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Investing in Forex can bring significant profits. However, to trade confidently, it's essential to understand the key technical terms used in the Forex market. Below is a list of the most commonly used terms to help you get started.
Refers to actions taken by a country's central bank to influence its exchange rate. These measures are usually applied when a currency is not pegged to another and its value is determined by supply and demand in the market.
An increase in the value of a currency due to rising demand.
The price at which a seller is willing to sell a currency. If you want to buy a currency, you will pay the Ask price. On trading platforms, it's typically shown on the right side of a currency quote.
A type of chart used in technical analysis that shows the open, high, low, and close prices for a specific time period. Each bar represents one time unit (e.g., one hour or one day).
The first currency in a currency pair. It is the reference currency against which the second currency (the quote currency) is measured.
Example: In the EUR/USD pair quoted at 1.1234, the Euro is the base currency. This means 1 Euro equals 1.1234 US Dollars.
A market condition where prices are falling or expected to fall. It often reflects widespread pessimism among investors.
The price at which a buyer is willing to purchase a currency. For sellers, it's the price they can receive. On trading platforms, the Bid price is shown on the left side of a quote.
A technical analysis tool consisting of a moving average with upper and lower bands that reflect market volatility. Prices tend to return to the average, and the bands expand or contract with volatility.
A company or individual that provides traders access to the Forex market, usually through an online trading platform. Brokers may charge fees or take profits from the spread.
A market in which prices are rising or expected to rise. It reflects a general feeling of optimism among investors.
A trading strategy that involves borrowing in a currency with a low interest rate and investing in a currency with a higher interest rate. The trader profits from the difference in interest rates, known as the "carry."
A financial derivative that allows traders to speculate on the price movements of assets without owning the underlying asset. Profits or losses are based on the difference in price between the opening and closing of the contract.
To exit a trade by performing the opposite action to the one that opened it. For example, closing a long (buy) position requires selling the asset. Once closed, the position is no longer affected by market movements.
The two currencies involved in a Forex trade, quoted as one against the other.
Example: USD/JPY – US Dollar against Japanese Yen.
A type of broker model where trades are executed internally by the broker, often acting as the counterparty to the trader. These brokers may offer fixed spreads and instant execution, but there may be a conflict of interest.
A financial instrument that derives its value from an underlying asset, such as a currency, commodity, or stock. CFDs are a common type of derivative in Forex trading.
Describes a monetary policy stance that favors low interest rates and economic stimulus. Central banks are considered dovish when they are more concerned about unemployment than inflation.
A type of broker that connects traders directly with liquidity providers (such as banks or other traders) to execute orders. ECN brokers generally offer lower spreads but charge commissions and allow trading with minimal intervention.
The total value of a trader’s account, including the current balance and any unrealized profits or losses from open positions.
Formula: Equity = Balance + (Floating Profit/Loss)
Currency pairs that include one major currency and one from a smaller or emerging economy. They tend to have lower liquidity and higher spreads.
Example: EUR/TRY (Euro/Turkish Lira).
A method of analyzing markets based on economic, political, and financial data. It focuses on factors like interest rates, employment reports, and GDP to determine currency value.
A gap occurs when the price of a currency pair opens at a significantly different level than where it closed the previous day. Traders use gaps as signals for potential trading opportunities.
Describes a central bank stance focused on controlling inflation, often through higher interest rates. A hawkish tone signals possible tightening of monetary policy.
A strategy used to reduce risk by opening one position to offset potential losses from another. Traders use hedging to protect against unfavorable market movements.
The cost of borrowing money, set by a country’s central bank. Interest rate decisions significantly affect currency values, as higher rates tend to attract foreign investment.
A tool that allows traders to control a large position with a relatively small amount of capital.
Example: With 1:400 leverage, you can control $400 with just $1 of your own money.
⚠️ Leverage increases both potential profits and losses, so it should be used carefully, especially by beginners.
An order to buy or sell a currency pair at a specific price or better. A buy limit order will only be executed at the limit price or lower, and a sell limit order at the limit price or higher.
Buying a currency with the expectation that its value will rise. The trader profits by selling it later at a higher price.
The standardized unit size of a trade in Forex.
The most traded and most liquid currency pairs, typically involving the US Dollar. They generally have low spreads.
Example: EUR/USD (Euro/US Dollar).
The amount of money required in your account to open a leveraged trade.
Example: With 50:1 leverage, you need $1 of margin for every $50 of the trade size.
A warning issued by the broker when your account equity falls below the required margin level. If no additional funds are added, the broker may close open positions to prevent further losses.
A type of broker or institution that provides liquidity by offering both buy and sell quotes for a financial instrument. They set their own prices and often act as the counterparty to their clients' trades.
Currency pairs that include major currencies but exclude the US Dollar.
Example: GBP/JPY (British Pound/Japanese Yen).
A technical indicator or concept that measures the speed or strength of a price movement. High momentum suggests strong buying or selling pressure, often preceding significant price changes.
A safety feature offered by some brokers that ensures you never lose more money than you have in your trading account. Even in volatile market conditions, your account balance will not fall below zero.
A major economic indicator released by the US Bureau of Labor Statistics, showing the number of new jobs created in the economy, excluding agriculture. It often causes high volatility in the Forex market.
A trade that is currently active and exposed to market fluctuations. Profits or losses are unrealized until the position is closed.
Describes financial instruments, including Forex, that are traded directly between two parties without a centralized exchange. The Forex market is an OTC market.
The smallest unit of price movement in a currency pair, typically the fourth decimal place (0.0001).
Example: If EUR/USD moves from 1.1000 to 1.1001, it has moved 1 PIP.
The second currency in a currency pair. It shows how much of this currency is needed to buy one unit of the base currency.
Example: In EUR/USD = 1.3200, the quote currency is the US Dollar. One Euro costs 1.32 US Dollars.
A price level where an asset has historically had difficulty rising above. It indicates selling pressure and is often used as a point to take profit or anticipate reversals.
A set of strategies used to minimize potential losses in trading. This includes tools like stop losses, position sizing, diversification, and not risking more than a small percentage of your capital on a single trade.
A short-term trading strategy focused on making small profits from quick trades. Scalpers often make dozens or hundreds of trades per day.
Selling a currency you don’t own, expecting its value to fall. The broker lends you the currency, and if it depreciates, you can buy it back at a lower price to make a profit.
The difference between the expected price of a trade and the actual price at which it is executed. It often occurs during high volatility or low liquidity.
The difference between the Bid and Ask price of a currency pair. It represents the broker's profit and the cost of the trade to the trader.
A momentum indicator used in technical analysis to compare a currency's closing price to its price range over a specific period. It helps identify overbought or oversold conditions.
A risk management tool that automatically closes a trade when the price reaches a predefined level. It helps limit losses if the market moves against you.
A broker model where client orders are sent directly to the market without interference or dealing desk intervention. STP brokers often route orders to various liquidity providers to obtain the best price.
A price level where an asset has historically had difficulty falling below. It indicates buying interest and is often used to identify potential entry points or stop loss levels.
An order placed to automatically close a trade when the price reaches a desired profit level. It helps secure profits without needing to constantly monitor the market.
A method of evaluating currency pairs by analyzing price charts and using indicators like moving averages, RSI, and candlestick patterns to forecast future price movements.
Software used by traders to place orders, analyze charts, and manage accounts. Popular platforms include MetaTrader 4 (MT4), MetaTrader 5 (MT5), and cTrader.
A type of stop loss order that automatically adjusts as the market price moves in your favor. It helps lock in profits while still allowing the trade to remain open during favorable price movements.
The general direction of a currency’s price movement over a period of time. Trends can be upward, downward, or sideways and are typically identified through charts and technical analysis.
Often referred to as the "fear index", the VIX measures the expected volatility of the US stock market, based on S&P 500 options. Traders use the VIX to gauge market sentiment. A higher VIX indicates greater uncertainty and potential for large market swings, which can impact currency prices.
The degree of price fluctuation in the market over a specific time period. High volatility means prices are moving rapidly and unpredictably, while low volatility indicates more stable price movement. Volatility is a key factor in trading decisions and risk management.
