Forex Glossary

Here are some of the most common terms used in FOREX trading.

A

1. Arbitrage – The simultaneous buying and selling of a currency to profit from a difference in the price in different markets.
2. Ask Price – Also known as the Offer Price, it is the price at which traders can buy currencies.
3. Automated Trading – Trading platforms that use algorithms to find optimal trading opportunities.

B

4. Backtesting – The process of testing a trading strategy on prior time periods.
5. Bar Chart – A type of chart used in technical analysis to represent price activity for a specific time period.
6. Base Currency – The first currency in a currency pair, representing how much the base is worth in the second currency in the pair.
7. Bear Market – A market characterized by declining prices for securities.
8. Bid Price – The price a trader can sell currencies at.
9. Bid/Ask Spread – The difference between the bid and the ask price in a currency quotation.
10. Bollinger Bands – A volatility band plotted two standard deviations away from a simple moving average.
11. Breakout – A price movement through an identified level of support or resistance.
12. Bull Market – A market characterized by rising prices for securities.
13. Buying Power – The amount of money that is available to be used for trading.

C

14. Candlestick Chart – A chart that displays the high, low, opening, and closing prices for each period being analyzed.
15. Carry Trade – A strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate.
16. Central Bank – A national bank that provides financial and banking services for its country's government and commercial banking system.
17. Chart Pattern – A graphical representation of price movements in a market.
18. Commodities – Basic goods used in commerce that are interchangeable with other goods of the same type.
19. Cross Currency – A currency pair that does not include the US dollar.
20. Currency Pair – Involves two currencies in a Forex transaction.
21. Currency Swap – A foreign-exchange agreement to swap specified amounts of currencies at a specified date or dates in the future.

D

22. Day Trading – A strategy involving making multiple trades within a single day.
23. Dealer – An individual or firm in the financial markets that is involved in the trading of securities.
24. Depreciation – A decrease in a currency value in terms of other currencies.
25. Derivatives – Financial contracts that derive their value from an underlying asset.
26. Divergence – In technical analysis, a situation where price and momentum are not confirming each other.
27. Drawdown – The decline in an investment or fund.

E

28. Economic Calendar – A calendar used by traders for the purpose of tracking the occurrence of market-moving events.
29. Economic Indicator – A government-issued statistic that indicates current economic growth and stability.
30. ECN Broker – A type of brokerage that uses an electronic communication network to give its clients direct access to other participants in the currency markets.
31. Elliot Wave Theory – A method of technical analysis that looks for recurrent long-term price patterns related to persistent changes in investor sentiment and psychology.

F

32. Fibonacci Retracement – A tool used in technical analysis to identify potential support and resistance levels.
33. Forex Signal – A suggestion for entering a trade on a currency pair, usually at a specific price and time.
34. Fundamental Analysis – Analysis of political and economic conditions to predict currency prices.

G-H

35. Gap – A break between prices on a chart that occurs when the price of a stock makes a sharp move up or down with no trading occurring in between.
36. Hedging – Making an investment to reduce the risk of adverse price movements in an asset.
37. High-Frequency Trading (HFT) – A program trading platform that uses powerful computers to transact a large number of orders in fractions of a second.

I-K

38. Inflation – The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.
39. Initial Margin Requirement – The initial deposit required to open a position.
40. Interbank Market – The foreign exchange market where banks trade currencies.
41. Interest Rate Differential (IRD) – The difference in interest rates between two currencies.
42. IPO (Initial Public Offering) – The first time a company offers shares of stock to the public.
43. Japanese Candlesticks – A style of financial chart used to describe price movements.
44. Keltner Channel – A volatility based trading indicator that creates a band around the average price.

L

45. Leverage – The use of borrowed funds to increase an investment's potential return.
46. Liquidity – The ability of an asset to be converted into cash quickly and without any price discount.
47. Long Position – Buying a security with the expectation that it will increase in value.
48. Lot – The standard number of units in a trading security.

M-O

49. Margin – Borrowed money that is used to purchase securities.
50. Market Maker – A dealer in securities or other assets who undertakes to buy or sell at specified prices at all times.
51. Moving Average – An indicator used in technical analysis to smooth out price action.
52. Open Position – Any trade that has been established or entered into, but which has not yet been closed with an opposing trade.
53. Oscillator – A technical analysis indicator that varies over time within a band.
54. Overbought – A situation in which the price of a currency has risen higher than usually justified by the underlying fundamentals.
55. Oversold – A situation in which the price of a currency has fallen lower than usually justified by the underlying fundamentals.

P

56. Pip – The smallest price movement that a currency can make based on market convention.
57. Position Trading – A trading strategy where an investor holds a position for a long period.
58. Proprietary Trading (Prop Trading) – When a financial firm trades for direct market gain rather than earning commission dollars by trading on behalf of clients.
59. Pullback – A falling back of prices from their peak, often used to describe a decrease following a peak in prices.
60. Purchasing Managers Index (PMI) – An indicator of the economic health of the manufacturing sector.

Q-R

61. Quantitative Trading – Trading strategies based on quantitative analysis.
62. Range Trading – A trading strategy that identifies stocks trading in channels.
63. Resistance – A price level where selling of a security is deemed strong enough to prevent the price from rising any further.
64. Retail Sales – An aggregated measure of the sales of retail goods over a stated time period, based on a data sampling that is extrapolated to model an entire country.
65. Risk Management – The process of identifying and evaluating risks and then taking steps to mitigate them.
66. Rollover – The process of extending the settlement time of spot deals to the current delivery date.

S

67. Scalping – A trading strategy that involves making dozens or hundreds of trades in a single day to "scalp" a tiny profit from each.
68. Short Selling – Selling a security that the seller does not own, in the hope that the price will decrease.
69. Slippage – The difference between the expected price of a trade and the price the trade actually executes at.
70. Spot Market – A public financial market in which financial instruments or commodities are bought and sold for cash and delivered immediately.
71. Stochastic Oscillator – A momentum indicator comparing a particular closing price of a security to a range of its prices over a certain period of time.
72. Stop-Loss Order – An order placed with a broker to buy or sell once the stock reaches a certain price.
73. Support – A price level where a downtrend can be expected to pause due to a concentration of demand.
74. Swing Trading – A style of trading that attempts to capture gains in a stock within one to four days.

T

75. Technical Analysis – A trading discipline employed to evaluate investments and identify trading opportunities in price trends and patterns seen on charts.
76. Tick – A measure of the minimum upward or downward movement in the price of a security.
77. Trading Range – The spread between the high and low prices traded during a period of time.
78. Trend – The general direction of a market or of the price of an asset.

U-V

79. Unemployment Rate – A measure of the prevalence of unemployment and it is calculated as a percentage by dividing the number of unemployed individuals by all individuals currently in the labor force.
80. Volatility – A statistical measure of the dispersion of returns for a given security or market index.
81. Volume – The number of shares or contracts traded in a security or an entire market during a given period.

W-Z

82. Whipsaw – A condition where a security's price heads in one direction, but then is followed quickly by a movement in the opposite direction.
83. Yield – The income return on an investment, such as the interest or dividends received from holding a particular security.