Forex Glossary
Every key term you need to know — explained clearly, no jargon.
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.
ATR
Average True Range. A volatility indicator measuring the average price range over a set period. Used for setting stop loss distances.
Base Currency
The first currency in a pair (e.g., EUR in EUR/USD). You are buying or selling this 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.
Cross Pairs
Currency pairs that don't include USD. Examples: EUR/GBP, GBP/JPY, EUR/JPY. Generally have wider spreads.
Carry Trade
Borrowing in a low-interest-rate currency (e.g., JPY) to invest in a high-interest-rate currency (e.g., AUD). Profits from the rate differential.
Correlation
The statistical relationship between two currency pairs. Positive correlation (+1) means they move together; negative (-1) means they move oppositely.
COT Report
Commitments of Traders. A weekly CFTC report showing the net positions of large speculators, commercials, and small speculators in futures markets.
Drawdown
The decline from a peak to a trough in account value. Maximum drawdown is the largest peak-to-trough decline over a period.
Exotic Pairs
Pairs involving one major currency and one from an emerging market (e.g., USD/MXN, USD/TRY). Higher spreads, lower liquidity.
Fibonacci Retracement
Key levels (23.6%, 38.2%, 50%, 61.8%) derived from the Fibonacci sequence, used to identify potential support/resistance after a move.
Lot
The standardized unit of trading. A standard lot = 100,000 units of base currency. Mini lot = 10,000, Micro lot = 1,000.
Leverage
Borrowed capital that amplifies your trading position. 1:100 leverage means $1,000 controls a $100,000 position. Amplifies both gains and losses.
Limit Order
An order to buy below current price or sell above current price. Guarantees price but not execution.
Margin
The deposit required to open and maintain a leveraged position. If leverage is 1:100, a $100,000 position 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.
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.
Market Order
An instruction to buy or sell immediately at the current market price. Guarantees execution but not price.
Pip
The smallest price movement in a currency pair. For most pairs, 1 pip = 0.0001. For JPY pairs, 1 pip = 0.01.
Quote Currency
The second currency in a pair (e.g., USD in EUR/USD). The price tells you how much quote currency buys 1 unit of the base.
Risk-Reward Ratio
The ratio between potential profit and potential loss on a trade. A 1:2 RR means risking $1 to potentially gain $2.
Requote
When a broker cannot fill your order at the requested price and offers a new price instead. Common with fixed-spread brokers.
Resistance
A price level where selling pressure prevents the price from rising further. Broken resistance often becomes support.
Spread
The difference between the bid (sell) price and the ask (buy) price. This is the broker's primary fee on most trades.
Stop Loss
An order to automatically close a trade at a specified loss level, protecting your account from larger losses.
Slippage
When your order executes at a different price than requested, usually during high volatility or low liquidity.
Swap / Rollover
Interest paid or received for holding a position overnight. Based on the interest rate differential between the two currencies.
Support
A price level where buying interest is strong enough to prevent the price from falling further. Broken support often becomes resistance.
Take Profit
An order to automatically close a trade when it reaches a specified profit level.
Trend
The general direction of price movement. An uptrend consists of higher highs and higher lows. A downtrend consists of lower highs and lower lows.