Forex Dictionary for Beginners and Experts: All the Trading Terms You Need
- Hammet Forex
- Oct 17, 2024
- 5 min read
Forex Dictionary
A
Ask Price: The price at which a trader can buy a currency pair. Also known as the offer price.
Appreciation: When the value of a currency increases in comparison to another currency.
Arbitrage: The act of buying and selling the same or equivalent assets simultaneously in different markets to profit from price discrepancies.
At the Money (ATM): A situation where the strike price of an option is equal to the current market price of the underlying asset.
Available Margin: The amount of funds in a trading account that is available to open new positions.
B
Base Currency: The first currency in a currency pair, against which the second currency (quote currency) is quoted. For example, in EUR/USD, EUR is the base currency.
Bid Price: The price at which a trader can sell a currency pair.
Bear Market: A market condition in which prices are falling, leading to a pessimistic market outlook.
Bull Market: A market condition in which prices are rising, leading to optimism and confidence in the market.
Broker: An intermediary that facilitates the buying and selling of financial instruments between buyers and sellers.
Balance: The total amount of money in a trading account excluding open trades.
C
Candlestick Chart: A type of price chart used in technical analysis that displays the high, low, open, and close prices for a given time period.
CFD (Contract for Difference): A financial instrument that allows traders to speculate on the price movement of an asset without owning the underlying asset itself.
Cross Currency Pair: A currency pair that does not involve the US dollar, such as EUR/GBP or AUD/JPY.
Currency Pair: The quotation of two currencies, with the value of one currency being quoted against the other.
Commission: A fee charged by a broker for facilitating a trade.
D
Day Trading: The act of buying and selling financial instruments within the same trading day, without holding any open positions overnight.
Drawdown: The reduction of equity in a trading account due to a series of losing trades.
Derivative: A financial instrument that derives its value from the price of an underlying asset, such as currency pairs, commodities, or stocks.
Devaluation: The deliberate downward adjustment of a country's currency relative to another currency or a standard, like gold.
E
Equity: The total value of funds in a trading account, including unrealized profits or losses from open trades.
Economic Calendar: A schedule that lists upcoming economic events and data releases, such as interest rate decisions or employment reports, that can impact financial markets.
Exchange Rate: The price at which one currency can be exchanged for another.
Expert Advisor (EA): A software program that automates trading strategies in the Forex market based on predetermined rules.
F
Forex (FX): Short for Foreign Exchange, it refers to the global marketplace where currencies are traded.
Fundamental Analysis: A method of evaluating currencies by analyzing economic, political, and social factors that could influence their value.
Fibonacci Retracement: A technical analysis tool that identifies potential support and resistance levels by using horizontal lines based on Fibonacci numbers.
Floating Profit/Loss: The unrealized gain or loss on an open position that has yet to be closed.
G
Gross Domestic Product (GDP): A key economic indicator that measures the total value of all goods and services produced in a country during a specific period.
Gap: A price difference between the closing price of one trading period and the opening price of the next, often caused by significant events or news announcements.
Going Long: The act of buying a financial instrument with the expectation that its value will increase.
Going Short: The act of selling a financial instrument with the expectation that its value will decrease.
H
Hedging: A strategy used to offset potential losses in one market by taking an opposite position in another market.
High-Frequency Trading (HFT): A form of algorithmic trading that uses powerful computers to execute a large number of trades in fractions of a second.
Hyperinflation: An extremely rapid and uncontrolled rise in prices, leading to the collapse of a currency's value.
I
Inflation: The rate at which the general price level of goods and services in an economy is rising, leading to a decrease in purchasing power.
Interest Rate: The rate at which a central bank lends money to domestic banks, which in turn affects currency value.
Intraday: A term used to describe price movements or trading activity that occurs within the same day.
J
Japanese Candlestick: A price chart that displays the high, low, open, and close prices for a specific period of time in the form of a candlestick.
K
Keltner Channel: A technical indicator that uses volatility-based bands to identify overbought or oversold conditions.
L
Leverage: The use of borrowed capital to increase the potential return on an investment. In Forex, leverage allows traders to control larger positions with a smaller amount of capital.
Liquidity: The ability of an asset to be quickly bought or sold in the market without affecting its price.
Limit Order: A type of order to buy or sell a currency pair at a specified price or better.
M
Margin: The amount of money required to open a position in the market, typically expressed as a percentage of the total position size.
Market Order: An order to buy or sell a currency pair immediately at the current market price.
Moving Average (MA): A technical indicator that smooths out price data to identify trends by calculating the average price over a specific time period.
Margin Call: A demand from a broker for a trader to deposit additional funds to cover potential losses in open positions.
N
Non-Farm Payrolls (NFP): A key economic indicator that measures the number of new jobs added in the U.S. economy, excluding the farming sector.
Net Asset Value (NAV): The total value of an investment fund's assets minus its liabilities, typically expressed on a per-share basis.
O
Over-the-Counter (OTC): A decentralized market where trading occurs directly between parties, rather than through a centralized exchange.
Open Position: A trade that has been entered into but not yet closed.
P
Pip: The smallest price movement in a currency pair, usually the fourth decimal place (0.0001), except for pairs involving the Japanese yen.
Portfolio: A collection of financial investments, including currencies, stocks, bonds, and other assets.
Position Size: The amount of currency being bought or sold in a trade.
Q
Quantitative Easing (QE): A monetary policy in which a central bank buys government securities or other financial assets to inject money into the economy and stimulate growth.
R
Risk Management: The process of identifying, assessing, and controlling the risk of financial loss in trading.
Resistance: A price level where an asset tends to stop rising due to increased selling interest.
S
Spread: The difference between the bid and ask prices of a currency pair.
Stop-Loss Order: An order placed to sell a currency pair when it reaches a specific price, to limit potential losses.
Slippage: The difference between the expected price of a trade and the actual price at which it is executed.
T
Take-Profit Order: An order placed to automatically close a trade when it reaches a specific profit level.
Technical Analysis: The study of historical price movements to forecast future price movements using charts and indicators.
U
Unrealized Profit/Loss: The potential profit or loss on an open position that has not yet been closed.
V
Volatility: The degree of variation in the price of a financial instrument over time, typically measured by the standard deviation of returns.
W
Whipsaw: A sharp price movement in one direction followed by a quick reversal, often resulting in losses for traders.
Y
Yield: The return on an investment, usually expressed as a percentage.
Z
Zero-Sum Game: A situation in which one trader's gain is exactly balanced by another trader's loss.
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