Forex Glossary
Essential trading terms every forex trader should know, from basics to advanced concepts.
Ask
The Ask price (also known as the Offer) is the lowest price at which a seller is willing to sell a currency pair. When you open a buy trade, you enter at the Ask price. The difference between the Ask and Bid is the spread.
Balance
The total amount of money in your trading account after all closed positions are accounted for, excluding any floating (unrealised) profit or loss from open positions.
Bear Market
A market condition where prices are falling or expected to fall. A bearish trader believes that the value of a currency pair will decline and may open short positions to profit from the downturn.
Bid
The Bid price is the highest price a buyer is willing to pay for a currency pair. When you open a sell trade, you enter at the Bid price. Brokers quote both Bid and Ask prices simultaneously.
Bull Market
A market condition where prices are rising or expected to rise. A bullish trader believes that the value of a currency pair will increase and may open long positions to profit from the uptrend.
CFD
Contract for Difference — a financial derivative that allows traders to speculate on price movements of assets (currencies, commodities, indices) without owning the underlying asset. Profits or losses are based on the difference between entry and exit prices.
Carry Trade
A strategy where a trader borrows a currency with a low interest rate and uses the funds to buy a currency with a higher interest rate, profiting from the interest rate differential (swap).
Day Trading
A trading style where positions are opened and closed within the same trading day. Day traders avoid overnight risk and swap charges by never holding positions past the daily close.
Drawdown
The reduction of a trader's account equity from its peak to its lowest point during a given period. Maximum drawdown measures the worst-case scenario and is an important risk metric.
ECN
Electronic Communication Network — a type of broker model that matches buy and sell orders directly from multiple liquidity providers (banks, institutions). ECN brokers typically offer tighter spreads but charge a commission per trade.
Equity
The current value of your trading account, calculated as Balance + Floating Profit/Loss. Equity changes in real time as open positions move in or out of profit.
Hedging
A risk management strategy where a trader opens opposing positions on the same or correlated currency pairs to offset potential losses. Some brokers and regulators restrict hedging on the same account.
Leverage
A mechanism that allows traders to control a large position with a relatively small deposit (margin). For example, 1:100 leverage means $1,000 in margin controls a $100,000 position. While leverage amplifies profits, it equally magnifies losses.
Liquidity
The ability to buy or sell an asset quickly without significantly affecting its price. Major currency pairs (EUR/USD, GBP/USD) are highly liquid, meaning tight spreads and fast execution.
Lot
The standard unit of measurement for a forex trade. A Standard Lot equals 100,000 units of the base currency. Mini Lots (10,000), Micro Lots (1,000), and Nano Lots (100) allow trading with smaller positions.
Margin
The amount of money required in your account to open and maintain a leveraged position. Margin is essentially collateral held by the broker; it is not a fee or cost. If equity drops below the margin requirement, a margin call is triggered.
Margin Call
A notification from the broker that your account equity has fallen below the required margin level. If you fail to deposit more funds or close positions, the broker may automatically liquidate your trades to limit further losses.
Market Maker
A broker model where the broker acts as the counterparty to your trade, setting their own Bid and Ask prices. Market makers provide liquidity but may have a conflict of interest since they profit when traders lose.
Pip
Percentage in Point — the smallest standard price movement of a currency pair. For most pairs, 1 pip equals 0.0001 (the fourth decimal place). For JPY pairs, 1 pip is 0.01 (the second decimal place).
Position Trading
A long-term trading style where positions are held for weeks, months, or even years. Position traders focus on fundamental analysis and major economic trends, tolerating short-term volatility.
Rollover
The process of extending the settlement date of an open position to the next trading day. Rollover involves paying or receiving a swap fee based on the interest rate differential between the two currencies in the pair.
STP
Straight Through Processing — a broker model where orders are passed directly to liquidity providers without dealer intervention. STP brokers earn revenue from markups on the spread or commissions.
Scalping
An ultra-short-term trading strategy where traders aim to profit from very small price movements, often holding positions for just seconds or minutes. Scalpers require tight spreads, fast execution, and a broker that allows this style.
Slippage
The difference between the expected price of a trade and the actual price at which it is executed. Slippage commonly occurs during high-volatility events or when liquidity is low, and can be positive or negative.
Spread
The difference between the Bid and Ask price of a currency pair, measured in pips. The spread is the primary cost of trading with most brokers. Lower spreads mean lower trading costs.
Stop Loss
A pending order placed to automatically close a trade at a specified price to limit losses. Stop losses are a critical risk management tool, ensuring that a losing trade does not wipe out your account.
Swap
The overnight interest fee paid or received for holding a position past the daily rollover time. Swap rates depend on the interest rate differential between the two currencies and the direction of the trade (long or short).
Swing Trading
A medium-term trading style where positions are held for several days to weeks. Swing traders aim to capture price "swings" within a trend, using a combination of technical and fundamental analysis.
Take Profit
A pending order placed to automatically close a trade at a specified price to lock in profits. Take profit orders help traders secure gains without having to monitor their positions constantly.
Volatility
A statistical measure of how much a currency pair's price fluctuates over a given period. High volatility means larger price swings and potentially higher profits — but also greater risk.