Master the language of trading with our comprehensive glossary. From basic terms to advanced concepts, we've got you covered.
There is no denying that Forex trading carries a wealth of positives, but that doesn't stop it from being confusing to those who are embracing the Forex market for the first time. What many novice traders will likely find is a wealth of countless terms and phrases being thrown in their direction. Thankfully, help is now at hand to help you get up to speed. The following is a complete glossary of Forex terms, which provides key definitions in the simplest way possible.
The act of taking advantage of countervailing prices within different markets through the sale or purchase of a currency. Thus, simultaneously taking an equal and opposite position in a related market to profit from small price differentials.
"Ask" (or "ask price") is a term used to describe the price at which a trader accepts to buy a particular currency.
"Asset" refers to an item or resource of value, such as a currency or currency pair.
Within a currency pair, the first currency listed is known as the "base currency". For example, when it comes to the GBP/USD pairing, the GBP functions as the base currency.
The term "bear market" is used to describe the price of an asset, currency, or security that is in decline. "Bear market" can also be shortened to simply "bear", while the term "bearish" is also used to describe a declining market.
The opposite of a bear market, this term describes when the price of an asset, currency, or security is rising. The terms "bull" and "bullish" are used to describe upward market momentum.
"Bid" (or "bid price") is the term used to describe the price at which a trader is willing to sell a particular currency.
A buy limit order is an order to push through a transaction at a specified price or lower, with the term "limit" referring to the price threshold.
Relates to when an investor borrows at a lower-than-average interest rate in order to buy assets that can potentially produce higher interest rates.
Closing a position means bringing a transaction to an end, incurring any related profits or losses as a result.
The nucleus of the forex market, a currency pair is what's being traded within any forex transaction. Currency pairs take on various forms, with most pairs labelled "major", "minor", or "exotic". For example, GBP/USD qualifies as a major currency pair.
Currency futures are contracts that state the price that a currency can be sold or bought for at a predetermined future date. Future contracts are a widely-used hedging tool amongst traders.
A forex trade that is opened and closed on the same day.
A demo account is a forex trading account that makes use of virtual funds. This allows any trader to explore the market, making trades in an environment that doesn't involve the use of any real capital.
The volume of active buying and selling orders placed for a currency, covering a wide degree of prices.
When the price of a currency dips, the difference between the peak and the new low is labelled the "drawdown".
A distinct type of broker that makes use of Electronic Communications Networks (ECNs) to provide clients with access to liquidity providers.
Representing what the forex market is built upon, the exchange rate is the cost at which one currency can be traded for another.
This term refers to when a trade is put in motion and subsequently completed.
"Exposure" is a term used to address the amount invested in a currency and its associated market risks.
Addresses the completion of an order, along with the price that it has been completed at.
A term used to describe any exchange rate that is currently not fixed. A floating exchange rate tends to fluctuate dependent on the supply and demand of a particular currency relative to other currencies.
A notable trading strategy based upon the idea that if you open and close a trade within a short space of time, you are likely to earn profit rather than through large price movements — representing, the "little and often" approach.
The act of determining the impact that key political and economic events (unemployment rates, interest rate announcements, etc.) have on the forex market, used to predict future market direction.
A hard currency is one that is often most resilient in times of political and economic instability and thus is generally considered to be dependable. For example, GBP, USD, and EUR are well-known hard currencies.
A method of trading used to protect an investor by reducing the risk associated with volatile markets. Hedging requires the trader to make two independent investments that work to balance each other out, minimizing the loss from price fluctuations.
Leverage allows traders to maximize their trading potential by controlling a larger position size with a smaller amount of capital. Expressed as a ratio (e.g., 1:50, 1:100, or 1:500), it indicates how much more exposure a trader has compared to their actual investment. While leverage can enhance returns, it also increases potential losses.
The amount (or volume) of a set currency currently available for active trading.
Opposite of a short position, any investor who takes a long position buys a base currency with a view to profiting on a market price increase.
A lot is a standardised quantity of the currency you are choosing to trade with, with one lot equalling 100,000 units of a particular currency.
"Margin" refers to the amount of account balance required in order to maintain an open position.
An alert that notifies you that you need to make an additional deposit in order to increase your margin to keep remaining positions active.
For those who want to trade instantaneously, a market order is an order for a trade to be executed immediately at the best price available.
Standing for "percentage in point", it represents the smallest possible price change that can occur within an exchange rate. A currency is often presented to four decimal points, with the smallest alteration in price occurring within the final decimal.
Closing a forex position as a means to collect the related profit.
"Rally" references a currency's recovery in price after a period of either short-term or long-term decline.
The price level that a currency finds difficult to go beyond. In such instances, a currency will consistently knock on a price ceiling, only to see a decline begin when it isn't able to break above it.
Traders must adopt risk management as a means to protect capital. Risk management practices usually take on the form of related strategies and tools that work to limit the financial risk as much as possible.
Opposite of a long position, this involves taking a position that benefits from a currency's decline in market price. When the base currency within the pair is sold, the position is assumed to be short.
Spread represents the difference between the bid (selling) and ask (buying) price of a trading instrument. It's a direct cost of trading — the tighter the spread, the lower the cost. Types include Fixed Spread and Variable Spread.
A market order to either buy or sell a currency when it hits a certain price. Generally, a stop-loss order is placed in order to control losses occurring in a set position.
A financial arrangement or interest adjustment that occurs when a trader holds a position overnight. Traders may either earn or pay a swap depending on the interest rate differential of the currencies involved.
A market order that stipulates that a position is to be closed once it hits a predetermined price or price range, thus taking all generated profit.
Investors use technical analysis as a means to forecast future price changes within the forex market by sifting through current and prior market data via trading indicators, charts, and other related tools.
This addresses the degree of uncertainty (and related price fluctuations) of a security, currency pair, or specific currency. It can also describe the state of the forex market as a whole.
"Yield" is a term that refers to the return on any forex investment made, usually displayed as a percentage figure within a trading platform.
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