Forex trading glossary

Ask

The price at which your broker will sell the base currency to you. It is the price you pay when buying or going long on a currency pair.

Aussie

Slang term for the Australian Dollar (AUD) or the AUD/USD currency pair.

Base Currency

The first currency listed in a currency pair. It shows how much the base currency is worth as measured against the second currency (the quote currency).

Bearish

A market condition or sentiment where prices are falling or expected to fall. Traders who are bearish believe a currency pair will lose value.

Bid

The price at which your broker will buy the base currency from you. It is the price you receive when selling or going short on a currency pair.

Bollinger Bands

A technical indicator consisting of a moving average and two bands representing standard deviations above and below the average, used to measure market volatility and relative price levels.

Break Even

The point in a trade where there is zero profit and zero loss. Traders often move their stop loss to their entry price (break even) once a trade becomes profitable.

Breakout

When a price moves outside a defined support or resistance level, often accompanied by increased volume and momentum.

Bull/Bear

A 'bull' is a trader who expects prices to rise. A 'bear' is a trader who expects prices to fall. These terms originated from how the animals attack: bulls thrust their horns up, while bears swipe their paws down.

Cable

Slang term for the British Pound/US Dollar (GBP/USD) currency pair, originating from when quotes were transmitted via a transatlantic telegraph cable.

Candlestick

A charting style that displays the high, low, open, and closing prices of a currency for a specific time period. The wide part is the 'body' and the thin lines are 'wicks' or 'shadows'.

Channel

A chart pattern defined by two parallel trend lines containing price action. It can be ascending, descending, or horizontal.

Close (a trade)

Executing an opposite transaction to exit an active market position, thereby realising either a profit or a loss.

Currency Pair

The quotation of the relative value of one currency unit against the unit of another currency in the foreign exchange market.

Day Trading

A trading style where positions are opened and closed within the same trading day, avoiding overnight market risk.

Demo Account

A practice trading account funded with virtual money but connected to real-time market prices, essential for testing strategies and learning a platform.

Divergence

When the price of an asset is moving in the opposite direction of a technical indicator, such as an oscillator, often signalling a weakening trend.

EMA

Exponential Moving Average. A type of moving average that places a greater weight and significance on the most recent data points.

Entry Point

The specific price at which a trader opens a position in the market.

Exotic Pair

A currency pair consisting of one major currency and one currency from an emerging or smaller economy (e.g., USD/ZAR or USD/MXN).

Fibonacci

A sequence of numbers translated into percentages used to identify potential support and resistance levels, based on the mathematical ratios found in nature.

Flat

Having no active trades in the market, or referring to a market that is moving sideways with no clear trend.

Floating Loss/Profit

The current unrealised loss or profit on open positions, which fluctuates with market prices until the trade is closed.

FOMO

Fear Of Missing Out. An emotional reaction where a trader enters a trade late because they see a large move happening and want to participate, often leading to poor execution.

Forex

Foreign Exchange. The global decentralised market for the trading of currencies.

FSB/FSCA

Financial Sector Conduct Authority (formerly Financial Services Board). The regulatory body overseeing financial institutions in South Africa.

Fundamental Analysis

Evaluating a currency's value by examining related economic, financial, and other qualitative and quantitative factors such as interest rates and employment data.

Going Long

Buying a currency pair with the expectation that its value will rise.

Going Short

Selling a currency pair with the expectation that its value will fall.

Harami

A two-candle reversal pattern where a small candle's body is completely contained within the body of the previous, larger candle.

Hedge

Taking an opposing position to reduce the risk of adverse price movements in an existing trade.

High-Frequency Trading

Algorithmic trading characterised by high speeds, high turnover rates, and high order-to-trade ratios that leverages high-frequency financial data and electronic trading tools.

Indicator

A mathematical calculation based on historical price, volume, or open interest information that aims to forecast financial market direction.

Kiwi

Slang term for the New Zealand Dollar (NZD) or the NZD/USD currency pair.

Leverage

Using borrowed capital from a broker to increase the potential return of an investment. It magnifies both profits and losses.

Liquidity

The degree to which an asset can be quickly bought or sold in the market without affecting its price.

Long Position

A trade initiated by buying a currency pair.

Loonie

Slang term for the Canadian Dollar (CAD) or the USD/CAD currency pair, named after the bird on the Canadian one-dollar coin.

Lot

The standardised quantity of currency traded. A standard lot is 100,000 units, a mini lot is 10,000 units, and a micro lot is 1,000 units.

Major Pair

The most frequently traded currency pairs globally. All major pairs include the US Dollar on one side (e.g., EUR/USD, GBP/USD).

Margin

The amount of money required in your account as a good faith deposit to open and maintain leveraged positions.

Margin Call

A demand from a broker to deposit additional money or securities to bring a margin account up to the minimum maintenance margin.

Market Order

An order to buy or sell immediately at the best available current price.

MetaTrader 4

The industry-standard electronic trading platform widely used by online retail foreign exchange speculative traders.

Minor Pair

Currency pairs consisting of major currencies but excluding the US Dollar. Also known as cross pairs (e.g., EUR/GBP or GBP/JPY).

MACD

Moving Average Convergence Divergence. A trend-following momentum indicator that shows the relationship between two moving averages of a security's price.

Oscillator

A type of technical indicator that is banded between two extreme values to discover short-term overbought or oversold conditions.

Overbought

A market condition where an asset has risen in price too far and too fast, potentially signalling an impending downward correction.

Oversold

A market condition where an asset has fallen in price too far and too fast, potentially signalling an impending upward correction.

Pending Order

An order to buy or sell a currency pair at a pre-defined price in the future.

Pip

Percentage in Point. Usually the 4th decimal place in a currency quote (or 2nd for JPY pairs). It is the smallest standard measure of price change.

Pipette

A fractional pip. It is the 5th decimal place in a standard quote (or 3rd for JPY pairs), representing one-tenth of a pip.

Position

An active trade that is currently open in the market.

Price Action

The study of the movement of a security's price over time. Traders use raw price action to identify patterns without relying on indicators.

Quote Currency

The second currency listed in a currency pair, representing how much is needed to buy one unit of the base currency.

Resistance

A price level where selling pressure is strong enough to prevent the price from rising further.

Risk/Reward Ratio

The prospective reward an investor can earn for every dollar they risk on an investment. A 1:2 ratio means risking $1 to potentially make $2.

RSI

Relative Strength Index. A momentum oscillator that measures the speed and change of price movements, typically ranging from 0 to 100.

Scalping

A fast-paced trading strategy aiming to profit from very small price changes, executing many trades throughout the day.

Short Position

A trade initiated by selling a currency pair.

Slippage

The difference between the expected price of a trade and the price at which the trade is actually executed, often occurring during periods of high volatility.

SMA

Simple Moving Average. An arithmetic moving average calculated by adding recent prices and dividing by the number of time periods.

Spread

The difference between the bid and ask price. This difference represents the broker's primary fee for executing a trade.

Stop Loss

An order placed with a broker to buy or sell once the currency reaches a certain price, designed to limit an investor's loss on a position.

Stochastic

A momentum indicator comparing a particular closing price of a security to a range of its prices over a certain period of time.

Support

A price level where buying interest is strong enough to overcome selling pressure, preventing the price from falling further.

Swing High/Low

Peaks (highs) and troughs (lows) created by price movements on a chart, used to identify trend direction and draw support/resistance lines.

Swing Trading

A trading style that attempts to capture short- to medium-term gains over a period of a few days to several weeks.

Take Profit

A pending order that automatically closes a profitable trade once the price reaches a specified target level.

Technical Analysis

The study of historical price action and chart patterns to predict future market movements.

Time Frame

The period of time represented by each data point (candlestick or bar) on a chart.

Trend

The general direction of a market or of the price of an asset.

Trendline

A straight line connecting two or more price points and then extending into the future to act as a line of support or resistance.

USD

The United States Dollar, the most widely traded currency in the world.

Volatility

A statistical measure of the dispersion of returns for a given currency pair. High volatility means prices change rapidly.

Wedge

A chart pattern formed by converging trend lines on a price chart, often signalling an impending breakout.

Wick (Shadow)

The thin line extending above and below the body of a candlestick, representing the high and low prices of the period.

New to the terminology? Begin with Forex basics.