If you need a forex glossary to find out some key forex terminology, you’ve come to the right place. This page goes through 100 common pieces of forex terminology that every trader should know.
Algo trading or algorithmic trading is the use of a script or computer program to open and close trades automatically, based on pre-determined parameters.
The Asian session (or Sydney session or Tokyo session) is a time period in which most of the forex trading in Asia, Australia, and New Zealand takes place. The Tokyo session is from 1900 to 0400 EST or 2300 to 0800 UTC. The Sydney session is 1700 to 0200 EST or 2100 to 0600 UTC.
Average True Range (ATR)
Average True Range or ATR is a chart indicator for measuring volatility, i.e., how much something changes price.
Balance refers to the amount of money in a trader’s account, excluding the sum of any profits and losses from open trading positions (equity). When a trader has no positions open, the account balance will be the same as account equity.
The base currency is the first currency in a currency pair. For example, in AUD/USD, the Australian Dollar is the base currency. You are using the base currency to buy the second currency – the quote currency. The exchange rate tells you how many units of the quote currency you receive for each unit of the base currency.
If something is bearish, it is characterized by a falling price.
Bollinger bands are a technical indicator. They measure the volatility of an instrument. When the price doesn’t change very much, the bands are close together. When the price is volatile, the bands are far apart. Bollinger bands can also be used to indicate whether the market is overbought or oversold.
Breakeven typically refers to the entry price of a trade, or a price slightly higher or lower than the entry price in order to accommodate for the cost of commission or swap fees. If you set a trade to breakeven, it means that you change the stop loss so that if the price on a winning trade falls back on itself, the trade will close without causing you to have lost any money. Setting breakeven is a common risk-management strategy to prevent losses and make a trade risk-free.
A breakout is when the price of an instrument breaks through a previously identified level of support or resistance on a chart.
If something is bullish, it is characterized by an increasing price.
A type of pending order where a trader expects the price to fall to a certain point, which activates the trade, and then subsequently rise.
A type of pending order where a trader expects the price to rise to a certain point (which activates the trade) and then keep rising.
A candlestick is a way of displaying the price of an instrument over time. It consists of a body and two wicks. The top and bottom of the body indicate the price at the opening and at the close of the trading period. The top and bottom of the wick indicate the highest and lowest price during that time period. The time period itself is defined by the chart. So for example, on an H4 chart, each candle or candlestick shows how the price of an asset behaved in a 4-hour period.
Commission is a fee paid to the broker for taking out a trade. It is typically given as a sum of money per standard lot traded. For example, on a trading account in US dollars, a broker might charge $5 for each lot traded.
A raw material, such as gold, silver, or crude oil. Another term for the exchange of commodities is comex.
A confluence is the simultaneous occurrence of one or more things, such as indications on a chart, which indicates to a trader a potentially good opportunity for entering the market, based on their strategy.
Copytrading typically refers to copying another trader. This could be either individual trades or their entire strategy. The trader may send trading ideas and suggestions known as signals for other traders to copy.
Copy trading may refer to copying these signals automatically such as via a Telegram to MT4 copier. Alternatively, it may refer to copying one’s own trades between multiple instances of a trading platform. Check out our page on a free MT4 to MT4 copier.
A crossover occurs when the price of an instrument crosses over an indicator on a chart, or when two or more indicators themselves cross over each other. Depending on the strategy, this may indicate the start of a new trend. An obvious example of this is a moving average crossover. Check out one of our pages on this topic: Easy Forex Strategy: Here’s the simplest one you’ll find
Crypto or cryptocurrency refers to any kind of currency that is stored digitally, secured via cryptography, and doesn’t have a regulating body, such as a bank or licensed financial authority. Cryptocurrency transactions are processed and recorded on a decentralized ledger known as a blockchain.
A currency pair consists of two currencies. The first is the base currency; the second is the quote currency. The price is how many units of the quote currency you receive in exchange for one unit of the base currency.
Divergence is when the price of an instrument, and a trend indicator such as an RSI (Relative Strength Index), start to move in opposite directions. Depending on the trading strategy, a divergence may be indicative of a new trend and a good trading opportunity.
A Doji candle is a type of chart candlestick that is characterized by a very short body in relation to its wicks. Doji is Japanese for “same thing”, and it shows that the price moved very little within the given time period. Depending on the strategy, this could indicate a new trend or opportunity.
Drawdown refers to how much money a trader has lost, measured from the highest point to the next lowest point. It is typically expressed as a percentage. If a trader has a $10,000 account, and a series of losing trades bring the account down to $9,200, then this is a drawdown of 8%
An engulfing candle or an engulfer is a type of candlestick that is significantly larger than the previous one. Its body completely engulfs the body of the previous candle. A bullish engulfing candle or a bearish engulfing candle can be a sign that a trend in the market is reversing
Equity refers to the amount of money in a trading account, plus or minus the cost of any open trades and their fees. For example, if a trader has an account balance of $10,000 but they have an open trade that is running at a $200 gain, then the account equity is $10,200.
The exchange rate is how much you will pay for the quote currency with one unit of the base currency. For example, with the currency pair USD/JPY, if the exchange rate is 136.78, this means that each US dollar will buy you 135.78 Japanese Yen.
An exotic pair is a currency pair that typically contains the US dollar and the currency of an emerging market. This is typically the currency of a country in Asia, Africa, or Europe. Some examples of popular exotic pairs are USD/SEK (Swedish Krone), USD/ZAR (South African Rand), and USD/MXN (Mexican Peso). Exotic pairs tend to have higher spreads and lower liquidity
In MetaTrader 4 and 5, an Expert Advisor is a program that can carry out trades automatically, based on pre-determined conditions and a pre-determined strategy.
Exponential Moving Average
Fakeout or a false breakout is what happens when the price of an instrument deviates from a pattern that has been identified on a chart, but then moves back to within that pattern.
In forex trading, Fibonacci levels are used to plot potential support and resistance levels on a chart in order to indicate where the price of an instrument could change direction.
If a trader is flat or going flat, it means they do not have a trading position in the market.
FOMC stands for the Federal Open Market Committee. It’s a panel of twelve people: the seven members of the Board of Governors of the US Federal Reserve System, the president of the US Federal Reserve Bank in New York, and four of the remaining 11 Reserve Bank presidents who serve one-year rotating terms. The FOMC holds eight meetings per year for discussing financial and economic conditions, such as interest rates. Like NFP, FOMC meetings and press conferences tend to have a sharp impact on currency pairs and commodities featuring the US dollar, and US indices.
A forex rebate is a form of cashback where a trader receives some money back for each of their trades. The rebate is usually calculated as an amount of money per lot traded, or as a proportion of the spread in pips. For example, this could be $0.50 per lot traded, or 0.5 pips per lot traded. Check out the forex rebate calculator tool on our list of forex calculators.
Free margin is the amount of money in a trader’s account that is not being used as the margin necessary to hold a trade.
Fundamentals or fundamental analysis refers to how social, political, and economic events can affect the price of an instrument. See also: technicals.
Hedging is when a trader offsets losses by taking an opposite position in a different asset or in the same asset.
Heikin-Ashi or Heiken-Ashi is Japanese for “average bar”, and it’s a type of chart candlestick that focuses on the average price of an instrument, instead of pure price. A Heikin-Ashi chart typically has a smoother appearance than a normal candlestick chart and can make it easier for spotting trends.
Ichimoku Kinko Hyo
Ichimoku Kinko Hyo or Ichimoku is an indicator designed for spotting moving-average-based trends, market momentum, and future areas of support and resistance. The indicator consists of five colored lines. The idea behind the indicator is that key technical factors are all laid out together for a trader’s convenience; “Ichimoku” is Japanese for “one look” or “one glance”.
An index (plural: indices) is a group of stock prices. These may be organized by country, or by industry. For example, the FTSE100 is an index that consists of the 100 UK companies with the highest market capitalization. The Dow Jones index or US30 consists of 30 prominent companies, such as Boeing, McDonald’s, and Walmart.
A style of order in which the trader specifies the volume (the size of the trade) and the price. If the order can’t be filled at the requested price, the broker will send the trader a new price (a requote), which they can choose to accept or reject.
This simply refers to what is being traded, whether that’s a forex currency pair, an index, a stock, or a commodity such as gold or crude oil.
A style of trading in which trades are usually opened and closed within a day. Longer than scalping trades but shorter than swing trades.
Leverage is a ratio that reflects how much of your capital you need as the margin necessary to open a trade. The leverage of 1:100, for example, effectively means that for every $1 you put up as margin, the broker puts up $99. It’s neither a loan nor a credit, but simply money assigned to you that allows you to place big trades using relatively little of your own money. 1:100 leverage means that you could open a standard 1 lot trade of USD/JPY with only $1,000. Big trades in turn mean a trader can make larger profits; however it also means larger losses if a trade doesn’t go in the favor.
Liquidity refers to how easy it is to convert an asset into cash without any significant effect on its market price. High liquidity means that it’s easy to get a buyer or seller for the desired price. Low liquidity means that the selling price will be much lower than the one expected by the seller.
The London session is the time period in which most forex trading in Europe takes place. It runs from 0700 – 1600 UTC, or 0300 to 1200 EDT. The last few hours of the London session overlap with the opening of the New York session, and there can be major market activity during this time.
A long trade is a buy trade. Going long means that a trader expects the price of an asset to rise.
A standard measurement of the base currency in a trade. One lot is 100,000 units of the base currency.
MACD or moving average convergence/divergence is an oscillating indicator used to identify trends.
A major pair is any one of the most commonly traded forex pairs that includes the US dollar as either its base currency or quote currency. The major pairs are:
Margin refers to the amount of money a trader must have in their account in order to hold a position. The higher the leverage on the account, the smaller the required margin. Use the Margin calculator in our list of forex calculators to calculate how much money is necessary to hold a given trade.
A margin call is a notification from a trader’s broker – traditionally a phone call – that a trader’s margin level is running low and near to the point where the broker will start to liquidate losing positions unless more money is added to the account.
Margin level is a percentage that represents the proportion of free margin to used margin a trader has on their account. You can easily calculate it yourself with the following equation: (Equity/Used Margin) X 100
The automatic closure of a trader’s positions by their broker once their margin level has fallen below a permitted level.
Market execution means that a trader’s order is filled at the next available price offered by the broker. The broker will not send a new price (a requote) if the next available price differs from the one at which the trader placed the order.
Martingale is a strategy for increasing one’s gains from a losing position. A trader effectively doubles up on a losing position under the philosophy that one cannot lose all the time. However, Martingale strategies can involve an extremely high level of risk.
MFF stands for My Forex Funds, a Canadian prop firm with a two-phase evaluation process. Check out our My Forex Funds interview.
A micro lot is a form of lot sizing, where 1 lot is equivalent to 10,000 units of a currency (or 0.1 standard lot).
Another form of lot sizing, where 1 lot is equivalent to 1,000 units of a currency (or 0.01 standard lot).
Minor pair/cross pair
A minor pair or a cross pair is any one of the most commonly traded forex pairs that does not include the US dollar. Examples of minor pairs are NZD/JPY, GBP/CAD, and AUD/CHF.
MT4 and MT5
MT4 and MT5 refer to MetaTrader 4 and MetaTrader 5, the trading platforms from MetaQuotes Software.
New York session
The New York session refers to the time period in which most forex trading in North America takes place. It begins at 0800 EDT and closes at 1700 EDT, or 1200 UTC and 2100 UTC. There is a significant overlap with the London session, and in this period there can be high volatility and high liquidity.
NFP stands for Non-Farm Payroll. It is a report that is released usually on the first Friday of every month, and it refers to the number of jobs added or gone from the US economy. As the name states, it excludes agricultural workers. It also excludes those who are self-employed and unincorporated, as well as private household employees, volunteers, and those who work for non-profit organizations. Its release has a very high impact on US indices and instruments involving the US dollar.
An order block is an area on a chart where a trader believes that large financial institutions have large positions in the market. See also: smart money.
An oscillator is a kind of technical indicator that consists of one or more lines fluctuating above, below, or in between, one or more points of reference. Oscillating indicators appear in a separate window underneath the main chart.
If an asset is overbought, it means an asset is being traded at a price much higher than its actual value.
If an asset is oversold, it means that an asset is being traded at a price much lower than its actual value.
The Parabolic SAR (stop and reverse) is a kind of technical indicator for spotting trends and trend reversals on a chart. It does this with dots placed underneath chart candlesticks. A dot underneath a candle is the buy signal; a dot above a candle is a sell signal.
An order which is filled only when the price reaches a certain point. There are four kinds of pending orders: buy limit, sell limit, buy stop and sell stop.
A pip is a way of measuring changes in the exchange rate between two currencies. You start counting pips from the fourth decimal point. With the Japanese Yen, you start counting from the second decimal place. There are 100 pips in a cent or penny, whether that is the US dollar, Euro, British pound, or Australian, NZ or Canadian dollar. For example, if the USD/CHF price increases from 0.96253 to 0.96623, then that is an increase of 37 pips.
A pipette is one-tenth of a pip. There are ten pipettes in a pip.
Price action refers to how the price of an asset behaves.
A prop firm or proprietary trading firm is a company that allows a trader to trade with significantly more capital than they would be able to do by themselves. The trader can then keep a proportion of the profits for themselves. This may be anywhere from 50-90%. Getting an account with a prop firm usually requires passing some sort of evaluation or challenge, whereby a trader must make a certain amount of money within a certain period of time, and must not lose a certain percentage of the account.
The quote currency is the second currency in a currency pair. For example, with EUR/USD, USD is the quote currency.
Relative Strength Index (RSI)
The Relative Strength Index (RSI) is an oscillating indicator. It measures the magnitude and speed of price movements on a scale of 0-100 in order to determine if an asset is overbought or oversold.
On a chart, resistance refers to a price on a chart that an asset is reluctant to exceed due to the volume of sellers.
This is a critical forex trading principle and encompasses the mitigation and limitation of risk wherever possible, in order to minimize drawdown and prevent insolvency. A good risk management principle is never risking more than 1-2% of the account balance on a single trade. For many traders, even this figure could be too much, depending on their strategy.
Risk-to-reward ratio, or RR ratio, is a ratio that expresses how much a trader stands to gain for each dollar they risk on a trade. For example, if a trade risks $1,000 and the trader stands to gain $3,000 if it’s successful, then the trade has a RR of 1:3. You can calculate RR by dividing the prospective gain by the risked funds.
A style of day trading that consists of brief trades that target small gains on lower timeframe charts, such as M1, M5, and M15. A trader typically holds scalping trades for minutes or even less.
A type of pending order where a trader expects the price of an instrument to fall once it rises to a certain trigger price.
A type of pending order where a trader expects the price to fall to a certain point (which activates the trade) and then keep falling.
To short an asset is to sell it.
A signal is a trade idea, suggestion, or recommendation. Forex signals can be generated by individual traders or by computer programs. They can be sent via almost any form of communication, such as a telephone call, e-mail or SMS, or as a message in social media and messaging apps such as Telegram, Twitter, and WhatsApp.
Slippage refers to the difference in price that a trader wants when they open or close a trade and the price they actually receive.
This is a trading philosophy that focuses on identifying very large trades from market makers and large financial institutions.
The spread is the difference between the bid and ask price, typically measured in pips.
An oscillating indicator for identifying trend reversals.
A risk management tool in order to limit a trader’s losses. If the price reaches the stop loss price, the trade closes automatically.
A level on a chart where the price of an asset or instrument is reluctant to fall any lower than, due to the pressure of buyers entering the market.
The swap is the fee you pay or receive for holding a trade overnight.
A style of trading where a trader holds trades for a period of days or even weeks.
A mechanism for securing the profit from a successful trade. Once the price reaches the take profit point, the trade closes automatically.
Technicals or technical analysis refer to the analysis of the price of an asset or instrument over a given timeframe.
The three-line strike or 3LS is a pattern of candlesticks on a chart. It consists of three candles going in the same direction, followed by another candle that goes in the opposite direction and reverses all of the price changes of the previous three. Traders sometimes use this pattern to determine if a trend will continue in a certain direction.
The setting on a chart that determines the intervals of time indicated by the elements that show price action, such as candlesticks. Common timeframes are M1, M5, M15, M30, H1, H4, D1, and W1, which correspond to 1, 5, 15, and 30 minutes, 1 hour and 4 hours, 1 day, and 1 week.
Trading psychology refers to mindset principles that a trader should respect in order to stick to a rule-based system, and avoid impractical or high-risk decisions which are based on emotion. Check out our forex trading psychology tips.
Volume is a measure of quantity and refers to the size of a trade. The volume of a trade and the lot size of a trade refer to the same thing.
A whipsaw is a name for a sharp spike and reversal in the price of an instrument, going against the current trend.
A trader’s win rate is the number of trades they win vs. the number of trades they lose, expressed as a percentage. For example, a trader who wins 12 trades out of 24 has a win rate of 50%.