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Forex Terms – Discover 60 Most Important terms. Every Trader Should Know

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Table Of Contents

This post is also available in: Indonesia

Every aspiring trader should become well-versed in professional Forex terms language. Your ability to make a profit depends on knowledge of digital trading systems, as well as market trends. Solid economic background is an advantage, but professional jargon is still a must. 

Essential Forex Terms: Complete List

There are dozens of terms to learn. Use our list to discover the most crucial concepts in the field. Here is our essential guide to Forex trading – the basics explained in simple terms.

1. Pip

The abbreviation stands for ‘percentage in point.’ This is the smallest denomination in currency trading. Most commonly, it is the fourth digit after the decimal point. It measures the ‘spread’ – the difference between Ask and Bid for a currency. For instance, a difference of 0.0004 is referred to as a ‘four-pip spread.’

2. Central Bank

The central bank of any country is its main financial institution. It issues the local currency. For instance, the Bank of England issues the Pound sterling. Central Banks provide licenses to commercial banks and lend money to them. 

3. Copy Trading – Forex terms

Copy trading is a special arrangement for the delegation of trading decisions. A trader chooses a strategy manager to follow, and the system replicates their actions. It is possible to follow several experts at once and cancel trades that are undesirable. 

4. Mirror Trading

This arrangement is similar to copy trading but includes more automation. A trader chooses an expert to follow, and their decisions are copied by the system. There is no human input, or an opportunity to cancel individual trades.

5. Trading Signals

These are prompts informing you that a favorable moment for trade has come. There are many possible formats: text messages, emails, and smartphone notifications. Forex signals For example here

6. CFD 

The abbreviation stands for Contract for Difference. It is a popular derivative traded through online terminals. These instruments are linked to different underlying assets but do not require ownership of them. 

Today, there are CFDs on commodities, cryptocurrencies, market indices, and stocks. In each case, the holder will speculate on price dynamics for the underlying asset. A CFD is a contract whose subject is price movement. 

7. Spread Betting

This format of trading is similar to CFDs, but it is mostly used in the UK and Ireland. 

8. Scalping

Scalping This is the most hectic form of trading. The trader dips in and out of the market, many times per day and each position may last minutes or even seconds. 

9. Demo Account

This type of account unlocks trading platforms in the simulation model. Newbies may explore all the features before putting real money at stake. Trading in the demo mode is a crucial part of Forex education. 

10. Broker

This is the intermediary that connects you to the global market. Brokerage firms register accounts, provide software, and process financial flows.  

11. Spread

This is one of the Forex basic terms which denotes the difference between the Ask price and the Bid price. The former is always slightly bigger than the latter. For market-maker brokers, this gap is a source of revenue. 

12. Win-loss Ratio

Basically, this is the proportion between your losses and gains in the market. For instance, a ratio of 3:2 means you have closed 3 winning grades and failed twice. 

13. Confluence

Confluence is the meeting point for two indicators. It helps traders make better decisions. For instance, two signals may prompt you to enter a trade, which is better than reliance on a single indicator. 

14. Fundamental Analysis

This analytical approach is based on media information. A trader makes decisions based on the financial and political news that affect currency rates.  

15. Technical Analysis

This analytical approach is based on accurate price data. Traders look at previous dynamics to decipher patterns and predict future movements. They discard randomness, viewing all trends as predictable. 

16. Indicator

This one of the basic Forex terms – a measurement of a specific aspect of the market. Traders use indicators to make decisions concerning their positions: when to open, when to close, etc. 

17. Portfolio

This is a trader’s set of open positions. Generally, the more instruments are traded – the lower the overall risk. For example, currency pairs may be combined with stocks and CFDs for commodities. 

18. Trend

This describes the general direction of a price or market at any given moment. There are three possibilities: upward, downward, and sideways trends. Traders are advised to go along with the trends, rather than trade against them. For instance, in a bearish market, it is more logical to sell. 

19. Market Cycle

Generally, the foreign currency exchange is cyclical in nature: it goes through four stages. These are “Ranging low,” “Uptrend,” “Ranging high,” and “Downtrend.”

20. Bull Market (Bullish)

This term describes a rising market, in which participants are more likely to buy the instruments traded. 

21. Bear Market (Bearish)

This term describes a market with falling prices, in which participants are likely to sell, rather than buy, the instruments traded.

22. Ranging Market

Sometimes, markets are neither bearish not bullish. This condition is referred to as the ‘ranging market.’

23. Price Action

This term describes the change of an instrument price over a certain period. 

24. Stop-loss

This is a risk management feature that should be used for any trade. The user determines the lowest price they can withstand. Once it is reached, the trade automatically closes. This prevents excessive losses. A special type of this tool is ‘trailing stop-loss.’ Trailing stops shift along with the price when the market is moving in your favor. This allows larger profits while preventing huge loss. 

25. Take Profit Order

This feature works similarly to Stop Loss but in the opposite direction. This means the system closes your trade once the pre-set level of profit is achieved. 

26. Major Pair

These pairs are traded the most and they represent valuations with the US dollar (it may be the base currency or the counter currency. USD/CAD and GBP/USD are popular choices. These pairs are the most liquid. 

27. Minor Pair

Most commonly, minor pairs represent strong economies, but do not include the US dollar. For instance, EUR/GBP. The liquidity of such combinations may very.

28. Exotic Pair

These currency pairs represent the monetary systems of developing countries, also known as emerging economies. These are usually valued against the US dollar or the Euro. Common examples are the Thai baht, the Turkish lira, and the South African rand. 

29. Trading Strategy

A strategy is a detailed plan for trading. While there are ready-made solutions, no single strategy is guaranteed to bring returns. Traders are advised to choose a plan and stick to it regardless of emotions. Vital elements include acceptable volume, volatility, liquidity, and leverage. 

30. Candlestick Chart

Today, it is the most popular format of the price chart. Once used in Japan, the candlestick is now the industry-wide standard. These visual aids pack impressive volumes of information into a compact graph. Traders immediately find the opening and closing prices and evaluate the degree of rises and falls.

31. Economic Calendar

This tool allows traders to monitor events that may potentially affect the value of their instruments. Economic calendars are incorporated in all major trading platforms. They are indispensable for fundamental analysis. 

32. Trading Psychology

This term described a trader’s mindset. As humans are irrational beings, emotions have a strong influence on our decisions. By mastering trading psychology, you will remove common triggers for poor trades. 

33. Trading Platform

This is a computer program used for trades. Modern platforms are cutting-edge digital environments with both demo and live modes. They are packed with charting aids and other tools that facilitate analysis and risk management. Traders open and close positions via their platforms. 

34. Liquidity

A liquid instrument is easy to buy and sell. Basically, high liquidity means that buyers and sellers have little difficulty connecting within their market. Trades for such instruments are opened and closed with ease. 

The least liquid currencies represent emerging economies. Meanwhile, major and minors offer the most liquidity.

35. Volatility

This measurement describes the scope of price swings for a given period. Extremely volatile currencies experience dramatic highs and lows very often. This is one of the most crucial Forex glossary terms.

36. Inflation

This indicator shows how quickly prices for products in a country grow. This also reflects the rate of depreciation for the national currency. 

37. Carry Trade

Basically, this is a situation when a trader borrows one instrument to buy another one. In relation to currency pairs, the term means you have borrowed a currency with a low-interest rate to buy another currency whose interest rate is high. The difference between the two rates is known as ‘interest rate differential’. 

38. Managed Account

This is a special type of account that allows a professional to trade on your behalf. This could be done by a professional trader or money manager. Basically, account holders make deposits and delegate the trading work to someone else. There are different types of such accounts, depending on the degree of control for the holder.

39. Trading Software

The software for trading is available for both desktop computers and mobile devices. 

40. Trading Journal

Traders are advised to keep detailed records of their trades and strategies. While electronic systems provide basic details, trading journals include more information. Traders may include a description of their motivation for each trade, and feelings experienced. 

41. Leverage

Leverage allows traders to open positions for volumes that exceed their available funds.  In essence, your broker boost your purchasing power by providing a portion of their funds. For example, if the leverage ratio is 1:100, you may open positions for $10,000 having only $100 in your account. This is an important part of Forex trading terms and definitions.

42. Margin

This term refers to leverage arrangements. This is the share of your funds that will be locked until a trade is executed. For instance, if the leverage is 1:1000, and you use $100 of your money to trade $100,000, margin equals $100. This guarantees you will cover the loss if it occurs. 

43. Day Trading

This trading style is straightforward: all positions are opened and closed within the same trading day. Typically, traders open their positions when the market opens and finalize them by the end of the day. 

44. Swing Trading

This scenario is often seen as the opposite of day trading. Instead of closing all positions within the same day, traders leave them open overnight. Sometimes, trades are closed days, weeks, or even months later. 

45. Support

This is the lowest level a currency falls to within a pattern. Support is the price bottom – the point when the price stops or starts rising. Traders focused on breakouts wait for the price to drop beyond support. 

46. Resistance

This is the highest level a currency achieves within a pattern. It may be described as a price ‘ceiling,’ as it marks the point where growth stops or reverses. Traders focus on breakouts wait for the price to rise beyond its resistance level. 

47. Naked Trading

Some traders make decisions regardless of indicators. For instance, they may rely on support and resistance instead. Naked traders focus on the market, rather than indicators. This strategy is not common for newbies, as most Forex guides teach indicator-based trading.

48. Quantitative Easing

Sometimes, central banks take measures to boost the amount of national currency in circulation. For a trader, the action results in higher liquidity. 

49. GDP

The abbreviation stands for ‘Gross Domestic Product’ and it is a primary economic indicator. Basically, it reflects the value of all products and services produced in a country annually. For a trader, GDP serves as a measure of economic health. 

50. Dealing Desk Broker

Traders with a dealing desk have control over their pricing. Traders may prefer the scheme as it provides more stability. Those keen on trading in volatile markets are more likely to choose brokerages without a dealing desk.  

51. No Dealing Desk Broker

The absence of a dealing desk means that a broker does not set its own prices. Instead, it relies on market pricing. 

52. Market Maker

Also known as dealing desk brokers, these companies provide a special type of market access. Unlike ECN counterparts, they have power over Ask and Bid prices and profit from spreads. 

53. ECN

The abbreviation stands for ‘Electronic Communication Network.’ This is a special type of market access. It is obtained from brokers without a dealing desk that is also known as ECN brokers. Such companies use pricing determined by the market instead of setting their own Ask and Bid. Their source of revenue is the commission charged for each trade, regardless of its financial result.

54. STP

The abbreviation stands for ‘Straight Through Processing.’ The special Forex term describes a special type of market access. It is obtained from brokers without a dealing desk.

55. FOMO

The abbreviation stands for ‘Fear of Missing out.’ This is the feeling a trader experiences when they think they may fail to seize a good trade. This is a powerful emotional trigger for all sorts of mistakes. All too often, traders enter too soon or at a completely wrong moment. 

56. Slippage

A trade is opened or closed at a price that differs from the target value. In this situation, Stop Loss does not work as it should, but you get the next best price (of course, if your broker is reliable). Most often, slippage occurs outside peak hours, or as a reaction to news events. It is also common for volatile markets. 

57. Mobile Trading

The term is self-explanatory: today, when there is an app for everything, trading has gone mobile. This format applies to worth through trading apps for smartphones and tablets. Today, all popular platforms have their portable versions for Android and iOS. As a result, trading can be managed on the go (however, this is not advisable for complicated tasks). 

58. Analysis Paralysis

When there is too much information, humans lose the ability to evaluate it. Sometimes, traders are so overwhelmed by the incoming data that they cannot decide whether to enter the market or not. This psychological phenomenon is often observed when traders try to examine too many indicators at once.

59. Trading Bot

You may be familiar with bots that leave automated comments on social media or reply to you via Live Chat. Automated systems may also be used for trading. These are computer programs that open and close positions for the user without their participation.

60. Risk Management Strategy

In Forex trading, the risk is an organic part of the process. While it cannot be eliminated, its degree may be reduced. Every trader must have a system for it. These are the measure you take to prevent excessive losses. Common elements are Stop Loss and portfolio diversification. 

We have listed only basic Forex terms everything else you can learn by studying special forums or viewing YouTube channels dedicated to Forex trading. This list will also be updated over time.

This post is also available in: Indonesia

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Updated  October, 2020

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