Forex Glossary
Every key term you need to know — explained clearly, no jargon.
ATR
Average True Range. A volatility indicator measuring the average price range over N periods (usually 14). Used for setting stop distances.
Example: If EUR/USD daily ATR = 70 pips, a 30-pip stop may be too tight.
Ask Price
The price at which you can buy the base currency. Always higher than the bid. The broker sells to you at this price.
Balance
The total amount of funds in your account, excluding any open position profit or loss. Changes only when a trade is closed.
Base Currency
The first currency in a pair (e.g., EUR in EUR/USD). You are buying or selling this currency relative to the quote currency.
Bid Price
The price at which you can sell the base currency. Always lower than the ask price. The broker buys from you at this price.
Bollinger Bands
Three lines: a 20-period moving average, and upper/lower bands 2 standard deviations away. Price touching the outer bands signals potential reversals or continuations.
Break of Structure
When price breaks through the most recent swing high (bullish BOS) or swing low (bearish BOS), signalling a potential trend shift.
COT Report
Commitments of Traders. A weekly CFTC report showing net positions of large speculators, commercials, and small traders in futures markets.
CPI
Consumer Price Index. The primary measure of inflation. Above-target CPI often leads to rate hikes (bullish for currency); below-target may trigger cuts.
Candlestick
A price chart element showing open, high, low, and close for a time period. The body shows open-to-close; wicks show the full range.
Carry Trade
Borrowing in a low-interest-rate currency (e.g., JPY) to invest in a high-interest-rate currency (e.g., AUD). Profit from the rate differential (swap).
Central Bank
The institution that manages a country's monetary policy and interest rates. Key examples: Federal Reserve (USD), ECB (EUR), Bank of England (GBP), BOJ (JPY).
Commodity Currencies
Currencies strongly influenced by commodity prices: AUD (iron ore, coal), CAD (oil), NZD (dairy). They tend to rise with commodity prices.
Correlation
The statistical relationship between two currency pairs. +1.0 means they move identically; −1.0 means perfectly opposite; 0 = no relationship.
Example: EUR/USD and GBP/USD are typically highly positively correlated (~0.85).
Correlation Risk
The risk of holding multiple positions that are highly correlated, effectively multiplying your exposure to the same directional move.
Example: Long EUR/USD and long GBP/USD are both short-USD trades.
Cross Pairs
Currency pairs that do not include USD. Examples: EUR/GBP, GBP/JPY, EUR/JPY. Generally have wider spreads than majors.
Displacement
A strong, impulsive price move driven by institutional order flow that breaks structure and creates imbalances in the market.
Doji
A candlestick with a very small body (open ≈ close), representing indecision. Significant at extremes or key levels; signals potential reversal.
Dollar Index (DXY)
A measure of the USD's value against a basket of 6 major currencies (EUR, JPY, GBP, CAD, SEK, CHF). A rising DXY = stronger dollar.
Double Top / Bottom
A reversal pattern where price tests the same level twice before reversing. Double top signals a bearish reversal; double bottom signals bullish.
Dovish
A central bank stance that favours lower interest rates or stimulus to support growth. Dovish signals typically weaken the currency.
Example: ECB signals rate cuts ahead — dovish, bearish for EUR.
Drawdown
The decline from a peak to a trough in account value, expressed as a percentage. Maximum drawdown is the worst peak-to-trough decline.
Example: Account peaks at $10,000 then drops to $8,500 → 15% drawdown.
ECN Broker
Electronic Communications Network broker. Routes orders directly to liquidity providers with variable spreads and no dealing desk interference.
Engulfing Pattern
A two-candle reversal pattern where the second candle's body fully engulfs the first. Bullish engulfing at lows; bearish engulfing at highs.
Equity
Your balance plus or minus the floating (unrealised) profit/loss of all open positions. Equity = Balance + Open P&L.
Example: Balance $5,000, open trade up $200 → Equity = $5,200.
Exotic Pairs
Pairs involving one major currency and one emerging market currency (e.g., USD/MXN, USD/TRY). Higher spreads and lower liquidity.
Fair Value Gap
A 3-candle pattern where a large candle leaves a gap between the first and third candle's wicks. Price often retraces to fill this imbalance.
Fibonacci Retracement
Key retracement levels (23.6%, 38.2%, 50%, 61.8%, 78.6%) derived from Fibonacci ratios. Used to identify potential support/resistance after a significant move.
Flag Pattern
A continuation pattern where a strong directional move (flagpole) is followed by a shallow, counter-trend consolidation (flag). The move resumes after the breakout.
Floating P&L
Unrealised profit or loss on currently open trades. Changes constantly with price. Only realised when the trade is closed.
Forward Guidance
Signals from central banks about future policy direction. Traders trade anticipation — markets often price in rate changes weeks or months ahead.
Free Margin
The amount of equity available to open new positions. Free Margin = Equity − Used Margin.
GDP
Gross Domestic Product. The total value of goods and services produced in a country. Strong GDP growth is generally bullish for a currency.
GTC Order
Good Till Cancelled. An order that remains active until it is either filled or manually cancelled by the trader.
Gap Risk
The risk that price opens significantly higher or lower than where it closed, bypassing your stop loss. Most common over weekends.
Hawkish
A central bank stance that favours higher interest rates to combat inflation. Hawkish signals typically strengthen the currency.
Example: Fed Chair says "further rate hikes may be appropriate" — hawkish.
Head and Shoulders
A three-peak reversal pattern: two smaller peaks (shoulders) with a larger central peak (head). A break below the neckline signals a bearish reversal.
Hedge
Opening an opposing position in the same or correlated pair to reduce exposure. Used to protect against adverse moves.
Example: Long EUR/USD and long USD/CHF can partially offset each other.
Higher High / Lower Low
The structural definition of a trend. Uptrend: each swing high exceeds the last. Downtrend: each swing low is lower than the last.
Inside Bar
A candle whose high and low are entirely within the previous candle's range. Signals consolidation and a potential breakout in either direction.
Interest Rate Decision
The most impactful scheduled event in forex. Central banks raise rates to fight inflation (bullish for currency) or cut rates to stimulate growth (bearish).
Interest Rate Differential
The difference between the interest rates of two countries. Currencies with higher rates tend to attract capital inflows and appreciate.
Example: USD at 5.5% vs JPY at 0.1% → 5.4% differential, favouring USD.
Intermarket Analysis
Analysing relationships between forex, equities, bonds, and commodities to identify directional biases across asset classes.
Example: Rising US bond yields often attract USD buying.
Leverage
Borrowed capital that amplifies your trading position. 1:100 leverage means $1,000 controls a $100,000 position. Amplifies both gains and losses equally.
Example: With 1:50 leverage, $2,000 controls a $100,000 position.
Limit Order
An order to buy below the current price or sell above it. Guarantees price but not execution — only fills if price reaches your level.
Example: Buy limit EUR/USD at 1.0800 when current price is 1.0850.
Liquidity
The ease with which an asset can be bought or sold without significantly moving the price. EUR/USD is the most liquid pair in the world.
Liquidity Zones
Price areas with large concentrations of pending orders (stop losses, limit orders) that price is drawn to. Often at round numbers and prior swing highs/lows.
Lot
The standardised unit of trading. Standard lot = 100,000 units. Mini lot = 10,000. Micro lot = 1,000. Nano lot = 100.
Example: Trading 0.1 lots of EUR/USD means controlling 10,000 EUR.
MACD
Moving Average Convergence Divergence. Shows the relationship between two EMAs (typically 12 and 26). Crossovers and divergences signal trend changes.
Major Pairs
The 7 most-traded currency pairs, all involving USD: EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD, USD/CAD, NZD/USD.
Margin
The deposit required to open and maintain a leveraged position. Calculated as: Position Size / Leverage.
Example: $100,000 position at 1:100 leverage requires $1,000 margin.
Margin Call
A broker's demand to deposit more funds when your equity falls below the required margin level. Positions may be closed automatically.
Market Maker
A broker that takes the other side of your trades internally, setting its own bid/ask prices. May have fixed spreads and potential conflicts of interest.
Market Order
An instruction to buy or sell immediately at the best available current market price. Guarantees execution but not the exact price.
Moving Average
The average closing price over N periods, smoothing price action to reveal trend direction. Common settings: 20, 50, 200 periods.
Example: 200-day MA widely watched as long-term trend filter.
NDD
No Dealing Desk. A broker execution model where orders are passed straight through to liquidity providers without manual intervention.
Non-Farm Payrolls
Monthly US employment report released the first Friday of each month. Measures jobs added outside agriculture. The single most-watched data release in forex.
OCO Order
One Cancels the Other. A pair of orders where if one executes, the other is automatically cancelled. Used to manage bracketed trades.
Order Block
The last opposing candle before a strong impulsive move. Represents institutional buying or selling and often acts as a support/resistance zone.
Pending Order
Any order set to execute at a future price rather than immediately. Includes limit orders, stop entry orders, and OCO orders.
Pin Bar
A single-candle reversal pattern with a long wick (at least 2/3 of total length) and small body. Signals rejection of a price level.
Pip
The smallest standardised price movement in a currency pair. For most pairs, 1 pip = 0.0001. For JPY pairs, 1 pip = 0.01.
Example: EUR/USD moves from 1.0841 to 1.0842 — that is a 1-pip move.
Pip Value
The monetary value of a 1-pip move, depending on lot size and quote currency. For USD-quoted pairs: Pip Value = Lot Size × 0.0001.
Example: 1 standard lot EUR/USD = $10 per pip. 1 mini lot = $1 per pip.
Purchasing Power Parity
A theory that exchange rates should equalise the price of identical goods across countries in the long run. A long-run valuation benchmark.
Quantitative Easing
A monetary policy tool where a central bank buys assets (usually bonds) to inject money into the economy. Generally bearish for the currency.
Quote Currency
The second currency in a pair (e.g., USD in EUR/USD). The price shows how much quote currency buys 1 unit of the base.
RSI
Relative Strength Index. Momentum oscillator measuring speed and magnitude of price changes on a 0–100 scale. Above 70 = overbought; below 30 = oversold.
Requote
When a broker cannot fill your order at the requested price and offers a new price instead. Common with fixed-spread market-maker brokers.
Resistance
A price level where selling pressure prevents the price from rising further. Broken resistance often becomes future support.
Risk Per Trade
The percentage of your account balance risked on a single trade. Professional traders typically risk 0.5%–2% per trade.
Example: Account $10,000, risk 1% = $100 max loss per trade.
Risk-On / Risk-Off
Market sentiment states. Risk-on: investors buy higher-yielding, riskier assets (AUD, NZD, equities rise). Risk-off: investors flee to safety (JPY, CHF, USD, bonds rise).
Risk-Reward Ratio
The ratio between potential profit and potential loss on a trade. Expressed as 1:X. A 1:2 RR means risking 1 to potentially gain 2.
Example: Stop 30 pips, target 60 pips = 1:2 risk-reward.
Safe Haven Currencies
Currencies investors buy during uncertainty: JPY, CHF, and USD. They tend to appreciate during risk-off periods and geopolitical stress.
Session Times
Forex trades in overlapping sessions: Sydney (10pm–7am UTC), Tokyo (midnight–9am UTC), London (8am–5pm UTC), New York (1pm–10pm UTC). London/NY overlap is most liquid.
Slippage
When your order executes at a different price than requested, usually during high volatility or low liquidity. Can be positive or negative.
Example: You place a market sell at 1.0850, fills at 1.0847 → 3 pips slippage.
Smart Money Concepts
A framework based on how institutional traders (banks, hedge funds) accumulate and distribute positions, leaving footprints in price structure.
Spread
The difference between the bid (sell) price and the ask (buy) price. This is the broker's primary fee on most trades.
Example: Bid 1.0841, Ask 1.0843 → spread = 2 pips.
Stop Entry Order
An order to buy above current price or sell below it, used to enter when price breaks through a key level with momentum.
Example: Buy stop EUR/USD at 1.0900 to enter on a breakout above resistance.
Stop Loss
An order to automatically close a trade at a specified loss level, protecting your account from larger losses.
Example: Buy EUR/USD at 1.0850, stop loss at 1.0820 → max loss is 30 pips.
Stop Out Level
The margin level percentage at which the broker automatically closes your positions to prevent further losses. Usually 20–50%.
Support
A price level where buying interest is strong enough to prevent the price from falling further. Broken support often becomes future resistance.
Swap / Rollover
Interest paid or received for holding a position overnight. Based on the interest rate differential between the two currencies in the pair.
Example: Long AUD/JPY earns positive swap because AUD rates > JPY rates.
Take Profit
An order to automatically close a trade when it reaches a specified profit level, locking in gains.
Example: Buy EUR/USD at 1.0850, take profit at 1.0910 → 60 pips target.
Trailing Stop
A stop loss that automatically moves in your favour as price moves in your direction, locking in profit while allowing the trade to run.
Example: Long from 1.0800 with 30-pip trailing stop. Price hits 1.0850 → stop moves to 1.0820.
Trend
The general direction of price. Uptrend = higher highs and higher lows. Downtrend = lower highs and lower lows. Sideways = ranging.