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Forex glossary
Plain-language definitions of the terms used in forex and CFD trading. Each definition is a recorded row written by us — if a term is not listed, we have not written it yet rather than guessing at one.
59 terms shown · 59 terms recorded in total
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Ask Price
The ask, sometimes called the offer, is the price at which the market will sell the base currency to you, so it is the price a buy order pays. It is always the…
Letter A
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ATR (Average True Range)
The average true range measures, in pips, how much a market has typically moved per period recently, taking gaps into account. It is commonly used to set stop d…
Letter A
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Backtest
A backtest runs a set of rules over historical price data to see how that rule set would have performed in the past. It answers a narrow question about history…
Letter B
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Base Currency
In a currency pair, the base currency is the first one named and the unit being bought or sold. In EURUSD, the euro is the base and the quote tells you how much…
Letter B
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Bid Price
The bid is the price at which the market will buy the base currency from you, so it is the price your sell order receives when you open a short position. On a t…
Letter B
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Breakout
A breakout is a move beyond a level or area that price had previously been unable to leave, such as the edge of a range. Breakouts frequently fail, so the term…
Letter B
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Broker Regulation
Regulation is the supervision a broker receives from a financial authority, which typically sets rules on client-money segregation, leverage limits, disclosure…
Letter B
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Candlestick
A candlestick summarises four prices for one period: the open, the close, the high and the low. The wide body shows the distance between open and close, and the…
Letter C
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Commission
A commission is a fixed charge per lot traded, applied by some account types in exchange for a narrower spread. It is paid on the round trip and is therefore in…
Letter C
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Curve Fitting
Curve fitting, also called over-optimisation, is the result of tuning rules so closely to one historical period that they describe its noise rather than any rep…
Letter C
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Day Trading
Day trading opens and closes positions within the same session, so nothing is held overnight. It avoids swap charges and overnight gaps but requires continuous…
Letter D
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Demo Account
A demo account reproduces the trading platform with simulated funds and, in most cases, prices streamed from the live market. It is the standard environment for…
Letter D
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Drawdown
Drawdown is the fall in account value from a previous high to a later low, usually quoted as a percentage of the peak. A balance that moves from ten thousand to…
Letter D
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ECN Broker
ECN (electronic communication network) describes an execution arrangement where client orders are routed to a pool of liquidity providers and matched against ot…
Letter E
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Expert Advisor
An Expert Advisor (EA) is automated software written for MetaTrader 4 or MetaTrader 5 that places and manages orders according to coded rules. It acts only insi…
Letter E
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Forward Testing
Forward testing applies a rule set to market data that arrives after the test period, usually by running it on a demo account in live conditions. It exposes pro…
Letter F
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Gap
A gap is a discontinuity in price where the next quote is materially different from the last, with no trades printed in between. Weekend gaps and Monday opens a…
Letter G
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Hedging
Hedging in retail forex usually means holding an opposite position in the same pair so that the two offset each other while the market is unresolved. Some platf…
Letter H
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Investor Password
An investor password is a read-only credential for a MetaTrader account. It allows observation of activity in the platform terminal but not the placement, modif…
Letter I
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JPY Quote Convention
Pairs involving the Japanese yen are quoted to two decimal places rather than the usual four, because the value of a yen unit is small. A pip on USDJPY is there…
Letter J
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Leverage
Leverage lets a small amount of margin control a much larger position, expressed as a ratio such as 1:30 or 1:100. At 1:30, one hundred dollars of margin can su…
Letter L
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Liquidity
Liquidity is how easily a position can be bought or sold without moving the price. Major pairs during the London and New York sessions are highly liquid, so quo…
Letter L
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London Session
The London session carries a large share of global forex volume, particularly in the first hours after it opens and while it overlaps with New York. Spreads on…
Letter L
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Lot
A lot is the standardised unit of trade size in forex. One standard lot is 100,000 units of the base currency, a minor lot (also called a mini lot) is 10,000 an…
Letter L
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MACD
MACD (moving average convergence divergence) plots the difference between two exponential moving averages, along with a signal line derived from the first. It i…
Letter M
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Margin
Margin is the portion of your balance that the broker sets aside as a deposit while a leveraged position is open. It is not a fee and not a minimum account size…
Letter M
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Margin Call
A margin call is the warning state reached when free margin runs low because open positions are losing value. Free margin is the balance left after margin is lo…
Letter M
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Market Maker
A market maker is a broker that quotes both sides of the market and takes the other side of client trades internally, then manages the resulting exposure itself…
Letter M
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Micro Lot
A micro lot is 1,000 units of the base currency, one hundredth of a standard lot. On a dollar-quoted pair, one pip is worth approximately ten cents, which makes…
Letter M
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Moving Average
A moving average plots the mean of the last set number of closing prices as a single line, smoothing short-term movement so direction is easier to see. A simple…
Letter M
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New York Session
The New York session overlaps with the afternoon in London, and the overlap is when the deepest liquidity of the day is usually available. US economic announcem…
Letter N
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Parameter Optimisation
Optimisation means searching through combinations of settings to find the ones that produced the best result on a particular historical period. The danger is th…
Letter P
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Pip
A pip (percentage in point) is the usual smallest move quoted in a currency price. For most pairs it is the fourth digit after the decimal point, so EURUSD movi…
Letter P
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Pipette
A pipette, sometimes called a point, is one tenth of a pip. Brokers show five decimal places on most pairs and three on yen pairs so that prices can be quoted m…
Letter P
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Position Size
Position size is how much of a pair you buy or sell, expressed in lots. The usual method works backwards from the risk: decide how much money you are prepared t…
Letter P
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Price Action
Price action is the practice of reading raw movement in price, usually on a candlestick chart, rather than relying on indicator outputs. It focuses on where pri…
Letter P
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Quote Currency
The quote currency is the second currency in a pair and the one the price is expressed in. In EURUSD at 1.0850, the US dollar is the quote currency and one euro…
Letter Q
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Range Market
A range, or sideways market, is a period in which price oscillates between an upper and a lower boundary without making a sustained move in either direction. Ra…
Letter R
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Resistance
Resistance is a price area where buying has previously been met by enough selling to stop or reverse a rise. Like support it is drawn as a zone, because the exa…
Letter R
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Risk-Reward Ratio
The risk-reward ratio compares what a trade risks to what it targets, usually written as something like 1:2 where the take-profit distance is twice the stop-los…
Letter R
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Rollover
Rollover is the daily carrying forward of an open position to the next value date, and the swap adjustment is applied at that moment. It happens automatically a…
Letter R
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RSI
The Relative Strength Index measures how much of the recent price movement has been upward rather than downward, on a scale of nought to one hundred. Readings a…
Letter R
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Scalping
Scalping attempts to take very small price moves repeatedly, holding positions for seconds or minutes. Targets are short in pips, so the spread and slippage mak…
Letter S
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Slippage
Slippage is the difference between the price you expected and the price an order was actually filled at. It happens when the market moves while the order is tra…
Letter S
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Spread
The spread is the gap between the bid price and the ask price, and it is the cost of opening a trade at the quoted market. A new position starts at zero value a…
Letter S
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Standard Lot
A standard lot is 100,000 units of the base currency and is the largest commonly used fixed size. Because one pip on a standard lot is worth approximately ten d…
Letter S
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Stop Loss
A stop loss is an order that closes a position automatically if the price moves against it by a set distance. It converts an open-ended risk into a defined one…
Letter S
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Stop-Out
A stop-out is the automatic closure of positions by the broker when the margin level falls to a preset percentage, for example fifty percent. The broker chooses…
Letter S
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Support
Support is a price area where repeated selling pressure has previously slowed or reversed a fall. It is an area rather than a single line, and its strength is o…
Letter S
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Swap
Swap is the interest adjustment applied to a position held overnight, reflecting the rate difference between the two currencies in the pair. Long positions can…
Letter S
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Swing Trading
Swing trading holds positions for several days to a few weeks, aiming at one leg of movement rather than intraday noise. It usually relies on higher timeframes,…
Letter S
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Sydney Session
The Sydney session opens the trading day and is usually the quietest of the four, with thin liquidity and narrow ranges. It overlaps with the end of the New Yor…
Letter S
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Take Profit
A take profit is an order that closes a position once the price reaches a pre-set favourable level. Used together with a stop loss, it fixes both ends of the tr…
Letter T
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Timeframe
A timeframe is the length of market activity one candle or bar represents, from one minute up to monthly. Higher timeframes smooth out noise and produce fewer s…
Letter T
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Tokyo Session
The Tokyo session is the main Asian trading window and the most active period for yen crosses. Conditions are generally calmer than in London or New York, so br…
Letter T
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Trading Session
The forex market runs continuously for about twenty-four hours, but activity is concentrated in four regional sessions: Sydney, Tokyo, London and New York. Liqu…
Letter T
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Trend
A trend is the general direction of price over the period you are looking at, commonly described as higher highs and higher lows in an uptrend, or lower highs a…
Letter T
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Volatility
Volatility describes how large and how fast price moves tend to be, without saying anything about direction. Highly volatile markets produce bigger pip ranges i…
Letter V
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XAUUSD (Gold)
XAUUSD is the code for one troy ounce of gold priced in US dollars. It is not a currency pair, and most retail platforms offer it as a CFD or metal contract, so…
Letter X
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