Forex Trading Glossary

This is a forex trading glossary where some of the most used forex terms and their definitions are given.

Table Of Contents

Ask (offer) price

The price at which the market is prepared to sell a product. Prices are quoted two-way as Bid/Ask. The Ask price is also known as the Offer.

In FX trading, the Ask represents the price at which a trader can buy the base currency, shown to the right in a currency pair. For example, in the quote USD/CHF 1.4527/32, the base currency is USD, and the Ask price is 1.4532, meaning you can buy one US dollar for 1.4532 Swiss francs.

Aussie

Also, “Oz” or “Ozzie”; refers to the AUD/USD pair.

Bar chart

A type of chart which consists of four significant points: the high and the low prices, which form the vertical bar, the opening price, which is marked with a little horizontal line to the left of the bar and the closing price, which is marked with a little horizontal line to the right of the bar.

Base currency

The first currency in a currency pair. It shows how much the base currency is worth as measured against the second currency. For example, if the USD/CHF rate equals 1.6215 then one USD is worth CHF 1.6215. In the FX market, the US Dollar is normally considered the ‘base’ currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The primary exceptions to this rule are the British Pound, the Euro and the Australian Dollar.

Base rate

The lending rate of the central bank of a given country.

Bearish / Bear market

Negative for price direction; favoring a declining market. For example, “We are bearish EUR/USD” means that we think the Euro will weaken against the dollar.

Bears

Traders who expect prices to decline and may be holding short positions.

Bid price

The price at which the market is prepared to buy a product. Prices are quoted two-way as Bid/Ask.

In FX trading, the Bid represents the price at which a trader can sell the base currency, shown to the left in a currency pair. For example, in the quote USD/CHF 1.4527/32, the base currency is USD, and the Bid price is 1.4527, meaning you can sell one US Dollar for 1.4527 Swiss francs.

Bid/ask spread

The difference between the Bid and the Ask (Offer) price.

BOC

Bank of Canada, the central bank of Canada.

BOE

Bank of England, the central bank of the UK.

 

BOJ

Bank of Japan, the central bank of Japan.

Bollinger bands

A tool used by technical analysts. A band plotted two standard deviations on either side of a simple moving average, which often indicates support and resistance levels.

Broker

An individual or firm that acts as an intermediary, bringing buyers and sellers together for a fee or commission. In contrast, a ‘dealer’ commits capital and takes one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party.

Bullish / Bull market

Favoring a strengthening market and rising prices. For example, “We are bullish EUR/USD” means that we think the Euro will strengthen against the dollar.

Bulls

Traders who expect prices to rise and who may be holding long positions.

Buy

Taking a long position on a product.

Cable

The GBP/USD pair. ”Cable” earned its nickname because the rate was originally transmitted to the US via a transatlantic cable beginning in the mid 1800’s when the GBP was the currency of international trade.

CAD

The Canadian dollar, also known as Loonie or Funds.

Candlestick chart

A chart that indicates the trading range for the day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded.

Central bank

A government or quasi-governmental organization that manages a country’s monetary policy. For example, the US central bank is the Federal Reserve and the German central bank is the Bundesbank.

Chartist

An individual, also known as a technical trader, who uses charts and graphs and interprets historical data to find trends and predict future movements.

Choppy

Short-lived price moves with limited follow-through that are not conducive to aggressive trading.

Closed position

Exposure to a financial contract, such as currency, that no longer exists. A position is closed by placing an equal and opposite deal to offset the open position. Once closed, a position is ‘squared’.

Closing

The process of stopping (closing) a live trade by executing a trade that is the exact opposite of the open trade.

Closing price

The price at which a product was traded to close a position. It can also refer to the price of the last transaction in a day trading session.

Commission

A fee that is charged for buying or selling a product.

Commodity currencies

Currencies from economies whose exports are heavily based in natural resources, often specifically referring to Canada, New Zealand, Australia and Russia.

Components

The dollar pairs that make up the crosses (i.e. EUR/USD + USD/JPY are the components of EUR/JPY). Selling the cross through the components refers to selling the dollar pairs in alternating fashion to create a cross position.

Contract

The standard unit of forex trading.

Counter currency

The second listed currency in a currency pair.

Cross (e.g. Yen cross)

A pair of currencies that does not include the US Dollar.

Crown currencies

Refers to CAD (Canadian Dollar), Aussie (Australian Dollar), Sterling (British Pound) and Kiwi (New Zealand Dollar) – countries off the Commonwealth.

Currency

Any form of money issued by a government or central bank and used as legal tender and a basis for trade.

Currency pair

The two currencies that make up a foreign exchange rate, for example EUR/USD.

Currency risk

The probability of an adverse change in exchange rates.

Currency symbols

A three-letter symbol that represents a specific currency, for example USD (US Dollar)

Day trader

Speculators who take positions in commodities and then liquidate those positions prior to the close of the same trading day.

Day trading

Making an open and close trade in the same product in one day.

Deal

A term that denotes a trade done at the current market price. It is a live trade as opposed to an order.

Dealer

An individual or firm that acts as a principal or counterpart to a transaction. Principals take one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.

Dealing spread

The difference between the buying and selling price of a contract.

Divergence

In technical analysis, a situation where price and momentum move in opposite directions, such as prices rising while momentum is falling. Divergence is considered either positive (bullish) or negative (bearish); both kinds of divergence signal major shifts in price direction. Positive/bullish divergence occurs when the price of a security makes a new low while the momentum indicator starts to climb upward. Negative/bearish divergence happens when the price of the security makes a new high, but the indicator fails to do the same and instead moves lower. Divergences frequently occur in extended price moves and frequently resolve with the price reversing direction to follow the momentum indicator.

Divergence of MAs

A technical observation that describes moving averages of different periods moving away from each other, which generally forecasts a price trend.

Downtrend

Price action consisting of lower-lows and lower-highs.

EURO

The currency of the Eurozone.

European session

07:00 – 16:00 (London).

Fill

When an order has been fully executed.

Foreign exchange (forex, fx)

The simultaneous buying of one currency and selling of another. The global market for such transactions is referred to as the “forex” or “FX” market.

Fundamental analysis

The assessment of all information available on a tradable product to determine its future outlook and therefore predict where the price is heading. Often non-measurable and subjective assessments, as well as quantifiable measurements, are made in fundamental analysis.

Gap / Gapping

A quick market move in which prices skip several levels without any trades occurring. Gaps usually follow economic data or news announcements.

GMT

Greenwich Mean Time – The most commonly referred time zone in the forex market. GMT does not change during the year, as opposed to daylight savings/summer time.

Going long

The purchase of a stock, commodity or currency for investment or speculation – with the expectation of the price increasing.

Going short

The selling of a currency or product not owned by the seller – with the expectation of the price decreasing.

Greenback

Nickname for the US dollar.

Hawk – hawkish

A country’s monetary policy-makers are referred to as ‘hawkish’ when they believe that higher interest rates are needed, usually to combat inflation or restrain rapid economic growth or both.

Hedge

A position or combination of positions that reduces the risk of your primary position.

Hit the bid

To sell at the current market bid.

Inflation

An economic condition whereby prices for consumer goods rise, eroding purchasing power.

Initial margin requirement

The initial deposit of collateral required to enter into a position.

Interbank rates

The Foreign Exchange rates which large international banks quote to each other.

Interest

Adjustments in cash to reflect the effect of owing or receiving the notional amount of equity of a CFD position.

Intervention

Action by a central bank to affect the value of its currency by entering the market. Concerted intervention refers to action by a number of central banks to control exchange rates.

Introducing broker

A person or corporate entity which introduces accounts to a broker in return for a fee.

Kiwi

Nickname for NZD/USD.

Last dealing day

The last day you may trade a particular product.

Last dealing time

The last time you may trade a particular product.

Leading indicators

Statistics that are considered to predict future economic activity.

Level

A price zone or particular price that is significant technically or based on reported orders/option interest.

Leverage

Also known as margin, this is the percentage or fractional increase you can trade from the amount of capital you have available. It allows traders to trade notional values far higher than the capital they have. For example: leverage of 100:1 means you can trade a notional value 100 times greater than the capital in your trading account.*

Limits / Limit order

An order that seeks to buy at lower levels than the current market or sell at higher levels than the current market. A limit order sets restrictions on the maximum price to be paid or the minimum price to be received. As an example, if the current price of USD/YEN is 117.00/05, then a limit order to buy USD would be at a price below the current market, e.g. 116.50.

Liquid market

A market which has sufficient numbers of buyers and sellers for the price to move in a smooth manner.

Liquidation

The closing of an existing position through the execution of an offsetting transaction.

Liquidity

The ability of a market to accept large transactions with minimal to no impact on price stability.

London session

08:00 – 17:00 (London).

Long position

A position that appreciates in value if market price increases. When the base currency in the pair is bought, the position is said to be long. This position is taken with the expectation that the market will rise.

Longs

Traders who have bought a product.

Loonie

Nickname for USD/CAD.

Lot

A unit to measure the amount of the deal. The value of the deal always corresponds to an integer number of lots.

Margin

The required collateral that an investor must deposit to hold a position.

Margin call

A request from a broker or dealer for additional funds or other collateral on a position that has moved against the customer

Market maker

A dealer who regularly quotes both bid and ask prices and is ready to make a two-sided market for any financial product.

Market order

An order to buy or sell at the current price.

Market risk

Exposure to changes in market prices.

Mark-to-market

Process of re-evaluating all open positions in light of current market prices. These new values then determine margin requirements.

Momentum

A series of technical studies (e.g. RSI, MACD, Stochastics, Momentum) that assesses the rate of change in prices.

Momentum players

Traders who align themselves with an intra-day trend that attempts to grab 50-100 pips.

Net position

The amount of currency bought or sold which has not yet been offset by opposite transactions.

New York session

8:00am – 5:00pm (New York time).

Offer (also known as the Ask price)

The price at which the market is prepared to sell a product. Prices are quoted two-way as Bid/Offer. The Offer price is also known as the Ask. The Ask represents the price at which a trader can buy the base currency, which is shown to the right in a currency pair. For example, in the quote USD/CHF 1.4527/32, the base currency is USD, and the ask price is 1.4532, meaning you can buy one US dollar for 1.4532 Swiss francs.

 

One cancels the other order (OCO)

A designation for two orders whereby if one part of the two orders is executed, then the other is automatically cancelled.

Open order

An order that will be executed when a market moves to its designated price. Normally associated with Good ’til Cancelled Orders.

Open position

An active trade with corresponding unrealized P&L, which has not been offset by an equal and opposite deal.

Order

An instruction to execute a trade.

Over the counter (OTC)

Used to describe any transaction that is not conducted via an exchange.

Overnight position

A trade that remains open until the next business day.

Pair

The forex quoting convention of matching one currency against the other.

Pips

The smallest unit of price for any foreign currency, pips refer to digits added to or subtracted from the fourth decimal place, i.e. 0.0001.

Position

The net total holdings of a given product.

Price transparency

Describes quotes to which every market participant has equal access.

Profit

The difference between the cost price and the sale price, when the sale price is higher than the cost price.

Pullback

The tendency of a trending market to retrace a portion of the gains before continuing in the same direction.

Quote

An indicative market price, normally used for information purposes only.

Quantitative easing

When a central bank injects money into an economy with the aim of stimulating growth.

Rally

A recovery in price after a period of decline.

Range

When a price is trading between a defined high and low, moving within these two boundaries without breaking out from them.

Rate

The price of one currency in terms of another, typically used for dealing purposes.

RBA

Reserve Bank of Australia, the central bank of Australia.

RBNZ

Reserve Bank of New Zealand, the central bank of New Zealand.

Real money

Traders of significant size including pension funds, asset managers, insurance companies, etc. They are viewed as indicators of major long-term market interest, as opposed to shorter-term, intraday speculators.

Realized profit / loss

The amount of money you have made or lost when a position has been closed.

Resistance level

A price that might act as a ceiling. The opposite of support.

Retail investor

An individual investor who trades with money from personal wealth, rather than on behalf of an institution.

Risk

Exposure to uncertain change, most often used with a negative connotation of adverse change.

Risk management

The employment of financial analysis and trading techniques to reduce and/or control exposure to various types of risk.

Rollover

A rollover is the simultaneous closing of an open position for today’s value date and the opening of the same position for the next day’s value date at a price reflecting the interest rate differential between the two currencies.

In the spot forex market, trades must be settled in two business days. For example, if a trader sells 100,000 Euros on Tuesday, then the trader must deliver 100,000 Euros on Thursday, unless the position is rolled over. As a service to customers, all open forex positions at the end of the day (5:00 PM New York time) are automatically rolled over to the next settlement date. The rollover (or swap) adjustment is simply the accounting of the cost-of-carry on a day-to-day basis.

Round trip

A trade that has been opened and subsequently closed by an equal and opposite deal.

Running profit / loss

An indicator of the status of your open positions; that is, unrealized money that you would gain or lose should you close all your open positions at that point in time.

Sell

Taking a short position in expectation that the market is going to go down.

 

Short position

An investment position that benefits from a decline in market price. When the base currency in the pair is sold, the position is said to be short.

 

Short squeeze

A situation in which traders are heavily positioned on the short side and a market catalyst causes them to cover (buy) in a hurry, causing a sharp price increase.

 

Short-covering

After a decline, traders who earlier went short begin buying back.

 

Shorts

Traders who have sold, or shorted, a product, or those who are bearish on the market.

 

Sidelines, sit on hands

Traders staying out of the markets due to directionless, choppy, unclear market conditions are said to be ‘on the sidelines’ or ‘sitting on their hands’.

Simple Moving Average (SMA)

A simple average of a pre-defined number of price bars. For example, a 50 period daily chart SMA is the average closing price of the previous 50 daily closing bars. Any time interval can be applied.

 

Slippage

The difference between the price that was requested and the price obtained typically due to changing market conditions.

Sloppy

Choppy trading conditions that lack any meaningful trend and/or follow-through.

SNB

Swiss National Bank, the central bank of Switzerland.

Sovereign names

Refers to central banks active in the spot market.

Spot market

A market whereby products are traded at their market price for immediate exchange.

Spot price

The current market price. Settlement of spot transactions usually occurs within two business days.

Spot trade

The purchase or sale of a product for immediate delivery (as opposed to a date in the future). Spot contracts are typically settled electronically.

 

Spread

The difference between the bid and offer prices.

Sterling

Nickname for GBP/USD. Also known as Pound or British Pound.

Stock exchange

A market on which securities are traded.

Stock index

The combined price of a group of stocks – expressed against a base number – to allow assessment of how the group of companies is performing relative to the past.

Stop loss hunting

When a market seems to be reaching for a certain level that is believed to be heavy with stops. If stops are triggered, then the price will often jump through the level as a flood of stop-loss orders are triggered.

Stop order

A stop order is an order to buy or sell once a pre-defined price is reached. When the price is reached, the stop order becomes a market order and is executed at the best available price. It is important to remember that stop orders can be affected by market gaps and slippage, and will not necessarily be executed at the stop level if the market does not trade at this price. A stop order will be filled at the next available price once the stop level has been reached. Placing contingent orders may not necessarily limit your losses.

Stop entry order

This is an order placed to buy above the current price, or to sell below the current price. These orders are useful if you believe the market is heading in one direction and you have a target entry price.

Stop loss order

This is an order placed to sell below the current price (to close a long position), or to buy above the current price (to close a short position). Stop loss orders are an important risk management tool. By setting stop loss orders against open positions you can limit your potential downside should the market move against you. Remember that stop orders do not guarantee your execution price – a stop order is triggered once the stop level is reached, and will be executed at the next available price.

Stops building

Refers to stop-loss orders building up; the accumulation of stop-loss orders to buy above the market in an upmove, or to sell below the market in a downmove.

Support

A price that acts as a floor for past or future price movements.

Support levels

A technique used in technical analysis that indicates a specific price ceiling and floor at which a given exchange rate will automatically correct itself. Opposite of resistance.

Swap

A currency swap is the simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate.

SWISSIE

The nickname for USD/CHF.

T/P

Stands for “take profit.” Refers to limit orders that look to sell above the level that was bought, or buy back below the level that was sold.

Technical analysis

The process by which charts of past price patterns are studied for clues as to the direction of future price movements.

Technicians or Techs

Traders who base their trading decisions on technical or charts analysis.

Tokyo session

09:00 – 18:00 (Tokyo).

Trade size

The number of units of product in a contract or lot.

Trading bid

A pair is acting strong and/or moving higher; bids keep entering the market and pushing prices up.

Trading range

The range between the highest and lowest price of a stock usually expressed with reference to a period of time. For example: 52-week trading range.

Trailing stop

A trailing stop allows a trade to continue to gain in value when the market price moves in a favorable direction, but automatically closes the trade if the market price suddenly moves in an unfavorable direction by a specified distance. Placing contingent orders may not necessarily limit your losses.

Transaction cost

The cost of buying or selling a financial product.

Transaction date

The date on which a trade occurs.

Trend

Price movement that produces a net change in value. An uptrend is identified by higher highs and higher lows. A downtrend is identified by lower highs and lower lows.

Two-way price

When both a bid and offer rate is quoted for an FX transaction.

Unemployment rate

Measures the total workforce that is unemployed and actively seeking employment, measured as a percentage of the labor force.

Unrealized gain/loss

The theoretical gain or loss on open positions valued at current market rates, as determined by the broker in its sole discretion. Unrealized Gains/Losses become Profits/Losses when the position is closed.

Volatility

Referring to active markets that often present trade opportunities.

Wedge chart pattern

Chart formation that shows a narrowing price range over time, where price highs in an ascending wedge decrease incrementally, or in a descending wedge, price declines are incrementally smaller. Ascending wedges typically conclude with a downside breakout and descending wedges typically terminate with upside breakouts.

Whipsaw

Slang for a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.