Reference

The forex glossary

48 entries covering the mechanics, orders, risk, analysis and money side of currency trading. Each definition is written so it can be understood without already knowing three other terms, and every entry links to the ones next to it in meaning.

By categoryMechanics · 9Orders · 6Risk · 9Analysis · 12Market · 7Money · 5

A

2 entriesBack to top

ArbitrageProfiting from the same asset being priced differently in two places.Ask (offer)The price at which you can buy the base currency.

B

4 entriesBack to top

BacktestingApplying written rules to historical data to estimate how they performed.Base currencyThe first currency in a pair — the one being priced.BidThe price at which you can sell the base currency.BrokerThe firm that holds your funds and executes your orders.

C

4 entriesBack to top

CandlestickA chart element summarising open, high, low and close for one period.Carry tradeHolding a higher-yielding currency against a lower-yielding one to earn the rate differential.CorrelationThe degree to which two pairs move together, from −1 to +1.Currency pairTwo currencies quoted against each other as a single tradeable instrument.

D

1 entryBack to top

DrawdownThe decline from an account's peak to its subsequent low.

E

2 entriesBack to top

EquityAccount balance adjusted for open profit and loss.ExpectancyThe average profit or loss, in R, that a strategy produces per trade.

F

1 entryBack to top

Fundamental analysisValuing a currency from economic data, policy and capital flows.

G

2 entriesBack to top

GapA jump between one period's close and the next period's open with no trading in between.Going long & going shortBuying to profit from a rise, or selling to profit from a fall.

H

1 entryBack to top

HedgingTaking an offsetting position to reduce exposure you cannot or will not close.

L

4 entriesBack to top

LeverageBorrowed exposure that lets a small deposit control a large position.Limit orderAn instruction to trade only at a specified price or better.LiquidityHow easily an asset can be traded without moving its price.LotThe standard unit of trade size in forex.

M

3 entriesBack to top

MarginThe deposit a broker requires to open a leveraged position.Margin callA warning that equity has fallen too close to required margin.Market orderAn instruction to trade immediately at the best available price.

P

3 entriesBack to top

PipThe smallest standard price move of a currency pair.Portfolio heatThe total you would lose if every open stop were hit at once.Position sizingChoosing trade size so that the stop distance costs exactly your risk budget.

Q

1 entryBack to top

Quote currencyThe second currency in a pair — the one the price is expressed in.

R

4 entriesBack to top

R multipleA trade's result expressed as a multiple of the amount risked.Risk / reward ratioThe size of a trade's target compared with the amount risked.Risk managementThe discipline of losing small so you survive to trade the good setups.RolloverThe daily point at which open positions are rolled to the next value date.

S

7 entriesBack to top

ScalpingTaking many very short trades for a handful of pips each.SlippageThe difference between expected and actual fill price.SpreadThe gap between the bid and ask price — your entry cost.Stop lossA resting order that closes a losing trade at a set level.Stop orderAn order that triggers once price passes a level, then executes at market.Support & resistancePrice areas where buying or selling has repeatedly halted a move.Swap (rollover interest)The interest credit or debit applied for holding a position overnight.

T

7 entriesBack to top

Take profitA resting order that locks in gains at a target price.Technical analysisStudying price and volume history to form trading decisions.TimeframeThe period each candle on a chart represents.Trading journalA contemporaneous record of every trade and the reasoning behind it.Trading planWritten rules covering entry, exit, risk, hours and no-trade conditions.Trading sessionThe regional windows — Sydney, Tokyo, London, New York — that shape the forex day.TrendA directional sequence of higher highs and higher lows, or the reverse.

V

1 entryBack to top

VolatilityThe size and speed of a market's price swings.

W

1 entryBack to top

Win rateThe percentage of trades that close profitably.

Where these terms are taught

The glossary is reference, not instruction. Every term here is introduced properly somewhere in the curriculum — pips and lots at the white belt, structure and order types at the yellow, sizing and drawdown at the green, expectancy and journalling at the brown.