A–Z reference
Forex glossary
36 essential forex and trading terms explained in plain English, each with a practical example, related terms and links to the lessons and calculators where they matter.
A
- ArbitrageArbitrage is the attempt to profit from small price differences in the same asset, or equivalent combinations of assets, by buying and selling at once.
- Ask PriceThe ask price is the price at which a broker or market maker will sell a currency pair to you, so it is the price you pay when you open a buy trade.
B
- Base CurrencyThe base currency is the first currency in a forex pair. The quote shows how much of the second currency is needed to buy one unit of it.
- Bear MarketA bear market is a sustained period of falling prices. In forex it describes a currency or pair in a persistent downtrend rather than a brief dip.
- Bid PriceThe bid price is the price at which the market will buy a currency pair from you, so it is the price you receive when you sell or close a long trade.
- Bull MarketA bull market is a sustained period of rising prices. In forex it describes a pair in a persistent uptrend, meaning the base currency keeps strengthening.
C
- Carry TradeA carry trade is buying a higher-yielding currency against a lower-yielding one to earn the interest rate difference, while accepting exchange rate risk.
- Central BankA central bank manages a country or region's money supply and sets its key interest rate, making it one of the strongest drivers of currency values.
- Cross Currency PairA cross currency pair, or cross, is a pair that does not include the US dollar, such as EUR/GBP, GBP/JPY or AUD/NZD.
- Currency PairA currency pair is the quotation of one currency against another, such as EUR/USD, showing how much of the second currency buys one unit of the first.
D
E
- EquityEquity is the real-time value of a trading account: the balance plus or minus the unrealized profit or loss on all open positions.
- ExecutionExecution is the process of filling a trade order: the price, speed and method by which your buy or sell instruction becomes an open or closed position.
- Exotic Currency PairAn exotic currency pair combines a major currency with the currency of a smaller or emerging economy, such as USD/TRY, USD/MXN or EUR/ZAR.
F
H
I
L
- LeverageLeverage lets you control a position larger than your own deposit by using borrowed exposure from your broker. It magnifies both profits and losses.
- LiquidityLiquidity is how easily a currency pair can be traded in size without moving its price much. High liquidity usually means tighter spreads and smoother fills.
- LotA lot is a standardized trade size in forex. One standard lot is 100,000 units of the base currency; mini and micro lots are 10,000 and 1,000 units.
M
- Major Currency PairsMajor currency pairs are the most heavily traded pairs, each combining the US dollar with another leading currency such as the euro, yen or pound.
- MarginMargin is the portion of your account a broker sets aside as a good-faith deposit to open and hold a leveraged position. It is not a fee.
- Margin CallA margin call is a broker warning that your account equity has fallen too low relative to the margin your open positions require.
P
- PipA pip is the standard unit for measuring how much a currency pair's price changes: 0.0001 for most pairs and 0.01 for pairs quoted in Japanese yen.
- PipetteA pipette is one-tenth of a pip, the extra decimal place most brokers show in forex quotes: 0.00001 for most pairs and 0.001 for yen-quoted pairs.
Q
R
- ResistanceResistance is a price level or zone where a rising market has repeatedly stalled because selling pressure has tended to outweigh buying pressure there.
- Risk ManagementRisk management is the set of rules a trader uses to limit losses, such as capping risk per trade, using stop-losses and controlling total exposure.
S
- SlippageSlippage is the difference between the price you expected for an order and the price at which it was actually filled. It can be negative or positive.
- SpreadThe spread is the difference between the ask (buy) price and the bid (sell) price of a currency pair. It is a built-in cost paid on every trade.
- Stop-LossA stop-loss is an order that closes a trade automatically at a preset price to cap the loss if the market moves against you.
- SupportSupport is a price level or zone where a falling market has repeatedly stopped and bounced, because buying interest has tended to appear there.
- SwapA swap, or rollover, is the overnight interest credited or debited when a forex position is held past the daily cut-off, based on the two currencies' rates.
T
- Take-ProfitA take-profit is a limit order that closes a trade automatically once price reaches a preset target, locking in the gain without needing to watch the screen.
- Technical AnalysisTechnical analysis is the study of past price and volume behavior on charts to identify trends, key levels and potential trading opportunities.
V
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