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Trading glossary

70 forex and trading terms explained in plain English. Want to go deeper? Start the free learning center or try the free calculators.

A

Ask price: The price at which you can buy an instrument right now. It is always slightly higher than the bid price.
ATR (Average True Range): An indicator that shows how much an instrument typically moves over a set number of candles. Traders use it to judge volatility and to set stop-loss distances.

B

Backtesting: Testing a trading strategy on past price data to see how it would have performed. Past results do not guarantee future performance.
Balance: The money in your trading account from deposits, withdrawals and closed trades, not counting profit or loss on trades that are still open.
Bear market: A period in which prices fall steadily, usually by 20% or more from a recent high, and sentiment is pessimistic.
Bid price: The price at which you can sell an instrument right now. It is always slightly lower than the ask price.
Bollinger Bands: An indicator made of a moving average with an upper and lower band set a number of standard deviations away. The bands widen when volatility rises and narrow when it falls.
Breakout: A move of price beyond a support or resistance level, often on higher volume, that traders treat as a possible start of a new trend.
Bull market: A period in which prices rise steadily and sentiment is optimistic.

C

Candlestick: A chart symbol showing the open, high, low and close for a period. The thick body spans open to close and the thin wicks show the high and low.
Central bank: The institution that sets a country’s interest rate and monetary policy, such as the US Federal Reserve or the European Central Bank. Its decisions strongly influence currency prices.
Consolidation: A phase where price moves sideways within a range instead of trending, often before a breakout.
Currency pair: Two currencies quoted against each other, such as EUR/USD. The first is the base currency and the second is the quote currency; the price tells you how much of the quote currency buys one unit of the base.

D

Day trading: Opening and closing trades within the same day so that no positions are held overnight.
Demo account: A practice account that trades with virtual money in real market conditions. It is a safe way to test a strategy or platform.
Doji: A candlestick with almost no body because the open and close are nearly equal. It signals indecision in the market.
Drawdown: The fall in account equity from a peak to a later low, usually shown as a percentage. It measures how painful a losing period has been.

E

Economic calendar: A schedule of upcoming economic data releases and events, such as inflation figures and interest-rate decisions, that can move markets.
Engulfing pattern: A two-candle pattern in which the second candle’s body completely covers the previous one’s body. A bullish engulfing after a fall, or a bearish one after a rise, may hint at a reversal.
Entry price: The price at which a trade is opened.
Equity: Your balance plus or minus the floating profit or loss of open trades — what your account would be worth if you closed everything now.
Exotic pair: A currency pair that combines a major currency with the currency of a smaller or emerging economy. Exotics usually have wider spreads and lower liquidity.
Expert Advisor (EA): A program that runs inside MetaTrader 4 or 5 and can place, manage and close trades automatically according to coded rules.

F

Fibonacci retracement: A tool that marks possible pullback levels, commonly 38.2%, 50% and 61.8%, between a swing low and a swing high.
Free margin: The part of your equity that is not tied up as margin for open trades and is available to open new positions.
Fundamental analysis: Judging an instrument’s value from economic data, interest rates, news and other real-world factors rather than from the chart alone.

G

Gap: A jump between one candle’s close and the next candle’s open, with no trading in between. Gaps often appear after the weekend or major news.

H

Hedging: Opening a position that offsets the risk of another position, for example buying and selling the same instrument at once, to limit potential loss.

I

Inflation: The rate at which general prices rise over time. Central banks watch it closely when deciding on interest rates.
Interest rate: The rate a central bank charges banks to borrow money. Changes in interest rates affect currency values and the whole economy.

L

Leverage: Borrowed buying power that lets you control a larger position with a smaller deposit. Leverage magnifies both profits and losses.
Limit order: An order to buy at a set price or lower, or sell at a set price or higher. It is only filled if the market reaches that price.
Liquidity: How easily an instrument can be bought or sold without moving its price. Major currency pairs are highly liquid.
Long position: A trade that profits when the price rises — in other words, a buy.
Lot: The standard trade size. One standard lot is 100,000 units of the base currency; a mini lot is 10,000 and a micro lot is 1,000.

M

MACD: Moving Average Convergence Divergence — an indicator that compares two moving averages to show momentum and possible trend changes.
Major pair: A currency pair that includes the US dollar and another of the most traded currencies, such as EUR/USD, GBP/USD or USD/JPY.
Margin: The amount of your own money set aside by the broker to keep a leveraged trade open. It is not a fee; it is returned when the trade closes.
Margin call: A warning from the broker that your equity has fallen close to the level needed to keep your trades open. You must add funds or close positions.
Market order: An order to buy or sell immediately at the best available current price.
Moving average: The average price over a chosen number of periods, drawn as a line to smooth price and show the trend direction.

N

News trading: Trading around major data releases or announcements, aiming to profit from the sharp price moves they can cause. It is risky because spreads widen and prices can jump.
NFP (Non-Farm Payrolls): A monthly US report on how many jobs were added outside the farming sector. It is one of the most market-moving data releases.

O

Overtrading: Trading too often or with too large a size, usually driven by emotion rather than a plan. It increases costs and risk.

P

Pending order: An order placed in advance that becomes a live trade only when price reaches a chosen level — for example buy limit, sell limit, buy stop and sell stop.
Pip: The standard unit of price movement in forex: 0.0001 for most pairs and 0.01 for yen pairs.
Pivot point: A reference level calculated from the previous period’s high, low and close, used with support and resistance levels to plan trades.
Position sizing: Deciding how large a trade to place so that the loss, if the stop-loss is hit, equals a chosen small percentage of your account.
Pullback: A short move against the prevailing trend before price continues in the original direction. Also called a retracement.

R

Resistance: A price area where selling pressure has previously stopped rises, making it a possible ceiling for price.
Risk management: The set of rules that limit how much you can lose, such as using stop-losses, sizing positions carefully and capping total exposure.
Risk-reward ratio: The potential profit of a trade compared with the potential loss. Risking 50 pips to target 100 pips is a ratio of 1:2.
RSI (Relative Strength Index): A momentum indicator from 0 to 100. Readings above 70 are often seen as overbought and below 30 as oversold, but a strong trend can stay at those levels.

S

Scalping: A very short-term style that aims for small profits from many quick trades, often lasting seconds to minutes.
Short position: A trade that profits when the price falls — in other words, a sell.
Slippage: The difference between the price you expected and the price at which your order was actually filled, most common in fast or illiquid markets.
Spread: The difference between the bid and ask price. It is a cost of trading that you pay when you open a position.
Stop order: An order that becomes a market order once price reaches a set level. It is used to enter a breakout or to exit a losing trade.
Stop out: The automatic closing of your losing positions by the broker when your margin level falls below a required minimum.
Stop-loss: An order that automatically closes a trade at a set price to limit the loss if the market moves against you.
Support: A price area where buying interest has previously stopped falls, making it a possible floor for price.
Swap (rollover): A fee or credit applied for holding a position overnight, based on the interest-rate difference between the two currencies in the pair.
Swing trading: Holding trades for several days to weeks to capture larger price swings.

T

Take-profit: An order that automatically closes a trade at a set profit level.
Technical analysis: Studying price charts, patterns and indicators to judge likely future price behaviour.
Trading journal: A written record of every trade — entry, exit, reason and result — used to review and improve your decisions.
Trading session: A time window when a major financial centre is open — Sydney, Tokyo, London and New York. Volatility is usually highest when sessions overlap.
Trend: The general direction of price: higher highs and higher lows form an uptrend, lower highs and lower lows form a downtrend.

V

Volatility: How much and how quickly price moves. High volatility means bigger swings and bigger risk as well as opportunity.

W

Win rate: The percentage of trades that end in profit. It only tells part of the story and must be read together with the risk-reward ratio.

Educational content: definitions are general explanations, not financial advice. Trading involves a high risk of loss. Risk disclosure.