite) to +1 (identical).
- Cross pair
- A pair of two major currencies that does not include the US dollar, such as EUR/GBP.
D
- Day trading
- Opening and closing positions within the same day, with no overnight holds.
- Divergence
- When price and an oscillator such as RSI move in different directions, a sign that momentum is changing.
- Dovish
- A central bank stance that favours lower rates or more stimulus. Usually negative for the currency.
- Drawdown
- The decline from an account's peak to its lowest point, in money or percent.
E
- ECN
- Electronic communication network: an execution model that matches orders with liquidity providers at raw spreads plus commission.
- Equity
- Account balance plus or minus the floating profit or loss of open positions.
- Exotic pair
- A major currency against an emerging-market currency, such as USD/TRY. Wider spreads and bigger swings.
- Expert Advisor (EA)
- An automated trading program for MetaTrader, written in MQL4 or MQL5.
F
- Fair value gap (FVG)
- A three-candle imbalance where the first and third candles' wicks do not overlap. Price often returns to fill it.
- Fibonacci retracement
- Levels at 23.6%, 38.2%, 50%, 61.8% and 78.6% of a swing, used to find pullback zones.
- Free margin
- Equity minus used margin: money available for new trades or to absorb losses.
- Fundamental analysis
- Analysing economic data, interest rates and news to judge a currency's value.
H
L
- Leverage
- Borrowed exposure that lets a small deposit control a larger position, for example 1:100.
- Limit order
- A pending order to buy below or sell above the current price.
- Liquidity
- How easily a market can be traded without moving the price. Also used for clusters of stop orders above highs and below lows.
- Long
- A buy position that profits when the price rises.
- Lot
- A standard trade size. One standard lot = 100,000 units of the base currency.
M
- Major pair
- One of the seven most traded pairs, all including the US dollar.
- Margin
- The deposit set aside as collateral to open and hold a leveraged position.
- Margin call
- A warning when your margin level falls to the broker's threshold; new trades are blocked.
- Market maker
- A broker that takes the other side of client trades rather than passing them to the market.
O
- Order block
- The last opposite candle before a strong move that breaks structure; a zone price often revisits.
P
- Pip
- The standard unit of price movement: 0.0001 for most pairs, 0.01 for yen pairs.
- Pipette
- A fractional pip, the fifth decimal (third on yen pairs).
- Position sizing
- Choosing a lot size so that a stop loss equals a fixed share of your account.
- Profit split
- The share of profits a funded trader keeps at a prop firm, for example 80%.
- Prop firm
- A proprietary trading firm that lets traders trade its capital after passing an evaluation, in exchange for a profit split.
Q
- Quote currency
- The second currency in a pair; prices are expressed in it.
R
S
- Scalping
- Very short-term trading aiming for small moves, often holding for seconds to minutes.
- Slippage
- The difference between the price you expected and the price you got, common in fast markets.
- Spread
- The difference between the bid and ask; the main cost of a trade.
- Static drawdown
- A prop firm loss limit fixed at a level below the starting balance that never moves.
- Stop loss
- An order that closes a trade at a set loss to cap risk.
- Stop out
- The margin level at which the broker automatically closes positions.
- Swap
- The overnight interest credited or charged for holding a position past rollover.
- Swing trading
- Holding trades for days to weeks to capture larger moves.
T
- Take profit
- An order that closes a trade at a set profit.
- Technical analysis
- Studying price charts, patterns and indicators to forecast moves.
- Trailing drawdown
- A prop firm loss limit that rises as the account makes new highs.
- Trailing stop
- A stop loss that follows price at a set distance to lock in profit.
- Trend
- The general direction of price: up (higher highs and lows), down, or sideways.
V
- Volatility
- How much and how fast price moves. Gold and GBP/JPY are known for high volatility.