FxPros.net -Forex Trading Glossary (A-Z)
Glossary of Forex Trading Terms
Explore the essential terminology used in Forex trading. Whether you're a beginner or an experienced trader, this comprehensive glossary is designed to clarify the key concepts that drive the world of currency exchange.
A
ADX (Average Directional Index)
A technical indicator used to quantify the strength of a market trend, regardless of its direction.
Appreciation (of a Currency)
Occurs when a currency gains value relative to another. This can be influenced by economic conditions, monetary policy, or market sentiment. A policy aimed at strengthening a currency is often referred to as a “hard-currency policy.” The opposite of appreciation is depreciation.
Arbitrage
A trading strategy that exploits price differences between markets by simultaneously buying in one and selling in another to lock in profit.
Ask and Bid
- Ask: The price at which you can buy an asset.
- Bid: The price at which you can sell it.
Example: Buy at 80.00 (bid), sell at 80.02 (ask).
Aussie
A slang term for the Australian Dollar (AUD).
B
Bank of Canada (BOC)
Canada’s central bank, responsible for implementing national monetary policy. ► Visit the Bank of Canada
Bank of England (BOE)
The UK’s central bank, tasked with managing the British monetary system. ► Visit the Bank of England
Bank of Japan (BOJ)
Japan’s central bank oversees monetary policy and financial stability.
Balance of Trade
Measures the difference between a country’s exports and imports. A positive balance indicates a trade surplus, while a negative one shows a trade deficit.
Bank Rate
The interest rate at which a country’s central bank lends to domestic banks. Used as a tool to manage the money supply.
Bar Chart
A common price chart showing price movements as vertical bars over time.
Base Currency
The first currency listed in a currency pair (e.g., in EUR/USD, the base currency is EUR).
Bear Market
A market characterized by falling prices and widespread pessimism.
Beige Book
A report published by the U.S. Federal Reserve offering insight into the economic conditions across the Fed’s districts.
Breakout
A significant price movement through established support or resistance levels, often leading to increased volatility and trading volume.
Broker
An intermediary who executes buy and sell orders on behalf of clients, often charging a fee or commission. ► How to Choose a Forex Broker
Brokerage
The service of executing trades for clients in exchange for compensation.
Bull Market
A market where prices are generally rising, often accompanied by investor optimism.
Bundesbank
Germany’s central bank, operating in coordination with the European Central Bank (ECB). ► Visit the Bundesbank
C
Cable
Forex slang for the GBP/USD currency pair.
Candlestick Chart
A charting method that displays the open, high, low, and close prices using candlestick shapes, originally developed in Japan.
Carry Trade
A strategy where a trader holds a currency position to benefit from interest rate differentials between currencies.
Cash Flow
The net amount of cash moving into and out of a business over a specific period, vital for assessing a company's liquidity and financial health.
Categories of Forex Pairs
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Majors: Most traded pairs (e.g., EUR/USD, GBP/USD).
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Minors: Less traded and often involve higher transaction costs.
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Exotics: Involve one major and one emerging-market currency—generally less liquid and more volatile.
CCI (Commodity Channel Index)
A momentum-based indicator used to identify overbought or oversold market conditions.
Central Banks
Government-authorized institutions that regulate monetary policy, manage currency issuance, and oversee the banking system.
CFD (Contract for Difference)
A derivative instrument allowing speculation on asset price movements without owning the underlying asset.
Chain Store Sales
An economic indicator tracking the sales performance of large retail chains.
Clearing Process
The mechanism of reconciling and settling trades between parties.
Collateral
Assets or capital pledged to secure a loan or trading position.
Trading Commission
Fees charged by brokers for executing trades. Some brokers profit instead from the bid-ask spread.
Confirmation (Technical Analysis)
Using one indicator to verify the signals provided by another.
Correction (Technical Analysis)
A temporary pullback in asset price after a strong movement—typically no more than 10% from the recent trend.
Counter Currency
The second currency in a pair, also known as the quote currency (e.g., in EUR/USD, USD is the counter currency).
CPI (Consumer Price Index)
A key inflation indicator measuring changes in the price level of a basket of consumer goods and services.
Currency Option
A derivative contract giving the right—but not the obligation—to exchange a set amount of one currency for another at a specific rate before a certain date.
Currency Pair
The quotation of two currencies in Forex trading, where one is bought and the other is sold.
Currency Rate
The price at which one currency can be exchanged for another.
Currency Symbol
A three-letter code representing a specific currency (e.g., USD, EUR).
D
Day Order
An order that is valid only for the current trading day.
Divergence
A situation in technical analysis where price movement differs from indicator trends, often signaling a potential reversal.
Double Top / Bottom
A reversal chart pattern signals a potential change in trend direction after price tests the same level twice.
E
Economic Indicator
A statistical measure that reflects economic performance or expectations (e.g., GDP, CPI, unemployment).
ECN Broker
A broker that provides clients with direct access to the interbank market, typically offering tighter spreads and faster execution.
Efficient Market Theory
The belief that all relevant information is already reflected in market prices.
European Central Bank (ECB)
The institution responsible for setting monetary policy in the Eurozone. ► Visit the ECB
Exchange Rate
The rate at which one currency is exchanged for another.
Expert Advisor (EA)
A software script used in trading platforms (e.g., MetaTrader) to automate trading based on predefined strategies.
F
Federal Reserve (Fed)
The central bank of the United States responsible for monetary policy, interest rates, and financial system stability. ► Visit the Fed
Flat Market
A market with low volatility and no clear direction—common during holidays or low-volume periods.
Fibonacci Retracement
A popular technical tool identifying potential support and resistance levels using Fibonacci ratios (e.g., 23.6%, 38.2%, 61.8%).
Forex (Foreign Exchange)
The global marketplace for buying and selling currencies. Also known as FX.
Free Float
The portion of a company's shares available to the public for trading.
Fundamental Analysis
A trading approach that evaluates economic, financial, and geopolitical factors to predict future market movements.
G
G8
Group of Eight: A coalition of the world’s leading industrial nations.
Gap
A price difference between two consecutive trading sessions, typically caused by major news or market closures.
GDP (Gross Domestic Product)
A measure of a country’s total economic output over a specified period.
GNP (Gross National Product)
GDP plus income from abroad.
Greenback
Forex slang for the U.S. Dollar.
H
Hard-Currency Policy
A monetary strategy aimed at strengthening a country’s currency, often involving higher interest rates.
Hedge Funds
Private investment funds that use various strategies to earn active returns for their investors.
Hedging
A risk management strategy used to offset potential losses in an investment by taking an opposite position.
Home Sales Indicator
Tracks the number of home resales in the secondary real estate market.
Housing Starts and Permits
Indicators measuring new residential construction and approved building permits.
I
IFO
An index measuring German business confidence, published by the IFO Institute. ► Visit the IFO Institute
Industrial Production Index
Measures the total output of a nation’s industrial sector.
Interbank Rates
Interest rates that banks charge each other for short-term loans.
Intraday High / Low
The highest and lowest prices reached during a single trading session.
Intraday Trading
Also called day trading—buying and selling assets within the same day.
Inflation
An economic condition where prices for goods and services rise, reducing purchasing power.
J
Japanese Economy Watchers Survey
A key economic survey assessing business sentiment in Japan.
Japanese Machine Tool Orders
Measures total orders placed with Japanese machine tool manufacturers—an indicator of industrial demand.
Jobless Claims
Reports the number of people filing for unemployment benefits.
JPN225
Forex ticker symbol for the Nikkei 225, Japan’s major stock index.
K
Kiwi
Forex slang for the New Zealand Dollar (NZD).
Knock-In Strategy
An options strategy where an option becomes active only if the underlying asset hits a predetermined price.
L
Leading Indicators
Economic indicators that tend to change before the economy begins to follow a particular trend.
Leverage
Using borrowed capital to increase potential returns. In Forex, leverage ratios can be as high as 200:1.
Liquid Market
A market with high trading volume and tight spreads—ideal for active trading.
Go Long
To buy an asset, anticipating that its price will rise in the future. The opposite is to go short.
Lot
The standard unit of a trading contract. In Forex:
- Micro Lot = $1,000
- Mini Lot = $10,000
- Standard Lot = $100,000
M
Margin / Margin Call
Margin refers to the minimum capital a trader must maintain in their account to support open positions. If losses reduce the account equity below required levels, a Margin Call occurs—prompting the trader to deposit more funds or close positions to restore the margin balance.
Momentum
Momentum is a technical indicator used to measure the rate of price change in a financial instrument. Strong momentum typically suggests a continuation of the current trend.
Moving Average (MA)
A Moving Average smooths out price data to help identify trends over time. Common types include:
- Simple Moving Average (SMA)
- Exponential Moving Average (EMA)
- Weighted Moving Average (WMA)
- Cumulative Moving Average (CMA)
Popular timeframes include the 50-day and 200-day moving averages.
N
Net Factory Orders
This indicator tracks changes in new industrial orders and reflects business investment confidence.
Nonfarm Payrolls (NFP)
Released monthly by the U.S. Bureau of Labor Statistics, the NFP measures employment excluding the farming sector. It is a key economic indicator and often causes significant market volatility.
O
Old Lady
A slang term used to refer to the Bank of England (BOE).
Open Order
An order that remains active until it is either executed or canceled.
Open Position
An active trade that is not yet closed. Traders maintain open positions to speculate on price changes.
Oscillator
A category of technical analysis indicators that fluctuates within a bounded range, commonly used to identify overbought or oversold market conditions.
Output Index
Measures the production output of a country’s industrial sector over a specific period.
P
PAMM Account (Percentage Allocation Management Module)
A type of account where investors allocate their capital to a professional trader (Money Manager) who manages the funds collectively. Traders earn a percentage of profits while maintaining transparency and fund security.
Personal Spending Indicator
This macroeconomic indicator measures changes in individual consumer expenditures. Rising personal spending generally signals economic growth and potential inflation.
Pip (Percentage in Point)
A Pip represents the smallest change in the exchange rate of a currency pair. For most pairs, 1 pip equals 0.0001.
Example: If EUR/USD moves from 1.1000 to 1.1001, it has moved 1 pip.
Pivot Point
A technical indicator derived from the average of the high, low, and close from the previous trading session. It is used to identify support and resistance levels.
PPI (Producer Price Index)
PPI measures the average change in selling prices received by domestic producers. It’s an early indicator of inflationary trends.
Premium
The amount by which a forward or future price exceeds the spot price. It can also refer to the price paid for an option contract.
Price Channel
A technical pattern formed by two parallel trendlines, which contain the price movement of an asset within a rising, falling, or horizontal range.
Q
Quotation / Quote
A quotation or quote is the current price at which a currency pair can be bought or sold.
Quote Currency
The second currency in a currency pair. In the pair EUR/USD, the USD is the quote currency and represents the value of 1 Euro in USD terms.
R
Retail Price Index (RPI)
An inflationary indicator that measures the change in the cost of a fixed basket of retail goods and services.
Rollover
In Forex trading, rollover refers to the interest earned or paid for holding a position overnight. It can also refer to extending a contract’s expiration date.
RSI (Relative Strength Index)
A momentum oscillator that measures the speed and change of price movements.
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Overbought: RSI above 70
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Oversold: RSI below 30
S
Scalping
A trading strategy that involves making numerous quick trades to exploit small price movements. Scalpers aim for 5–20 pips per trade, often holding positions for seconds or minutes.
Slippage
The difference between the expected price of a trade and the price at which it is executed. Slippage often occurs in fast-moving or illiquid markets.
Spot
A spot transaction is a trade settled "on the spot," typically within two business days.
Spread
The difference between the Bid (sell) and Ask (buy) price of a currency pair. Spreads are a primary cost of trading in Forex.
Square
A trader is said to be square when all positions are closed and there is no market exposure.
T
Take Profit (TP)
A pre-set order that closes a trade once a specific profit level is reached.
Technical Analysis
The use of historical price data, charts, and indicators to forecast future price movements.
Tick
A tick is the smallest possible price movement in a financial instrument.
Trading Volume
Refers to the number of units traded during a given timeframe, indicating the strength or weakness of a price move.
Trend
A trend is the general direction in which the market is moving—either uptrend, downtrend, or sideways.
U
Unemployment Rate
An important economic indicator that measures the percentage of the workforce that is unemployed and actively seeking work.
Uptick
A trade executed at a higher price than the previous transaction. Indicates a rising market.
V
Volatility
Refers to the degree of variation in the price of a financial instrument over time. High volatility usually equates to higher risk and opportunity.
W
Whipsaw
A market condition where the price rapidly moves in one direction and then suddenly reverses. It can trap traders and trigger stop-loss orders.
Working Order
An order to buy or sell a financial asset at a predetermined price, which remains pending until it’s filled or canceled.
X, Y, Z
Yield
The return on an investment, typically expressed as a percentage. In Forex, yield is often related to interest rate differentials between currencies.
ZAR
The currency symbol for the South African Rand.
■ Forex Trading Glossary
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