Understand complex Forex terminology with TradeFred’s useful jargon buster. Browse our list of common phrases and acronyms and learn to talk like a professional.
Link to the anchor
This signifies when the Asian trading markets are open for business. It is the first market to open at the start of each day, and usually runs between 11pm and 8am GMT. These hours will change when daylight savings time is observed.
Each asset is displayed with two prices, one for buying and another for selling. The ask price, or offer, lets a trader know how much they will have to spend to purchase this particular asset.
The market nickname for the Australian dollar (AUD).
The amount of money a trader currently has available in their account.
This is the first currency that is displayed in a currency pair. For example, for USD/AUD, the US dollar is the base currency.
Usually characterised by a pessimistic market sentiment and the selling of assets, a bearish market will observe a downward trend. Traders deciding to cut their losses and sell their instruments to protect against falling prices exacerbates the trend. A bear market officially begins when the market drops in value by 20% or more during a two-month period.
Occurs when an upward-trending market starts to react and move in the opposite direction.
The term describes the negative feeling surrounding prospects of the market or individual assets. If there is a lot of bearish sentiment among traders, it will usually signify the beginning of a bear market.
The price a trader is charged if they want to sell a particular instrument.
Black Swan event
The phrase was coined by scholar and former trader Nassim Nicholas Taleb, to describe a surprise event that has a large knock-on effect on the market
Used in technical analysis, this consists of a moving average and two trading bands that indicate market volatility. When the bands are far apart, the asset is said to be fluctuating rapidly, while bands that are close together signify that volatility is low.
If an asset’s price consistently touches these bands, it is considered to be overbought or oversold, meaning a trend reversal is on the cards. Meanwhile, a price that moves between the moving average and upper band signifies an upward trend. Should it break below the moving average, however, it shows that a downward reversal might happen soon.
These are fixed-income security assets in which an issuer borrows money from an investor and agrees to pay a predefined interest rate and settle the debt by a specified date. Bonds are usually issued by governments, municipalities, and large corporations. Interest is paid every six months, and the bond will mature when the full balance of the loan is due to be paid.
Occurs when the market price pushes through a confirmed level of support or resistance. When an asset breaks through a resistance level, this marker will become the new support. Similarly, if it goes past a support level, the value usually turns into a new resistance level.
Individuals or companies that act as intermediaries between buyers and sellers. A broker will typically charge a commission and/or spread mark-up for their services.
Characterised by rising prices, a feeling of optimism and the wide-spread purchasing of assets, which will usually encourage other traders to buy a particular instrument in the hope of making a profit, further reinforcing the upward trend.
Occurs when a downward-trending, or bearish, market starts to move in the opposite direction.
Used to describe the positive feeling and growing investor confidence about the future performance of a particular asset or market, which will often signify the start of a bull market and encourage other traders to buy.
The market nickname for the Great British Pound and the United States Dollar (GBP/USD) currency pair. It comes from the telegraph cable that was laid beneath the Atlantic Ocean in 1858 to help synchronise the GBP/USD exchange rates.
A method of plotting price action on the markets. Each candlestick is comprised of a bar-shaped body and a line-shaped ‘wick’ that protrudes from the top and bottom of the body.
The body of a candlestick represents the opening and closing prices for the selected time duration, while the wicks signify the highest and lowest prices achieved by the asset in that timeframe. Bullish and bearish candlesticks are coloured differently so traders can easily tell them apart.
A strategy used by traders in which they sell a low-yielding currency (one with a low-interest rate) and use the funds to purchase a high-yielding asset. By doing this, an investor hopes to profit on the interest rate differential between the two instruments.
Contracts for difference (CFDs)
These are trading instruments that let investors speculate on the changing values of an asset, without having to take full ownership of them. When a contract expires, the seller will pay the buyer the difference between the value of the instrument when it was first bought and its current value. If this is negative, then the buyer must make up the shortfall themselves.
Used in technical analysis to chart an asset’s market price, these patterns are considered to be extremely reliable indicators of future movement.
Traders will place a closing order to automatically close an open position when the price of an asset reaches a pre-defined level. They are used to either preserve profits or prevent losing positions from costing investors even more of their capital.
Goods that are traded over an exchange. These usually fall into two main categories: hard commodities (typically ones that are extracted from the earth) and soft commodities (things that are cultivated and harvested). All commodities are standardised, to ensure that they will be of a similar quality regardless of where they originate from.
Consumer price index (CPI)
A monthly economic indicator that charts the prices of goods and services that are purchased by consumers. Because this accounts for most of the inflation experienced by a country, the CPI is said to be an important indicator of changing values. This is due to the fact that central banks will usually raise or lower interest rates in order to combat inflation.
Investors trade currencies in pairs, and will attempt to predict which currency will outperform the other. Each currency is represented by a three-letter abbreviation and is usually separated by a space, decimal point or forward slash.
The first currency in a pair is known as the ‘base’, while the second is called the ‘counter’. A currency pair’s value is determined by how much of the counter currency is needed to purchase a single unit of the base currency.
Occurs when investors buy and sell an asset within a single trading day, so they can take advantage of constant market fluctuations. Day traders will usually use large amounts of leverage to profit from the relatively small movements in price. They are extremely important as their activities will provide liquidity to the market. Forex and stocks are the most common markets for day traders to use.
An asset with a price that is derived from and depends on the value of an underlying instrument, such as a currency or commodity.
The tone of language used to describe a particular situation or policy. A dovish sentiment indicates that the person or institution making the statement will not take strong or sudden actions, usually because they feel that the current economic situation does not warrant such activity.
Used by traders to monitor all the economic data that is due for release by each region or country. Each announcement is categorised according to the impact it is expected to have on the market.
Reports that are released by each nation or economic region. Traders use these indicators to assess the overall health of an economy and whether it is worth investing. The release of an important indicator will usually trigger market volatility before and after the event has taken place.
Automatically opens a new trading position when the asset’s price reaches a predefined level. Traders will typically use this type of order so they do not have to constantly monitor the markets.
This is your account balance, plus or minus the unrealised profit and loss from any open trading positions.
The second trading session of every day, occurring between 7am and 4pm GMT. These times change when daylight savings time is being observed.
Exponential moving average (EMA)
Traces an instrument’s average price over a predefined number of periods. Traders will use EMAs because they are often extremely quick to react to price fluctuations.
A sequence in which each number is the sum of the previous two. Used to calculate retracements, traders will draw Fibonacci lines from the recent low to the recent high (or vice-versa depending on whether it is a bullish or bearish market). When the price hits one of these levels, it acts as a signal for investors to buy or sell the asset.
Like most techniques, Fibonacci often becomes a self-fulfilling prophecy because so many investors use the strategy. The result often has an artificially affect the price of an asset by their actions.
Refers to the unrealised gains or losses from any open position that an investor currently holds.
Federal Open Market Committee (FOMC)
This US institution is responsible for deciding which way the interest rates of the country should go. The release of any information from the FOMC is regarded as a high-impact economic indicator, as it can have a huge positive or negative effect on the USD – depending on whether the sentiment is dovish or hawkish.
One of the most popular trading mechanisms Foreign exchange (Forex) is the largest and most volatile market in the world. Investing is divided into three main sessions, which open one after another throughout the day. These sessions overlap, ensuring traders can open new positions 24 hours a day, five days a week.
The funds in a trading account that are not being used to guarantee any open positions.
A way to analyse the market by focusing on the external factors that can affect the price of an asset – such as economical, geo-political and social events. Traders will use this information to decide whether the instrument is over or underpriced so that they can take the appropriate action.
These allow buyers and sellers to agree upon the price of an asset to be exchanged at a later date. A buyer will go ‘long’ on the trade, hoping that the instrument will increase in value. The seller will want the opposite to happen.
Gross domestic product (GDP)
An economic indicator that monitors the changes in the total value of goods and services produced by a country or economic region. Regarded as one of the most important barometers of financial health, a GDP announcement is an incredibly high-impact event.
Good for the day
Orders that are only valid until the end of the current trading day. At this point, the position will be automatically closed.
Good till cancelled (GTC)
Pending orders that are set to remain open indefinitely, or until the trader decides to close them.
Good till date/time (GTD)
Pending orders that can be set to stay open until a specified time. If the order has not been fulfilled before this period, it will automatically be cancelled.
The market nickname for the GBP/JPY currency pair.
The tone of language used to describe a particular situation or policy. A hawkish sentiment indicates that the person or institution making the statement is about to take strong, decisive action. If this happens, it will likely trigger a period of market volatility.
A way for traders to reduce their overall exposure to risk. Investors will often open positions in two assets that are inversely correlated. For example, if you own shares in a technology company, you can buy a ‘put option’ that gives you the right to sell at a certain point in the future. If the stock of your company suddenly falls beyond this marker, your losses will be mitigated by the put option.
A large influx of speculative trades from one economy into another so that investors can take advantage of higher interest rates.
A metaphorical portfolio of assets that represent the relative health of an industrial sector or a given country’s economy. For example, the FTSE 100 tracks the value of the 100 largest companies on the UK stock exchange. The value of each index is represented by the aggregated performance of all the stocks contained in it.
An economic indicator that reports the total value of a country or economic region’s output. Closely related to other factors such as employment and consumer confidence, it is considered to be a ‘coincident’ indicator because production is extremely sensitive to changes in demand.
The use of rhetoric by an individual or financial institution to try and influence political and economic events without having to resort to direct intervention. Speeches by the heads of global bodies such as the IMF or World Bank tend to fall into this category, as they will try to influence the market without actually changing policy.
The market nickname for the New Zealand dollar (NZD).
Technical indicators that register change long after the economy has reacted. Employment figures are a good example, as they will tend to increase or decrease in accordance with broader economic events.
Taken from the French to ‘leave alone’, this is a theory that seeks to stop government intervention. Subscribers to this way of thinking believe that the markets should be able to regulate themselves and be free from trade restrictions and other factors.
Technical indicators that register change before it is felt by the economy as a whole. Money supply, building permits and manufacturing orders are all said to be lead indicators.
Allows traders to open larger trading positions than their capital would ordinarily allow. Using leverage gives investors the chance to drastically increase their profit while only investing a small percentage of the asset’s overall value.
The closure of an open position to take the resulting profits or limit further losses.
The degree of ease in which an asset can be bought or sold on a given market. A highly liquid instrument can be bought and sold in bulk without having too much effect on the price.
Investors will take a long position if they buy an asset with the expectation that it will increase in value.
The market nickname of the Canadian dollar (CAD). Taken from the Common Loon, which is the provincial bird of Ontario.
Describes the after-effect of severe economic crises that can sometimes take many years to recover.
Used to standardise quantities of financial assets. In Forex, a lot is equivalent to 100,000 units of the base currency in a pair.
The funds that traders must have in their accounts before they can guarantee their open positions.
A broker’s request that a trader deposits funds into their account so they can guarantee their open positions.
The margin that a trader has left to open new positions. Expressed as a percentage, the level represents the ratio of equity to used margin. When it reaches 100%, it means that all the investor’s available margin is in use, and no further trades can be opened.
Refers to an asset’s ability to cope with large numbers of buy and sell orders without its market price being significantly affected.
An order to buy an asset at the current market price. It is executed as soon as a trader presses the buy or sell button on their trading platform.
Equates to one hundredth of a lot. In Forex, this represents 1,000 units of the base currency.
Equates to one tenth of a lot. In Forex, this represents 10,000 units of the base currency.
Minimum bid rate
The main refinancing rate, set by the European Central Bank (ECB) each month. These announcements are usually correctly anticipated by the market, so do not cause much volatility. However, the press conference that follows the press release can generate a lot of activity, especially if the speaker is thought to be using hawkish language.
The rate at which an asset’s price and volume accelerate, either positively or negatively. Once the instrument begins to gather momentum, traders will usually believe that it will continue in the same direction, and will open new positions accordingly.
Non-farm payroll (NFP)
One of the most important economic indicators from the United States, the NFP tracks the changes in the number of employed people, excluding farm workers, government workers, private household employees and not-for-profit organisations. The previous month’s data is released on the first Friday of every month, making this the earliest and most important employment indicator from the US.
North American session
The final session of each trading day. It is open between 12pm and 8am GMT. These hours change whenever daylight savings time is observed.
An instruction from a trader to a broker to buy or sell a particular asset.
A technical indicator that plots the output between two extreme values. Traders will typically use oscillators to identify whether an asset has been overbought or oversold.
An instruction to buy or sell an asset when certain preconditions are met. They typically fall into two categories, limit orders and stop orders. Limit orders are particularly useful as they guarantee that an order will only be carried out within certain parameters, or not at all. Stop orders are commonly used to lock in profits or restrict potential losses.
A standardised unit of time used when monitoring the price change of an asset. Typically, traders will use several different time periods when planning their next move. Aggressive investors are more likely to target the hourly and daily charts, while those that like to take their time will often study the weekly or even monthly charts.
Also known as a ‘percentage in point,' this is the smallest unit when describing the value of a currency pair – usually the fourth decimal place.
Relates to the value of each pip in a particular trade, which is converted into the trader’s base currency. It is important for investors to know an asset’s pip value, as they will be able to accurately determine how much a price swing will affect their profit and loss levels.
A technical indicator used to predict short-term movements in price action, calculated by taking the average of the asset’s highest, lowest and closing prices. If the current price action takes place above this point, it is regarded as being bullish. If it occurs below, it is said to be bearish.
Purchasing managers’ index (PMI)
A leading economic indicator that surveys a broad cross-section of private sector purchasing managers in the construction, service and manufacturing industries. Respondents are asked a series of questions relating to business conditions, employment, prices, new orders and deliveries. A result of above 50.0 indicates that an industry is expanding, while anything below 50.0 is said to be contracting.
A selection of financial assets held by a trader. They can include stocks, commodities, options and bonds. Most investors will try and have a diverse portfolio as a way to limit any potential risk.
This is an investor who does not take notice of short-term fluctuations in price activity, but instead will hold on to their assets for extended periods of time – sometimes even years.
Producer price index (PPI)
A leading economic indicator that tracks the changing prices of goods and services sold by producers on a monthly basis. PPI is an important indicator of consumer inflation, as higher prices charged by producers will often be passed on to the consumer.
The price action that takes place between two parallel lines on a chart. They are defined by drawing lines that connect at least three lows and another that connects three highs. The higher line is classified as the resistance level, while the lower is called the support level.
Profit and loss (P&L)
Calculated by taking the average profit from winning trades and dividing it by the average loss from unsuccessful trades. This gives two numbers that form a profit and loss ratio. Traders will usually look for a 2:1 P&L ratio, meaning they will experience two wins for every one loss.
A significant upward movement in the price of an asset, which usually happens when there is an increase in buying activity and a decrease in the number of sellers in the market.
The main bar area of a candlestick.
A tool to try and predict the market, a resistance level is a line drawn across recent highs. Traders will expect the price of an asset to hit this level and bounce back. The more times an instrument fails to break this line, the stronger the resistance level is. If the price does manage to break through, the line will become a new support level instead.
High impact economic indicators that track the monthly change in retail sales. These figures are paramount as strong values will usually indicate a bullish sentiment in the market and an increase in the value of the country’s currency.
Occurs when the price of an asset moves in the opposite direction of the current trend. There will be many retracements during a trend, after which the price will continue going in the prevailing direction. Reversals can be both positive and negative, depending on whether it is an upward or downward trend.
A much larger version of a retracement, a reversal occurs when the prevailing trend stops and a new one begins in the opposite direction. Like a retracement, a reversal can either be positive or negative.
The amount of risk a trader or institution is willing to have in their portfolio of investments. A more cautious trader, for example, will have a low-risk appetite.
A reluctance to take up what traders may determine as high-risk positions. Hedging is one type of risk aversion, where investors may take up two conflicting positions to try and mitigate potential losses. In times of economic volatility, traders will usually get out of high-intensity markets and seek shelter with ‘safer’ assets such as gold.
The amount of money a trader can invest. Because investing is a high-risk practice, it is crucial to only trade with what you can afford to lose.
Occurs when a trading position is kept open beyond its original expiry date. Most brokers will do this automatically for a small charge.
The practice of rapidly opening and closing a large number of positions to take advantage of small changes in price.
The general public feeling around a particular asset, market or economy. Sentiments can either be ‘bullish’ or ‘bearish’ when used to describe the thoughts of traders and the market as a whole, or ‘dovish’ and ‘hawkish’ when talking about statements released by financial institutions and politicians.
An important economic indicator that surveys public opinion about the state of a market or economy.
Occurs when a trader sells an asset in anticipation of a drop in value.
A form of technical analysis, which uses moving averages in conjunction with other indicators to try to generate buy or sell signals.
Simple moving average (SMA)
Used to plot the average price of an asset over a set period.
The difference in pips between the price at which a trader expects the order to be processed at, and how much it is filled at. This usually happens in volatile or low-liquidity markets, especially in the run-up to the release of critical economic data.
Relatively large positive or negative movements in price action. They do not tend to last very long, so are not considered to be a trend.
The sale or purchase of an asset for immediate delivery.
The current rate at which a currency pair can be bought or sold.
The difference between how much a buyer is willing to pay for an asset and the level at which a seller wants to accept an order to sell it.
A tradeable asset that gives an investor a small stake in a company, including a claim on a percentage of its assets and earnings.
Used to mitigate losses if a trade moves in the opposite direction to that which the investor predicted. A stop-loss will automatically close when the price reaches a predefined level.
A tool to try and predict the market, a support level is drawn across recent lows in a trend. Traders will expect the price of an asset to bounce of this line and continue in the opposite direction. The more times the price fails to break this level, the stronger it is said to be. If the asset does manage to break through, the support level will become a new resistance level.
An investment strategy where traders will attempt to capitalise on short-term trends in the market.
The market nickname for the Swiss Franc (CHF).
Designed to automatically close an open trading position and take the resulting profits, should price action reach a particular predetermined level.
A method of market analysis that concentrates on internal factors that affect the price of an asset.
A set of mathematical processes applied to historical price action to try and predict future movements.
The difference between the current market price and the last-quoted price. This is not a fixed number but instead fluctuates in real time depending on market conditions.
Tracks the monthly changes in the difference between the values of goods and services that are exported or imported by a country or economic region. A negative figure signifies a deficit, while a positive outcome signals a surplus. When the data is better than anticipated, it will usually have a good effect on the currency in question.
Occurs when a country or economic region imports more goods than it exports.
Occurs when a country or economic region exports more goods than it imports.
The Forex market operates in three broad sessions, allowing traders the opportunity to open new positions 24 hours a day, five days a week. They are known as the Asian session, European session and North American session.
Dynamic stop orders that are set to monitor market price. They will usually stay within a certain pre-defined pip range, so they secure the maximum amount of profit when the market moves in the trader’s favour. A trailing stop will automatically be activated once the market moves by a specific number of pips as requested by the trader.
The prevailing direction that a certain market or asset is moving in. These can be confirmed by using a number of different chart durations, and can be extremely profitable for investors can who identify them and trade accordingly.
Drawn beneath uptrends and above downtrends to pinpoint their respective support and resistance levels. They are typically drawn diagonally across low points in an uptrend to indicate support levels, and across high points in a downtrend to signify resistance levels. When the lines are broken, the prevailing trend is said to be over.
A measure of the rate at which the price of an asset fluctuates. It is useful for traders by letting them look for potential points of reversal.
A measure of an assets tendency to move between high and low points. It is calculated by analysis the instrument’s historical price action for a set period.
The market nickname for the US stock market and dollar (USD).