Here is a practical glossary with Forex-related key terms. It is relatively long, so you are advised to use the search function of your browser (press Ctrl + F).
Ask – the lowest price that an instrument is currently being sold. It is also known as the offer price. If you want to buy something instantly, you buy from this price.
Authorized FOREX dealer – a financial intermediary, licensed to carry out currency trading on Forex, by a regulatory body.
Aussie – trading jargon for the Australian dollar.
Bar chart – a type of chart. It provides a graphical representation of the price movements of a financial instrument. The various types of charts are described here.
Base currency – the first currency in a pair. For example, in EUR/USD, the euro is the “base” currency. When the price of a pair increases, this means that the base currency has gained value, compared to the second (quoted) currency, which has decreased.
Bear – a market participant who believes that the price of the traded instrument will decrease.
Bear market – a period of time when the price of a financial instrument is decreasing.
Bid – the highest price that an instrument is currently being bought at. If you want to sell something instantly, you sell at this price.
Breakdown – a price movement below a given support level. This could indicate a serious downtrend for the future. False breakdowns are also possible, when the price unexpectedly returns above the support level.
Breakout – an increase or breakthrough of the price above a certain resistance level. This could indicate an uptrend in the future. False breakouts (Fakeouts) could also occur when the price plummets below the resistance level.
Break-even – a price level that does not bring any loss or profit. This is the level at which we open a position. Often used when describing trading strategies. Example: Move the stop-loss to break-even.
Broker – the intermediary that connects buyers and sellers on the market. They earn commissions and should be officially licensed in order to operate. More about brokers can be found here.
Bull – a market participant who believes that the price of the traded instrument will increase.
Bull market – a period of time when the price of an instrument is rising.
Cable – trading jargon for the currency pair GBP/USD. It originates from the underwater cable that used to connect the US and Britain.
Cancel order – an order that cancels a pending order.
Candlestick, (Japanese Candlestick) – a type of graphical representation of the price movements of a financial instrument. The types of charts are explained here.
Central bank – the bank that takes care of monetary policy and financial stability of a country. Here are a few examples of central banks:
For the euro area – European Central Bank (ECB)
For the US – Federal Reserve (FED)
UK – Bank of England, (BOE)
Japan – Bank of Japan (BOJ)
Canada – Bank of Canada (BOC)
Australia – Reserve Bank of Australia (RBA)
New Zealand – Reserve Bank of New Zeland (RBNZ)
Chart – a technique for representing the previous price movements of a particular financial instrument.
Choppy market – a market with a high degree of volatility and constant movement in both directions, thereby making it difficult to predict.
Commission – a broker’s fee for each client’s transaction, often included in the spread.
Consolidation – a period of relative indecision, usually following the end of a particular big move in the market.
Cross rate – a currency pair that does not include the US dollar.
Currency pair – the ratio at which two currencies are exchanged. On the Forex market, the individual pairs are the primary instruments being traded. The first currency in the pair is called the “base” currency and the second one – the “quote” currency.
Dovish – the term comes from “dove”, and refers to the “softer” type of measures implemented by Central Banks. Such measures typically involve lowering interest rates and an increase of financial stimulus.
Economic indicator – periodically released statistical information about the economy of a given country. This may affect the value of its currency. Typical economic indicators include GDP, unemployment rates, trade balances, etc.
Exotic currencies – currencies that are traded less frequently. As a result, the spreads (and commissions) for them are larger.
Gap – the difference between an instrument’s price at the close of a trading session and the opening price the following day.
Greenback – slang for the US dollar.
Hawkish – the term comes from “hawk”, and refers to the “tighter” type of measures implemented by Central Banks. Such measures typically involve an increase of interest rates and a decrease (or removal) of financial stimulus.
Interbank market – the market where currencies are being exchanged between major banks. This market is not centralized. Honest brokers provide direct access to this market, whereas some brokers only claim to do so. More about these different types of brokers can be found here.
Interest rate – when it comes to Forex, we look at the key interest rate of a country, as determined by its central bank.
Kiwi – slang for the New Zealand dollar.
Leverage – the act of offering more capital than is actually available to carry out a certain transaction. This increases the potential gains, but might also lead to greater losses. In the currency market, its ratio is most often 1: 100. You can read more about the leverage process here.
Limit order – an order that is automatically executed when the price reaches a certain pre-set level.
Liquidity – the presence of many bids and asks at close price levels. Liquidity on the market allows for easy opening and closing of positions.
Long position – a transaction, in which a certain financial instrument is bought, in the hope of later selling it at a higher price. On the Forex market, a long position refers to purchasing “base” currency and selling “quote” currency, that is – we expect that the “base” currency will rise in relation to the “quote” currency.
Loonie – jargon for the currency pair of US dollars vs. Canadian dollars (USD/CAD).
Lot – a measurement unit for the volume of currency traded in a particular transaction. Typically, a single lot on the Forex market equals 100, 000 units. It is, however, possible to trade parts of a lot, or multiple lots together.
Margin – the amount of funds that must be deposited by the client, in order to increase the trading capital through leverage. It serves as a guarantee.
Margin call – traditionally, a phone from the broker to the client, asking for extra funds if the account has reached a critical minimum (a predetermined level). For most brokers, this absolute minimum is about 30% of the original investment. This is done, to give the client a chance to keep his positions open. Nowadays, however, most often the positons are simply closed without any warning.
Market maker – a type of broker.
Market order – an order to buy or sell a financial instrument, which is executed immediately, at the best current price.
Offer – synonymous with Ask (Ask)
Order – a request from a trader to buy or sell a financial instrument.
Pip – the smallest possible variation in the exchange rate of a currency. Usually, it is measured by the fourth character after the decimal point (i.e. in the rate 1.2345, the pip is 5). However, when we trade in Japanese yen, the pip equals the second character after the decimal point (i.e. in the rate of 112.78, the pip is 8). Some brokers offer even more detailed decimal quotes. Thus, it is also possible to reach spread bellow 1 pip. Most often it varies around 1.2-1.5 pips for the most traded currency pairs.
Quote – the price of an instrument (i.e. a currency pair) at the present moment. It includes both the bid price and the ask price.
Range – the range in which price moves, when it is between two horizontal levels of support and resistance. For example: “The range is be between 1.2000 and 1.2500”.
Requote (Requotes) – providing the client with a new, different from the originally quoted price. This usually occurs when extreme price movements take place on the market, or in cases of cheating brokers. You can read more on the different types of brokers here.
Rollover – keeping a position open from one day to the next. In the case of some financial instruments (such as – options and stocks), a fee must be paid to do so. On the Forex market, however, swaps are used instead.
Short position – a transaction in which an instrument is sold without previous ownership. The idea is that this instrument will be repurchased later, at a lower price, and that the profit will come from the price difference. On the Forex market, when you go short you expect the “quoted” currency in the pair (i.e., the second currency) to gain value against the “base” currency (i.e. the first currency).
Slippage – the execution of a market order at a price different from the currently displayed one. It happens when there is a dynamic market or a cheating broker. More about the types of brokers can be found here.
Spread – the difference between the purchasing price (bid) and the selling price (ask) at the moment. In practice, it acts as a commission fee for some brokers.
Sterling – synonymous with the British pound. Comes from the “sterling” silver standard – an alloy with a minimum of 92.5% silver content. In the past, a person could exchange British pounds for physical silver.
Stop-loss order – a pending order that is associated with a specific open position and shows the level, at which the client wants to exit, if the price starts moving against him. In practice, this order tells the broker – “If the price gets there, I want to get out and accept the loss.” It is used to limit the risk. More can be read here.
Swap – the fee taken for the transfer of a position from one day to the next in the Forex market. It is formed by the difference in key interest rates of the countries whose currencies are included in the pair. Swaps can be negative (losing money) and positive (gaining money). One specific strategy, which aims to take advantage of the positive swap, is called a carry trade.
Swissie – trader slang for the Swiss Franc.
Swing – price movement between individual temporary highs and lows.
Take-profit order – a pending order that is associated with a specific open position and shows the level at which the client wishes to exit, if the price moves in his favor. In practice, it tells the broker, “If the price reaches this level, I want to get out and take the profit”.
Tick – the smallest possible price movement of a particular financial instrument. In the Forex market, it is called a pip.
Trend – price movement during a given period (usually long-term), which has a set direction. A trend can be recognized by: the new higher lows of each ”swing”, in case of an uptrend; and by the new lower highs of each “swing”, during a downtrend.