Forex Trading Glossary
If you are a beginner and new to the world of trading, you may find our forex trading glossary helpful in clarifying the definition of terminology commonly-used by Brokers. The glossary is a valuable resource we have put together to share knowledge and provides an easy-to-use reference.
A
Ask Price
The Ask Price, also known as the offer price, is the value at which a seller is willing to sell a financial instrument, such as a stock or currency pair. It represents the minimum price a seller is willing to accept for the asset.
Algorithmic Trading
Algorithmic Trading involves using computer algorithms to execute trading strategies. These algorithms analyze market data and execute trades at high speeds, allowing for efficient and systematic trading.
Arbitrage
Arbitrage is the practice of exploiting price differences of the same asset in different markets or exchanges to make a profit. Traders buy low in one market and sell high in another, capitalizing on inefficiencies.
Average True Range
The Average True Range (ATR) is a volatility indicator that measures market volatility by considering the range between the high and low prices over a specific period. Traders use ATR to set stop-loss levels and assess potential price movements.
B
Base Currency
The Base Currency is the first currency in a forex pair, setting the reference point for the exchange rate. For instance, in EUR/USD, the Euro (EUR) is the base currency.
Bear Market
A Bear Market is a financial market characterised by declining prices and pessimistic investor sentiment. During a bear market, investors are generally cautious, leading to increased selling activity.
Bid Price
The Bid Price is the value at which a buyer is willing to pay for a financial instrument, determining the asset’s current market value. Traders closely monitor the Bid Price when entering or exiting trades to gauge market demand.
Bull Market
A Bull Market refers to a financial market characterised by rising prices and optimistic investor sentiment. During a bull market, investors are generally confident in the upward trajectory of asset prices, leading to increased buying activity.
Breakout
A Breakout occurs when the price of an asset moves above or below a significant level of support or resistance. Traders often view breakouts as potential signals of a new trend.
Buy and Hold
Buy and Hold is an investment strategy where an investor purchases securities and holds onto them for an extended period, regardless of short-term market fluctuations. This approach relies on the potential for long-term appreciation
C
Candlestick Chart
A Candlestick Chart is a graphical representation of price movements in financial markets. Each candlestick typically shows the opening, closing, high, and low prices for a specific time period. Traders use these charts to analyze trends and make informed decisions.
Commodity
A Commodity is a raw material or primary agricultural product that can be bought and sold, such as gold, oil, or wheat. Commodities are traded on exchanges and often serve as the basis for derivative contracts.
Contract for Difference (CFD)
A Contract for Difference is a financial derivative that allows traders to speculate on price movements without owning the underlying asset. CFDs enable traders to profit from both rising and falling markets.
Correlation
Correlation measures the statistical relationship between two or more assets. A positive correlation indicates that the assets move in the same direction, while a negative correlation suggests they move in opposite directions.
Cryptocurrency
Cryptocurrency is a digital or virtual currency that uses cryptography for security and operates on decentralized networks, typically based on blockchain technology. Bitcoin, Ethereum, and Ripple are examples of cryptocurrencies.
D
Day Trading
Day Trading involves buying and selling financial instruments within the same trading day. Day traders aim to capitalise on short-term price movements and typically do not hold positions overnight. This strategy requires quick decision-making and constant monitoring of the markets.
Derivative
A Derivative is a financial contract whose value is derived from the performance of an underlying asset, index, or rate. Common derivatives include options, futures, and swaps, providing investors with exposure to various markets.
Divergence
Divergence occurs when the price of an asset moves in the opposite direction of a technical indicator, signaling a potential change in trend. Traders use divergence to identify possible reversals or continuation patterns.
Double Top / Bottom
A Double Top is a chart pattern that signals a potential reversal of an uptrend, while a Double Bottom indicates a potential reversal of a downtrend. These patterns are formed by two consecutive peaks or troughs on a price chart.
E
Economic Indicator
An Economic Indicator is a statistic or data point that provides insights into the economic performance of a country. Examples include unemployment rates, GDP growth, and consumer confidence indexes, which impact financial markets.
Exchange
An Exchange is a platform where buyers and sellers come together to trade financial instruments. Stock exchanges, commodity exchanges, and cryptocurrency exchanges are examples of venues where trading occurs.
Exchange-Traded Fund (ETF)
An Exchange-Traded Fund (ETF) is a type of investment fund that holds a diversified portfolio of assets, such as stocks, bonds, or commodities. ETFs are traded on stock exchanges, providing investors with an easy way to gain exposure to various markets.
Equity
Equity refers to ownership in a company, usually represented by shares of stock. In trading, equity can also refer to the value of a trader’s account, calculated as the total market value of all positions.
F
Fibonacci Retracement
Fibonacci Retracement is a technical analysis tool based on the Fibonacci sequence. Traders use retracement levels to identify potential support or resistance levels in a price chart, helping them anticipate future price movements.
Forex (Foreign Exchange)
Forex, FX, or the Foreign Exchange market, is the global marketplace for trading currencies. It is the largest and most liquid financial market, where participants buy and sell different currencies based on exchange rates.
Fundamental Analysis
Fundamental Analysis involves evaluating a security’s intrinsic value by examining economic, financial, and other qualitative factors. Analysts assess company financials, industry trends, and macroeconomic indicators to make investment decisions.
Futures Contract
A Futures Contract is a standardised financial agreement to buy or sell an asset at a predetermined price on a specified future date. Futures are traded on organized exchanges and are used for hedging and speculation.
G
Gap
A Gap occurs when the price of a financial instrument opens significantly higher or lower than its previous closing price. Gaps often indicate strong market sentiment and can be used by traders to identify potential trend reversals or continuation.
Gross Domestic Product (GDP)
Gross Domestic Product (GDP) is the total value of goods and services produced within a country’s borders during a specific time. It serves as a key indicator of a nation’s economic health.
Gross National Product
Gross National Product (GNP) is similar to GDP but considers the income earned by a country’s residents and businesses abroad. It provides a broader view of a nation’s economic activity.
H
Hard Fork
A Hard Fork is a significant and often contentious change to the protocol of a blockchain network, resulting in a permanent divergence from the previous version. In both crypto and FX trading, a hard fork can lead to the creation of a new cryptocurrency or asset.
Hedge
Hedging is a risk management strategy used to offset potential losses in one investment by taking an opposite position in another. Traders hedge their positions to minimize risk and protect their portfolios from adverse market movements.
High-Frequency Trading (HFT)
High-Frequency Trading (HFT) involves using advanced algorithms and powerful computing systems to execute a large number of trades at extremely high speeds. Traders employing HFT aim to capitalize on small price differentials in the market.
I
Ichimoku Cloud
Ichimoku Cloud is a technical analysis tool used in both FX and crypto trading. It provides a comprehensive view of potential support and resistance levels, trend direction, and momentum. Traders use the cloud to make more informed decisions about entering or exiting trades.
ICO
An Initial Coin Offering (ICO) is a fundraising method in the crypto space. It involves issuing new tokens to investors in exchange for cryptocurrencies like Bitcoin or Ethereum. ICOs provide capital for new blockchain projects but come with regulatory considerations.
IPO
An Initial Public Offering (IPO) is the first sale of a company’s stock to the public. It marks the transition from a privately held company to a publicly traded one. Investors can participate in IPOs to buy shares at the offering price.
Intraday
Intraday refers to activities occurring within a single trading day. Intraday traders open and close positions within the same day, avoiding overnight exposure to market risks.
J
Jobber
A Jobber is a trader specializing in short-term speculative trades, capitalizing on small price fluctuations within a single trading day. They focus on high volumes and swift execution to capture minimal price differences, contributing to market liquidity.
Journaling
Journaling, in the context of trading, refers to the practice of maintaining a trading journal. Traders record their trades, strategies, and emotions. It helps in self-analysis, identifying strengths and weaknesses, and improving overall trading performance.
K
Kiwi
Kiwi is a nickname that refers to the USD/NZD currency pair, representing the exchange rate between the United States Dollar (USD) and the New Zealand Dollar (NZD).
Kraken
Kraken is a prominent cryptocurrency exchange platform that facilitates the trading of various digital assets. Offering a range of cryptocurrencies, Kraken provides a platform for traders to buy, sell, and exchange different tokens in the crypto market.
KYC
Know Your Customer (KYC) is a regulatory process in both FX and crypto trading that requires financial institutions to verify and authenticate the identity of their clients. Traders must provide relevant documentation to comply with KYC regulations, enhancing security and preventing fraud.
L
Leverage
Leverage is the use of borrowed funds or financial instruments to amplify the potential return of an investment. It allows traders to control a larger position size with a smaller amount of capital. While leverage can magnify profits, it also increases the risk of significant losses.
Limit Order
A Limit Order is an order placed by a trader to buy or sell an asset at a specific price or better. It will only be executed at the specified price or a more favorable one. Limit orders allow traders to control the price at which they enter or exit a trade.
Liquidity
Liquidity refers to the ease with which an asset can be bought or sold in the market without significantly affecting its price. Highly liquid assets have many buyers and sellers, reducing transaction costs.
M
Margin Call
A Margin Call occurs when a trader’s account balance falls below the required margin level. Brokers demand additional funds to cover potential losses, ensuring the trader can meet margin requirements and continue open positions.
Margin Trading
Margin Trading involves borrowing funds to increase the size of a trading position. Traders use margin to amplify potential profits, but it also increases the risk of significant losses. Margin requirements set by brokers determine the amount of leverage allowed.
Market Cap
Market Cap, short for Market Capitalisation, refers to the total value of a company’s outstanding shares of stock. It is calculated by multiplying the number of outstanding shares by the current market value of one share.
Market Order
A Market Order is an instruction to buy or sell an asset immediately at the current market price. Traders use market orders for swift execution, especially when precise entry or exit prices are not crucial.
N
Node
In cryptocurrency networks like Bitcoin or Ethereum, a Node is a computer participating in the blockchain network. It validates transactions, maintains a copy of the entire blockchain, and relays information to other nodes, ensuring the network’s decentralized and distributed structure.
Non-Fungible Token (NFT)
A Non-Fungible Token (NFT) is a unique digital asset verified using blockchain technology. NFTs are indivisible and cannot be exchanged on a one-to-one basis, making each token distinct. They are commonly used to represent ownership of digital art, collectibles, or other unique digital items.
O
Options
Options are financial derivatives that provide the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a specified time period. Traders use options for various strategies, including hedging and speculation.
Overbought / Oversold
Overbought and Oversold conditions indicate potential reversals in price trends. Overbought suggests an asset may be overvalued, while oversold suggests undervaluation. Traders use indicators like the Relative Strength Index (RSI) to identify these conditions.
P
Penny Stocks
Penny Stocks are low-priced stocks typically traded over-the-counter and with small market capitalizations. Due to their high volatility, penny stocks can offer substantial returns, but they also come with increased risk.
Pip
A Pip, or Percentage in Point, is a standardised unit of movement in FX trading. It represents the smallest price move that a given exchange rate can make. Pips are crucial for measuring price changes and determining profit or loss in currency trading.
Public Key
In crypto trading, a Public Key is part of a cryptographic key pair used for secure transactions. It is shared openly and serves as an address to receive cryptocurrencies. The corresponding private key is kept confidential and used to sign transactions.
Pump and Dump
Pump and Dump is a manipulative trading strategy in crypto markets involves artificially boosting an asset’s price (pump) with misleading information, followed by a swift sale (dump) to capitalize on inflated prices.
Q
Quantative Easing
Quantitative Easing (QE) is a monetary policy in which a central bank purchases financial assets, such as government bonds, to increase the money supply and lower interest rates. This strategy aims to stimulate economic growth and boost investment.
Quote Currency
In a currency pair, the Quote Currency is the second currency listed. It represents the amount needed to purchase one unit of the base currency. For example, in EUR/USD, USD is the quote currency.
R
Relative Strength Index (RSI)
The Relative Strength Index (RSI) is a momentum oscillator measuring the speed and change of price movements in technical analysis. RSI, ranging from 0 to 100, identifies overbought (above 70) or oversold (below 30) conditions, helping traders to predict potential trend reversals.
Resistance
Resistance is a price level at which an asset often faces selling pressure, preventing it from rising further. Traders use resistance levels to make informed decisions about entering or exiting positions.
Risk Management
Risk Management involves strategies and techniques used by traders to minimize potential losses. This includes setting stop-loss orders, diversifying portfolios, and calculating position sizes to ensure that no single trade significantly impacts overall capital.
S
Short Selling
Short Selling is a trading strategy where an investor sells borrowed assets with the expectation that the price will decline. The goal is to buy back the assets at a lower price, generating a profit from the price difference.
Slippage
Slippage occurs when the actual execution price of a trade differs from the expected price. It often happens in fast-moving markets or during periods of low liquidity.
T
Technical Analysis
Technical Analysis is a method of evaluating and forecasting financial markets based on historical price and volume data. Analysts use charts, patterns, and technical indicators to identify trends and potential price movements.
Trendline
A Trendline is a straight line that connects two or more price points on a chart. It is used to identify the direction of a trend and can act as a support or resistance level. Traders use trendlines to make predictions about future price movements.
U
Underlying Asset
The Underlying Asset is the financial instrument upon which a derivative contract is based. For example, in options trading, the underlying asset could be a stock, index, or commodity. Understanding the underlying asset is crucial for making informed trading decisions.
Uptick
An Uptick refers to a price increase in a security’s trading price. In some markets, certain rules and regulations may apply to trading on an uptick to prevent excessive selling pressure.
Uptrend
An Uptrend is a market movement marked by rising prices, creating higher highs and higher lows. Traders seek uptrends for potential buying opportunities, as they indicate positive and sustained upward momentum.
V
Volatility
Volatility measures the degree of variation of a trading price series over time. High volatility implies larger price swings, while low volatility suggests more stable price movements. Traders often use volatility indicators to assess market conditions and adjust their strategies accordingly.
Volume
Volume represents the total number of shares or contracts traded in a financial market during a specific time period. High volume often accompanies strong price movements, indicating increased market participation.
W
Wallet
Wallet, in the context of crypto trading, is a digital or physical storage solution for holding cryptocurrencies. It comes in various forms, such as software wallets (online or offline) and hardware wallets (physical devices), providing secure storage and access to digital assets.
Whales
In both FX and crypto trading, Whales are investors or traders with a substantial amount of capital. In the crypto world, whales may hold a large amount of a specific cryptocurrency, influencing market movements with their buying or selling activities.
Wire Transfer
A Wire Transfer is a method of electronic funds transfer between financial institutions. Traders use wire transfers to move funds to and from their trading accounts. It is a secure and widely accepted way of transferring large sums of money.
X
Xenocurrency
Xenocurrency is a theoretical or digital currency not tied to any specific country. While not commonly used, the term reflects the idea of a currency transcending national borders, aligning with the decentralized nature of cryptocurrencies.
Y
Yield
Yield is a measure of the income generated by an investment, expressed as a percentage of its current market price. It is commonly used in fixed-income investments, such as bonds, to assess the return generated from interest payments.
Yield Curve
The Yield Curve is a graphical representation of interest rates on debt for a range of maturities. It is used to analyze economic conditions, with an inverted yield curve often signaling an impending recession.
Z
Zero-Coupon Bond
A Zero-Coupon Bond is a debt security that does not make periodic interest payments. Instead, it is issued at a discount to its face value and matures at full face value, providing a return through capital appreciation.
