Forex glossary
102 common forex and trading terms in plain language, with short worked examples where numbers help. The definitions are for learning; they are not trading instructions.
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The currency your trading account balance is held in, such as USD or EUR. Profits, losses, margin and pip values are converted into this currency.
ExampleWith a USD account, a profit made in Japanese yen on USD/JPY is converted back into dollars when the trade closes.
See also: Pip value, Quote currency
The price at which you can buy a currency pair. It is always slightly higher than the bid; the gap between the two is the spread.
ExampleEUR/USD quoted 1.0850 / 1.0851: the ask is 1.0851, so a buy opens there.
Testing a set of trading rules on past price data to see how they would have behaved. Results can look better than live trading because past data is known in advance and costs or slippage may be missing.
See also: Trading plan, Expectancy
The first currency in a pair. The quote tells you how much of the second (quote) currency one unit of the base currency costs.
ExampleIn GBP/USD 1.2700, GBP is the base currency: 1 pound costs 1.27 dollars.
See also: Quote currency, Currency pair
Expecting or describing a falling price. A bear market is a period of broadly falling prices. It is a description, not a forecast that is guaranteed to continue.
See also: Bullish, Short position
The price at which you can sell a currency pair. Charts on most platforms show the bid price.
ExampleEUR/USD quoted 1.0850 / 1.0851: the bid is 1.0850, so a sell opens there and a buy closes there.
The price at which a trade neither gains nor loses. Because of the spread and other costs, a new trade starts slightly below breakeven. "Moving the stop to breakeven" means placing the stop loss at the entry price.
See also: Spread, Stop loss Try it in the simulator
Price moving beyond a level or range that has held for a while, such as support or resistance. Many breakouts fail and reverse, so it is a description of what happened, not a signal of what will happen.
See also: Support, Resistance, Range
A firm that gives you access to the market and holds your account. Brokers differ in regulation, costs, leverage limits and how they handle orders, so it is worth checking who regulates a broker before opening an account.
See also: Market maker, ECN, Spread
Expecting or describing a rising price. A bull market is a period of broadly rising prices.
See also: Bearish, Long position
A chart bar that shows four prices for one period: open, high, low and close. The body spans open to close; the thin wicks show the high and low. A candle is usually coloured one way when it closes higher and another when it closes lower.
See also: OHLC, Timeframe Try it in the simulator
Holding a currency with a higher interest rate against one with a lower rate, aiming to earn the daily swap. Exchange-rate moves can easily outweigh the interest earned.
See also: Swap, Interest rate differential
The institution that sets a country's interest rates and monetary policy, such as the Federal Reserve (US), the European Central Bank or the Bank of Japan. Its decisions and statements can move currencies sharply.
See also: Hawkish, Dovish, Fundamental analysis
Contract for difference: a contract to exchange the change in an asset's price, without owning the asset. Many brokers offer forex as CFDs. CFDs are leveraged and carry a high risk of loss; in some countries, including the United States, they are not offered to retail traders.
A fee charged per trade, often per lot, on top of or instead of a wider spread. Include it when working out the true cost of a trade.
ExampleA $7 round-turn commission per standard lot on a trade of 0.50 lots costs $3.50.
How closely two prices tend to move together. Positively correlated pairs often move in the same direction; negatively correlated pairs often move in opposite directions. Holding several correlated trades can add up to one larger bet.
ExampleBuying both EUR/USD and GBP/USD is partly the same trade: selling US dollars.
See also: Risk per trade
A currency pair that does not include the US dollar, such as EUR/GBP or AUD/JPY. Also called a cross.
See also: Major pair, Minor pair
Two currencies quoted against each other, written as BASE/QUOTE. Buying the pair means buying the base currency and selling the quote currency at the same time.
ExampleBuying EUR/USD means buying euros and selling dollars.
See also: Base currency, Quote currency, Exchange rate
Opening and closing trades within the same day, so no positions are held overnight. It needs time at the screen and keeps costs such as spread high relative to the size of the moves targeted.
See also: Scalping, Swing trading, Position trading
A practice account with virtual money, usually provided by a broker with real or delayed prices. It is useful for learning a platform, but the absence of real money changes how most people make decisions.
See also: Trading psychology Try it in the simulator
Describes a central bank or official leaning towards lower interest rates or looser policy. Dovish surprises often weaken a currency, though markets react to expectations, not just the news itself.
See also: Hawkish, Central bank
A fall in account equity from its highest point to a later low, shown in money or as a percentage. Maximum drawdown is the largest such fall over a period. Losses are harder to recover than they look: a 20% drawdown needs a 25% gain to get back to the peak.
ExampleEquity falls from $10,000 to $8,500: a $1,500 or 15% drawdown, needing about a 17.6% gain to recover.
See also: Equity, Risk per trade Try it in the simulator
Electronic communication network: a system that matches orders between many participants. ECN-style accounts usually have raw spreads plus a commission.
See also: Broker, Market maker, Commission
A schedule of upcoming economic data releases and central bank events, such as inflation, employment and interest rate decisions. Prices can move fast and spreads can widen around these times.
See also: Non-farm payrolls, Volatility, Slippage
Your balance plus or minus the profit or loss on open trades. It is what the account would be worth if every position were closed at current prices.
ExampleBalance $10,000 with an open trade showing −$250: equity is $9,750.
See also: Free margin, Margin level, Unrealised P/L Try it in the simulator
The price of one currency expressed in another. In forex, it is shown as a currency pair quote.
ExampleUSD/JPY at 150.00 means 1 US dollar buys 150 Japanese yen.
See also: Currency pair
A pair that combines a major currency with the currency of a smaller or emerging economy, such as USD/TRY or EUR/ZAR. Exotics often have wider spreads, larger swaps and sharper moves.
See also: Major pair, Minor pair, Liquidity
The average amount a set of trades wins or loses per trade over time. It combines win rate and the size of wins and losses: (win rate × average win) − (loss rate × average loss).
Example40% wins averaging $200 and 60% losses averaging $100: 0.4 × 200 − 0.6 × 100 = $20 per trade, before costs.
See also: Win rate, R multiple, Profit factor
The completion of an order at a price. The fill price is the price you actually got, which can differ from the price you saw or requested.
See also: Slippage, Market order
Short for foreign exchange: the global market for exchanging currencies, also called FX. It runs around the clock on weekdays and is one of the largest financial markets in the world by turnover.
See also: Currency pair, Trading session
Equity minus the margin already used by open positions. It is the amount available to open new trades or to absorb losses before a margin call.
ExampleEquity $9,750 with $1,200 used margin: free margin is $8,550.
See also: Margin, Equity, Margin call Try it in the simulator
Studying economic data, interest rates, central bank policy and events to judge what may affect a currency's value. It explains context well but rarely gives precise timing.
See also: Technical analysis, Economic calendar, Central bank
A jump in price from one level to another with no trading in between, most often after the weekend or a major news release. Stop orders in a gap usually fill at the next available price, which can be much worse than the stop level.
ExampleA stop at 1.0800 when the market reopens at 1.0760 typically fills near 1.0760, not 1.0800.
Describes a central bank or official leaning towards higher interest rates or tighter policy to control inflation. Hawkish surprises often support a currency.
See also: Dovish, Central bank
Taking a position to offset the risk of another. Businesses hedge currency exposure from trade; traders sometimes hedge with an opposite or correlated position. A hedge reduces risk but also limits gains and usually adds cost.
See also: Correlation
The wholesale market where large banks trade currencies with each other. Retail brokers' prices are ultimately derived from it.
The difference between the interest rates of the two currencies in a pair. It drives the swap charged or paid on positions held overnight.
See also: Swap, Carry trade
Controlling a larger position than the money set aside for it, expressed as a ratio such as 1:30. Leverage magnifies gains and losses alike. Regulators in several regions cap it for retail traders, for example at 30:1 on major pairs in the EU and UK and 50:1 in the US.
ExampleAt 1:30, a $100,000 position needs about $3,333 of margin. A 1% move against it costs $1,000, which is 30% of that margin.
See also: Margin, Margin call Try it in the simulator
A pending order to buy below the current price or sell above it. It fills only at the limit price or better. Take-profit orders are a type of limit order.
ExampleEUR/USD at 1.0850: a buy limit at 1.0820 waits for price to fall to 1.0820.
See also: Stop order, Pending order, Take profit
How easily something can be bought or sold without moving the price much. Highly liquid pairs such as EUR/USD usually have tight spreads; liquidity can thin out at session changes, holidays and during news.
A buy trade. It gains when the price rises and loses when it falls.
ExampleLong 1 lot EUR/USD from 1.0850 to 1.0880 is +30 pips, about +$300.
See also: Short position, Bullish
The unit used to size a forex trade. Lot sizes are usually entered in decimals of a standard lot.
Example0.25 lots = 25,000 units of the base currency.
See also: Standard lot, Mini lot, Micro lot, Position size Position size calculator
Moving Average Convergence Divergence: an indicator built from the difference between two exponential moving averages (commonly 12 and 26 periods) and a signal line (commonly 9). It describes momentum in past prices and lags the price.
See also: Moving average, Technical analysis
One of the most traded pairs, each combining the US dollar with another major currency: EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD, USD/CAD and NZD/USD. They usually have the tightest spreads.
See also: Minor pair, Exotic pair, Cross pair
The deposit a broker sets aside from your account to keep a leveraged position open. It is not a fee, and it is not the most you can lose.
Example0.10 lots of EUR/USD at 1.0850 is a $10,850 position. At 1:30, the margin is about $361.67.
See also: Leverage, Free margin, Margin level Try it in the simulator
A warning that equity has fallen close to the margin needed for open positions. You may need to add funds or reduce positions; if losses continue, a stop-out can close trades automatically.
See also: Margin level, Stop-out Try it in the simulator
Equity divided by used margin, as a percentage. Brokers use it to trigger margin calls and stop-outs; the exact thresholds vary.
ExampleEquity $1,500 and used margin $1,000: margin level 150%.
See also: Margin call, Stop-out, Equity Try it in the simulator
A firm that quotes both a buy and a sell price and takes the other side of client trades. Many retail brokers act as market makers for some or all orders.
An order to buy or sell immediately at the best available price. It fills quickly, but the price can differ from the last quote, especially in fast markets.
See also: Limit order, Slippage, Fill
1,000 units of the base currency, entered as 0.01 lots. On a USD-quoted pair, one pip is worth about $0.10.
See also: Lot, Mini lot, Standard lot Pip calculator
10,000 units of the base currency, entered as 0.10 lots. On a USD-quoted pair, one pip is worth about $1.
See also: Lot, Micro lot, Standard lot Pip calculator
A pair of two major currencies that does not include the US dollar, such as EUR/GBP, EUR/JPY or GBP/JPY. Spreads are usually a little wider than on majors.
See also: Major pair, Cross pair, Exotic pair
The average closing price over a set number of past bars, drawn as a line that smooths price. A simple moving average weights every bar equally; an exponential one gives more weight to recent bars.
See also: MACD, Trend, Technical analysis
A rule or broker policy that stops a retail account from losing more than its balance, so the balance cannot go below zero after a sharp move. It is required for retail clients in some regions, such as the EU and UK, but not everywhere.
A monthly US employment report from the Bureau of Labor Statistics, usually released on the first Friday of the month. Often shortened to NFP, it regularly causes large, fast moves in USD pairs.
See also: Economic calendar, Volatility
The full value of a position, as opposed to the margin put up for it. Risk comes from the notional value, so it is worth knowing what it is.
Example1 standard lot of EUR/USD at 1.0850 has a notional value of $108,500.
Open, high, low, close: the four prices that summarise a bar or candle for one period.
See also: Candlestick, Timeframe
Trading too often or too large, usually from boredom, chasing losses or overconfidence. It raises costs and makes losses grow faster.
See also: Trading psychology, Trading plan, Revenge trading
An order that waits to be triggered at a price you set, instead of filling immediately. Limit and stop orders are pending orders.
See also: Limit order, Stop order
The standard unit for measuring a price move in a currency pair. For most pairs one pip is 0.0001; for pairs with the Japanese yen as the quote currency it is 0.01.
ExampleEUR/USD from 1.0850 to 1.0875 is 25 pips. USD/JPY from 150.20 to 150.45 is also 25 pips.
See also: Pipette, Pip value, Point Pip calculator
How much one pip is worth in money for a given position size. For pairs quoted in your account currency it is fixed; otherwise it changes with the exchange rate.
ExampleWith a USD account: 1 lot EUR/USD = $10 per pip. 1 lot USD/JPY at 150.00 = 0.01 × 100,000 ÷ 150 ≈ $6.67 per pip.
See also: Pip, Lot, Account currency Pip calculator
A tenth of a pip, shown as the fifth decimal place on most pairs (the third on yen pairs). Also called a fractional pip.
ExampleEUR/USD 1.08503: the final 3 is three pipettes, or 0.3 pips.
The smallest price step a platform shows. On many platforms a point equals a pipette, so 10 points make one pip. Check how your platform defines it before setting stops in points.
How large a trade is, in lots or units. Sizing a position from the stop distance and the amount you are prepared to lose keeps risk consistent from trade to trade.
Example$10,000 account, 1% risk = $100. With a 25-pip stop on EUR/USD ($10 per pip per lot): $100 ÷ (25 × $10) = 0.40 lots.
See also: Risk per trade, Stop loss, Lot Position size calculator
Holding trades for weeks or months based on longer-term views. Swaps and large adverse moves matter more over long holding periods.
See also: Swing trading, Day trading, Swap
Gross profit divided by gross loss over a set of trades. Above 1 means winners made more than losers lost. Small samples can give misleading values.
ExampleWinners total $1,500 and losers total $1,000: profit factor 1.5.
See also: Expectancy, Win rate Try it in the simulator
A short move against the prevailing trend before it may resume. In real time it is impossible to know whether a move is a pullback or the start of a reversal.
The second currency in a pair. Prices, and therefore profits and losses before conversion, are expressed in it.
ExampleIn USD/JPY, the yen is the quote currency, so a 1-lot, 10-pip move is worth 10,000 yen.
See also: Base currency, Pip value
A trade result expressed as a multiple of the amount risked at the original stop (R). It lets you compare trades of different sizes.
ExampleRisk $100, close at +$250: +2.5R. A loss stopped out as planned is −1R.
See also: Risk:reward ratio, Expectancy Try it in the simulator
A period when price moves sideways between a fairly clear high and low, rather than trending. Also used for the distance between a bar's high and low.
See also: Breakout, Support, Resistance
Profit or loss that has been locked in by closing a trade. It changes the account balance.
See also: Unrealised P/L, Equity
When a broker cannot fill an order at the requested price and offers a different price instead, which you can accept or reject. More common in fast markets.
See also: Slippage, Market order
A price area where rising prices have previously stalled or reversed. It is a zone drawn from past behaviour, not a barrier price must respect.
Jumping into a new trade, often larger, to win back a recent loss. It usually breaks the trading plan and can turn one loss into several.
See also: Trading psychology, Overtrading
The amount you would lose if a trade hits its stop, usually stated as a percentage of the account. Many educational resources use 1–2% as a reference for practice; the right figure depends on your situation and is never a guarantee.
ExampleAt 1% risk, ten losses in a row reduce a $10,000 account to about $9,044. At 5%, the same streak leaves about $5,987.
See also: Position size, Drawdown, Stop loss Position size calculator
The distance to the stop loss compared with the distance to the take profit. It says how much a trade could gain relative to what it risks, but nothing about how likely either outcome is.
Example20-pip stop and 40-pip target: 1:2. You would need to win more than one trade in three to break even, before costs.
See also: R multiple, Win rate, Expectancy Risk / reward calculator
Carrying an open position from one trading day to the next, usually at 5 pm New York time. Rollover is when swap is charged or paid.
See also: Swap
Relative Strength Index: a momentum indicator from 0 to 100 that compares recent gains with recent losses, commonly over 14 periods. Readings above 70 or below 30 are often called overbought or oversold, but prices can stay there for a long time.
See also: Technical analysis, MACD
A currency that has tended to strengthen when markets are stressed, such as the Japanese yen, the Swiss franc or the US dollar. The pattern is common but not reliable.
See also: Volatility, Correlation
Very short-term trading that aims to capture small moves, often a few pips, many times a day. Spreads and commissions take up a large share of each target.
See also: Day trading, Spread
A sell trade. It gains when the price falls and loses when it rises. In forex, selling a pair means selling the base currency and buying the quote currency.
ExampleShort 1 lot EUR/USD from 1.0850 to 1.0820 is +30 pips, about +$300.
See also: Long position, Bearish
The difference between the price you expected and the price you got. It is most common around news, gaps and in thin markets, and it can apply to stop losses.
ExampleA sell stop at 1.0800 fills at 1.0795: 5 pips of negative slippage.
The difference between the ask and bid prices. It is a cost paid on every trade, and it can widen during news, at the daily rollover or when liquidity is thin.
ExampleBid 1.0850, ask 1.0851: a 1-pip spread. On 1 lot of EUR/USD that costs $10 as soon as the trade opens.
See also: Bid, Ask, Liquidity Try it in the simulator
100,000 units of the base currency, entered as 1.00 lot. On a USD-quoted pair, one pip is worth $10.
See also: Lot, Mini lot, Micro lot Pip calculator
An order that closes a trade at a set price to limit a loss. It defines where the trade idea is wrong. A stop does not guarantee the exit price: in a gap or fast market it can fill worse.
ExampleBuy EUR/USD at 1.0850 with a stop at 1.0825: a 25-pip stop.
See also: Take profit, Slippage, Trailing stop Try it in the simulator
A pending order to buy above the current price (buy stop) or sell below it (sell stop). Once triggered, it becomes a market order. Stop losses are a type of stop order.
ExampleEUR/USD at 1.0850: a buy stop at 1.0880 triggers only if price rises to 1.0880.
See also: Limit order, Pending order
The automatic closing of positions by a broker when the margin level falls to a set threshold, often around 50% for retail accounts. Positions close at the market price, which can be far from where you would have chosen.
See also: Margin call, Margin level Try it in the simulator
A price area where falling prices have previously stalled or reversed. It can break, and once broken it is sometimes watched as resistance.
See also: Resistance, Breakout
The interest charged or paid for holding a position overnight, based on the interest rate difference between the two currencies plus the broker's markup. Many brokers apply three days of swap on one weekday to cover the weekend.
ExampleHolding a pair long where the base currency has the lower interest rate usually means paying swap each night.
See also: Rollover, Carry trade, Interest rate differential
Holding trades for several days to a few weeks to capture larger price swings. It needs wider stops, smaller positions for the same risk, and attention to swap costs.
See also: Day trading, Position trading
An order that closes a trade at a set price once it reaches a target. It locks in a gain if price gets there, but it can also close a trade before a larger move.
ExampleBuy EUR/USD at 1.0850 with a take profit at 1.0900: a 50-pip target.
See also: Stop loss, Limit order, Risk:reward ratio Try it in the simulator
Studying past price and volume on charts, using tools such as trend lines, support and resistance and indicators, to describe what the market has been doing. It does not reliably predict what it will do next.
See also: Fundamental analysis, Support, Moving average
The length of time each bar on a chart covers, such as 1 minute (M1), 15 minutes (M15), 1 hour (H1) or 1 day (D1). The same market can look trending on one timeframe and ranging on another.
See also: Candlestick, OHLC
A record of each trade: the reason for entering, size, stop, target, outcome and what you learned. Reviewing it is one of the most reliable ways to spot habits.
See also: Trading plan, R multiple
Written rules for what you trade, when you enter and exit, how much you risk and what you do after losses. It makes decisions repeatable and easier to review.
See also: Risk per trade, Trading journal
How emotions such as fear, greed, impatience and overconfidence affect decisions under uncertainty. Common results are moving stops, closing winners too early and revenge trading.
See also: Revenge trading, Overtrading, Trading plan
The main business hours of the big trading centres: Sydney, Tokyo, London and New York. The market runs 24 hours a day on weekdays, and activity is usually highest when the London and New York sessions overlap.
See also: Liquidity, Volatility
A stop loss that moves automatically in the direction of a profitable trade by a set distance, but never moves back. It can protect gains, though it can also close a trade on a normal pullback.
ExampleA 20-pip trailing stop on a buy from 1.0850 moves to 1.0860 when price reaches 1.0880.
The general direction of price over a period: higher highs and higher lows in an uptrend, lower highs and lower lows in a downtrend. Trends are clear in hindsight and uncertain while they are happening.
See also: Pullback, Moving average, Range
The profit or loss on a trade that is still open, also called floating P/L. It changes with every price move and becomes realised only when the trade closes.
See also: Realised P/L, Equity Profit / loss calculator
How much and how quickly price moves. Higher volatility means larger swings in both directions, which calls for wider stops or smaller positions to keep the same risk.
See also: Liquidity, Economic calendar, Position size
The share of trades that close in profit. On its own it says little: a low win rate can work with large winners, and a high win rate can still lose money if losses are large.
Example45 winners out of 100 trades: a 45% win rate.
See also: Expectancy, Risk:reward ratio, Profit factor Try it in the simulator