Like any specialized field, Forex trading comes with its jargon and terminology. For those new to foreign exchange, this glossary is a handy reference to understand the market’s language. Let’s delve into some of the most commonly used terms in forex trading.
Ask Price (Offer): The rate, set by the market or broker, at which a specific currency pair can be bought. It’s the price at which you can acquire the base currency.
Bid Price: The price at which the market or broker is willing to purchase a particular currency pair from you, allowing you to sell the base currency.
Broker: An intermediary, either an individual or firm, that facilitates transactions between buyers and sellers in the forex market, typically for a fee or commission.
Currency Pair: In forex trading, two currencies are paired, with one’s value quoted against the other, such as EUR/USD.
Leverage: A tool brokers provide allows traders to control more prominent positions than their capital would ordinarily permit.
Margin: The initial amount your trading account requires to initiate and maintain an open leveraged position.
Pip (Point): Represents the slightest price movement in the forex market, usually the fourth decimal point in a quote.
Spread: The difference between a currency pair’s bid and ask price indicates liquidity and transaction costs.
Lot: A standardized quantity in forex trading, with a standard lot size being 100,000 units of the base currency.
Bull Market: A period characterized by rising prices and market optimism.
Bear Market: A phase marked by falling prices and market pessimism.
Slippage: The discrepancy between the expected trade price and the actual execution price.
Stop-Loss Order: An instruction to offload security once it hits a specific price, aiming to cap possible losses.
Take-Profit Order: A directive to liquidate security when it achieves a set profit threshold.
Fundamental Analysis: Evaluating economic, social, and political factors influencing asset supply and demand.
Technical Analysis: The study of past market data, such as price movements and trading volumes, to predict future price trends.
Liquidity: The ease with which an asset can be converted into cash without significant price fluctuations.
Volatility: The extent of price fluctuations within a specific period.
Swap: A fee paid or received for holding positions overnight in forex trading.
Cross Currency Pair: A currency pair that does not include the US dollar.
ATR (Average True Range): A technical indicator measuring the volatility of a currency pair.
CCI (Commodity Channel Index): A technical indicator that measures a currency pair’s price deviation from its statistical average.
CFD (Contract for Difference): A financial instrument allowing traders to speculate on price movements without owning the underlying asset.
Commission: The fee charged by brokers for executing trades.
ECN Broker: A broker providing direct access to other participants in the forex market, offering tighter spreads and charging a commission for each executed order.
ECB (European Central Bank): The central bank for the eurozone, responsible for monetary policy and financial stability.
Elliott Waves: A technical analysis method based on repetitive wave patterns in market prices.
Fed (Federal Reserve): The central bank of the United States, responsible for regulating the country’s financial system.
Fibonacci Retracements: A technical analysis tool identifying potential support and resistance levels based on the Fibonacci sequence.
Fibre: A slang term for the EUR/USD currency pair.
Flat (Square): A trading position where all previous trades have been closed, and no new trades are open.
Floating Leverage: A type of leverage that changes depending on the total size of open positions.
Gap: A significant difference between the closing price of one trading period and the opening price of the next.
GDP (Gross Domestic Product): An economic indicator measuring the total value of goods and services produced within a country.
GTC (Good ‘Til Canceled): An order that remains active until executed or manually canceled.
Hedging: A risk management strategy involving taking positions to offset potential losses from other investments.
Jobber: A trader focusing on quick, small profits from intraday trading.
Kiwi: A slang term for the New Zealand dollar.
Limit Order: An order to buy or sell a currency pair at a specified price or better.
Long: A trading position where the trader buys the base currency of a currency pair.
Loss: The negative difference between a trade’s opening and closing prices.
Margin Account: A trading account where the broker lends money to the trader for leveraged trading.
Margin Call: A broker requests additional funds when the margin exceeds the minimum.
Market Order: An order to buy or sell a currency pair immediately at the current market price.
Market Price: The current price at which a currency pair is trading.
Martingale: A trading strategy doubling the position size after each loss.
Momentum: A measure of the strength and speed of a currency pair’s price movement.
Moving Average (MA): A technical indicator calculating the average price of a currency pair over a specific period.
Open Position (Trade): A trade initiated but not yet closed.
Order: A request to buy or sell a currency pair at a specified price or under certain conditions.
Pivot Point: A primary support/resistance point calculated based on the previous trend’s High, Low, and Close rates.
Principal Value: The initially invested amount of money.
QE (Quantitative Easing): A monetary policy central banks employ to increase money supply.
Realized Profit/Loss: A gain or loss of an already closed position.
Resistance: A price level where an uptrend stalls.
Settled (Closed) Position: A closed position for which all needed transactions have been made.
Standard Lot: A trading quantity of 100,000 units of the primary currency in a currency pair.
Stop-Limit Order: An order combining stop and limit orders.
STP (Straight Through Processing): Automated order processing.
Support: A price level where a downtrend stalls.
Technical Analysis: Using historical data to predict trends.
Trailing Stop-Loss: Adjusts stop-loss based on market movement.
Conclusion
Grasping the language of the forex market is vital to navigate its complexities successfully. This all-encompassing glossary is an indispensable tool for both novice and seasoned traders. By acquainting yourself with these terms, you’ll be in a stronger position to make well-informed trading choices and engage effectively with fellow market players. Remember that forex trading carries substantial risks, so it’s vital to tread carefully and consult with reliable experts as necessary. Armed with this insight, you’re on the path to becoming a more self-assured and knowledgeable forex trader.
