Learn the language

FOREX GLOSSARY

41 trading terms explained in plain English — from pips and lots to drawdown and risk-to-reward.

41 terms

Ask price: The price at which you can buy. It is always slightly higher than the bid; the gap between the two is the spread.
Base currency: The first currency in a pair, such as EUR in EUR/USD. The quote shows how much of the second currency one unit of the base costs.
Bid price: The price at which you can sell. Your broker quotes a bid and an ask for every instrument.
Breakout: A move through a clearly defined support or resistance level, often with a jump in volatility. Many breakouts fail, so traders often wait for a candle close or a retest.
Candlestick: A chart element showing the open, high, low and close for one period. The body spans open to close; the wicks show the extremes.
Carry trade: Holding a higher-yielding currency against a lower-yielding one to earn the interest difference, which is paid or charged daily as swap.
CFD: A contract for difference: a derivative that lets you trade price movements without owning the underlying asset. Most retail forex and gold trading is done through CFDs.
Correlation: How closely two instruments move together. EUR/USD and GBP/USD are often positively correlated, so trading both at once can double your exposure.
Drawdown: The fall in an account from a peak to a later low, usually shown as a percentage. Maximum drawdown is one of the most important risk measures in any track record.
Economic calendar: A schedule of upcoming data releases and central bank events — such as NFP, CPI and rate decisions — rated by expected market impact.
Expert Advisor (EA): An automated trading program for MetaTrader 4 or 5 that opens, manages and closes trades according to coded rules.
Fundamental analysis: Judging prices through economic data, interest rates, central bank policy and geopolitics, rather than through chart patterns.
Grid trading: Placing buy and sell orders at fixed intervals above and below a price to profit from ranging markets. Without a hard stop, a strong trend can build large losses.
Hedging: Opening a position to offset the risk of another, such as holding opposing trades on correlated instruments.
Leverage: Borrowed exposure that lets you control a large position with a smaller deposit. It magnifies both profits and losses.
Liquidity: How easily an instrument can be bought or sold without moving its price. Major pairs are most liquid during the London and New York sessions.
Long: A buy position, which profits if the price rises.
Lot: The unit of trade size. A standard lot is 100,000 units of the base currency, a mini lot 10,000 and a micro lot 1,000.
Margin: The deposit your broker holds to keep a leveraged position open. It is not a fee, but it is tied up while the trade is open.
Margin call: A warning, or automatic closure of positions, when account equity falls below the broker’s required margin level.
Martingale: A strategy that doubles position size after each loss so one win recovers everything. Size grows exponentially, and a long losing streak can wipe out an account.
NFP (Non-Farm Payrolls): The monthly US jobs report, usually released on the first Friday of the month. It is one of the most volatile events for the dollar and gold.
Pip: The standard unit of price movement: 0.0001 for most pairs, 0.01 for yen pairs and usually 0.10 for gold.
Pip value: The money value of a one-pip move for a given position size. On EUR/USD it is about $10 per standard lot.
Position size: How large a trade is, in lots or units. It should be set by your risk per trade and the distance to your stop loss.
Quote currency: The second currency in a pair, such as USD in EUR/USD. Profit and loss is calculated in the quote currency, then converted to your account currency.
Resistance: A price area where selling has repeatedly stopped a rise. The more often it holds, the more traders watch it.
Retest: A return to a level that price has just broken, testing it from the other side. A successful retest is a common entry trigger.
Risk-to-reward ratio: The distance to your stop loss compared with the distance to your target. At 1:2 you aim to make twice what you risk.
Scalping: A style that aims to capture small moves — often a few pips — with trades held for seconds to minutes.
Short: A sell position, which profits if the price falls.
Slippage: The difference between the price you expected and the price you got, most common in fast markets and around news.
Spread: The difference between the bid and ask price. It is the main cost of a trade and widens in thin markets and around major news.
Stop loss: An order that closes a trade at a set price to cap the loss. It belongs where your trade idea is proven wrong.
Support: A price area where buying has repeatedly stopped a fall.
Swap: Overnight interest credited or charged for holding a position past the daily rollover, based on the rate difference between the two currencies.
Swing trading: A style that holds trades for days to weeks to capture a larger part of a trend.
Take profit: An order that closes a trade automatically once it reaches a target price.
Technical analysis: Analysing price charts, levels, patterns and indicators to judge probable future moves.
Trailing stop: A stop loss that follows price at a set distance as the trade moves in your favour, locking in profit.
Volatility: How much and how quickly a price moves. Higher volatility means larger potential gains and losses, and usually wider stops.