Forex Glossary

A

Account Balance

The total amount of money in your trading account before any open trades are considered.

Account Equity

Your account balance plus or minus any profit or loss from open trades.

Adjusted Peg

A currency system where a country fixes its currency to another currency but allows occasional changes to that fixed rate.

Arbitrage

A trading strategy where a trader takes advantage of price differences of the same asset in different markets.

Ask Price

The price at which a seller is willing to sell a currency pair. This is the price traders buy at.

Asset

Any financial instrument that has value and can be traded, such as currencies, stocks, or commodities.

Asset Class

A category of financial instruments with similar characteristics, such as Forex, commodities, stocks, or cryptocurrencies.

B

Balance of Trade

The difference between a country’s exports and imports. A positive balance means exports are higher than imports.

Base Currency

The first currency listed in a currency pair. Example: in EUR/USD, EUR is the base currency.

Basis Point (BP)

A unit of measurement equal to 0.01%, commonly used to describe interest rate changes.

Bear Market

A market condition where prices are falling or expected to fall.

Bid Price

The price at which a buyer is willing to buy a currency pair. This is the price traders sell at.

Bid/Ask Spread

The difference between the bid price and the ask price.

Broker

A company that provides traders access to the financial markets.

Bull Market

A market condition where prices are rising or expected to rise.

C

Candlestick Chart

A chart type that shows price movement using candles, displaying open, high, low, and close prices.

Capital

The money available in a trading account for trading purposes.

Central Bank

A national bank that controls a country’s monetary policy and currency supply.

CFD (Contract for Difference)

A financial instrument that allows traders to speculate on price movements without owning the underlying asset.

Close Position

To exit an open trade by executing an opposite order.

Commission

A fee charged by a broker for executing trades.

Cross Currency Pair

A currency pair that does not include the US Dollar (e.g., EUR/GBP).

D

Day Trading

A trading style where positions are opened and closed within the same trading day.

Dealer

An individual or firm that buys and sells financial instruments for profit.

Depreciation

A decrease in the value of a currency compared to another currency.

Drawdown

The reduction in account equity from a peak due to losing trades.

Dovish

A term used to describe a central bank stance that favors lower interest rates to support economic growth.

E

Economic Indicator

A piece of economic data used to measure a country’s economic performance, such as inflation, employment, or GDP.

ECN (Electronic Communication Network)

A system that connects traders directly with liquidity providers, allowing trades to be executed without a dealing desk.

Equity

The current value of a trading account, including open profits or losses.

Exchange Rate

The price of one currency compared to another currency.

Execution

The process of completing a trade at the requested price.

F

Federal Reserve (Fed)

The central bank of the United States, responsible for managing monetary policy and interest rates.

Fiat Currency

A government-issued currency that is not backed by a physical commodity like gold.

Fixed Spread

A spread that remains constant regardless of market conditions.

Floating Exchange Rate

An exchange rate that changes based on supply and demand in the market.

Forex (Foreign Exchange)

The global market where currencies are bought and sold.

G

GDP (Gross Domestic Product)

The total value of all goods and services produced in a country over a specific period.

Gearing

Another term for leverage, allowing traders to control larger positions with smaller capital.

Gap

A sudden price movement where the market opens significantly higher or lower than the previous close.

H

Hawkish

A central bank stance focused on controlling inflation, often by raising interest rates.

Hedging

A risk management strategy used to reduce potential losses by opening opposite positions.

High-Frequency Trading (HFT)

Automated trading using algorithms that execute a large number of trades at very high speeds.

I

Inflation

The rise in prices of goods and services over time, which reduces purchasing power.

Initial Margin

The minimum amount of money required to open a trading position.

Interbank Market

A global network where banks trade currencies with each other.

Interest Rate

The cost of borrowing money or the return earned on savings, set by central banks.

L

Leverage

A tool that allows traders to control larger positions using a smaller amount of capital.

Liquidity

How easily an asset can be bought or sold without affecting its price.

Lot

A standard unit size of a trade in Forex.

Long Position

A trade placed with the expectation that the price will rise.

M

Margin

The amount of money required to open and maintain a leveraged trade.

Margin Call

A warning from the broker that additional funds are required to maintain open positions.

Market Order

An order to buy or sell at the current market price.

Market Volatility

The speed and size of price movements in the market.

N

Negative Balance Protection

A feature that prevents traders from losing more than their account balance.

News Trading

A trading strategy based on economic news and announcements.

O

Open Position

A trade that is currently active and not yet closed.

Order

An instruction given to a broker to buy or sell an asset.

Overnight Position

A trade that remains open past the end of the trading day.

P

Pip (Percentage in Point)

The smallest price movement in a currency pair.

Position Size

The volume or number of lots used in a trade.

Price Action

Market movement based purely on price changes without indicators.

Profit

The positive result when a trade closes at a better price than it opened.

Q

Quote Currency

The second currency in a currency pair. It shows how much is needed to buy the base currency.

R

Risk Management

Strategies used to control losses and protect trading capital.

Rollover

Interest paid or earned for holding a position overnight.

S

Scalping

A trading style focused on making small profits from short-term trades.

Short Position

A trade placed with the expectation that the price will fall.

Slippage

When a trade is executed at a different price than requested due to market movement.

Spread

The difference between the bid and ask price.

Stop Loss

An order used to limit potential losses by closing a trade at a set price.

T

Take Profit

An order that closes a trade automatically when a set profit level is reached.

Technical Analysis

Market analysis based on charts, patterns, and indicators.

Trading Session

A period when a specific market is open, such as London or New York session.

U

Unrealized Profit/Loss

The profit or loss of an open trade that has not yet been closed.

V

Volatility

The degree of price movement within a specific time period.

Volume

The amount of an asset traded during a given time.

W

Whipsaw

A situation where prices move sharply in one direction and then quickly reverse.