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Forex Glossary

Forex Definitions: The Industry’s Most Important Terms Explained

The forex industry is made up of so many definitions that it's easy to forget a few along the way. Do you know your Loonie from your Loti? Can you tell your Shooting Star from your Evening Star? Take the time to get to grips with forex jargon because understanding forex vocabulary is an important step in a trader’s journey.

Since no forex education can be complete without a glossary of basic forex terms, we've compiled one which explains key words and phrases in the simplest way possible. This way, you'll never be lost or confused with forex terminology!

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The Moving Average Convergence/Divergence is a momentum oscillator developed by Gerald Appel.  It is the difference between a 12 period and a 26 period Exponential Moving Average plotted usually as a histogram above (difference is positive) or below (difference is negative) the zero line. A 9 period Simple Moving Average of MACD is known as the Signal Line. 

MACD follows the general rules of oscillator analysis:

  • Confirmation of the trend is in place when MACD crosses the zero line.
  • Early Buy signals (or reversal warning) are triggered when MACD crosses above the Signal Line when below the zero line.
  • Early Sell signals (or reversal warning) are triggered when MACD crosses below the Signal Line when above the zero line.
  • Overbought/Oversold signals are triggered when the 12 period EMA pulls away from the 26 period EMA.
  • MACD is unbounded and as such, there no overbought and oversold lines.
  • Divergence follows the rules for positive and negative divergence.

Moroccan Dirham. The currency of Morocco. It is subdivided into 100 santimat.

This refers to the amount of money needed in your account to maintain an open position
This is a notification which alerts you that you need to deposit more money in your trading account, to ensure that there is  sufficient margin to keep existing positions open.
It is the ratio of Equity to Margin used for your open positions and indicated as a percentage.  It indicates the “health” of your account.
The value an open position would be if it were closed at the current market rate.
An application store where traders can buy trading indicators, expert advisors, scripts and other applications.

See Depth of Market.

The order will be filled at the next available price.

A technical indicator developed by Dr. Bill Williams to evaluate the efficiency of the price movement. An efficient market is defined as a market when all traders (long-term and short-term) are actively trading.  The indicator combines price and volume:

MFI = (High – Low) * Volume

There are 4 combinations:

  • MFI Up and Volume Up (Green): Follow the direction of the market.  The market is accelerating as more traders enter the market in the established direction.
  • MFI Down and Volume Down (Brown): Both MFI and Volume fade, resulting in no interest to advance further.
  • MFI Up and Volume Down (Blue):  Price movement without volume confirmation.  It is a fake move.
  • MFI Down and Volume Up (Pink): The most important signal.  The increased volume signifies the increased number of participants entering the market.  The squat as Bill Williams named it, implies a reversal or continuation of the prevailing trend.
A broker who is willing to buy and sell financial instruments in order to facilitate trading and liquidity.
An order for a trade to be executed instantly at the best available price.

See Market Rate.

A technical analysis tool developed by J. Peter Steilmayer to allow traders to get information about the activity in the futures pit. It displays price distribution and reveals who is in control of the market:

  • Short-term traders
  • Long-term traders
The current quote for a currency pair.
It consists of two windows: Symbols and Tick Chart. In the Symbols window all financial instruments (symbols) available on the client terminal, are listed in the first column along with their corresponding bid and ask prices (second and third column).  More information/columns may be displayed as spread, the highest and lowest prices achieved during the day and the time of the last incoming price. The Tick Chart displays the incoming bid and ask price for the selected symbol.  The Market Watch title bar displays the current server time.
A Japanese candlestick of a long body with very small (or non-existent) upper and lower shadows. The color of the body may be either black or white.

A technical indicator developed by Donald Dorsey.  It measures the difference between High and Low prices in order to identify reversals. Trading signals are triggered when a “reversal bulge” is identified.  That is, a reading above 27.0 and then a decline of the indicator below 26.5.

A buy signal occurs during a downtrend and a “reversal bulge” in place.

A sell signal occurs during an uptrend and a “reversal bulge” in place.

A Japanese candlestick pattern signaling a bearish reversal.  At the end of an uptrend, a long white candlestick and a smaller white candle that follows, share the same closing price. Even though the second candle opens lower than the previous close, it doesn’t manage to move lower and eventually it closes at the same price as the previous session.  This is indicative of a possible top. Since the market failed to record a new high, a resistance may have been formed and a possible reversal may be in place.

A Japanese candlestick pattern signaling a bullish reversal.  At the end of a decline, a long black candlestick and a smaller black candle that follows, share the same closing price. Even though the second candle opens higher than the previous close, it doesn’t manage to follow through and eventually it closes at the same price as the previous session.  This is indicative of a possible bottom. Since the market failed to record a new low, a support may have been formed and a possible reversal may be in place.

It is the maximum top-to-bottom decline in the value of a position or portfolio.

A market breadth indicator.  It was developed by Sherman and Marian McClellan.  It is the difference of a 19-period EMA and a 39-period EMA of advancing minus declining issues in the New York Stock Exchange.

A reading above 100 implies extreme overbought conditions whereas a reading below -100 signals extreme oversold conditions.   A buy signal is triggered when the oscillator falls in the area between -70 and -100 and then turns up.  Similarly, a sell signal is generated when the oscillator rallies in the area between 70 and 100 and then turns down.

Moldovan Leu.  The currency of the Republic of Moldova.  It is subdivided into 100 bani.

The midpoint of a period’s price activity.  It is calculated as:

(High + Low) / 2

A Japanese candlestick pattern signaling a bullish reversal.  During the course of the uptrend, the presence of a long white candlestick confirms the strength of the prevailing direction of the market. While the sentiment is clearly positive, the next session gaps even higher, creating an open window.  Eventually the session closes lower but at the same level as the previous session’s close.

A Japanese candlestick pattern signaling a bullish reversal.  During the course of the downtrend, the presence of a long black candlestick confirms the strength of the prevailing direction of the market. While the sentiment is clearly negative, the next session gaps even lower, creating an open window.  Eventually the session closes much higher but at the same level as the previous session’s close.

A programming environment for the development of Expert Advisors, Indicators and Scripts.
Malagasy Ariary.  The currency of Madagascar.  It is subdivided into 5 Iraimbilanja.
A micro lot is equal to 1,000 units of the base currency in a currency pair.
The exact price between the bid and ask prices.

A micro lot is equal to 10,000 units of the base currency in a currency pair.

The interest rate that banks have to pay when borrowing from the European Central Bank. It is set 8 times per year by the European Central Bank.
Denar.  The currency of the Former Yugoslav Republic of Macedonia.  It is subdivided into 100 denis.
Kyat.  The currency of Myanmar.   It is subdivided into 100 pya.
Tugrik.  The currency of Mongolia.  It is subdivided into 100 mongo.

Historical data modelling for backtesting Expert Advisors.  There are three available methods:

  • Open Prices only (fastest method to analyze the bar just completed)
  • Control Points (the nearest less timeframe is used)
  • Every tick (based on all available least timeframes)
It measures the speed of price changes rather price itself. It displays the rate of ascent or descent.

It measures the difference between the current price and the price n periods ago of a financial instrument. If the difference is above the 100-line and rising then it is presumed that the uptrend is accelerating.  If the difference is below the 100-line and falling then the downtrend is accelerating. If the difference is above the 100-line and falling then the uptrend is decelerating.  Similarly, if the difference is below the 100-line and rising then the downtrend is decelerating. Momentum follows the general oscillator analysis:

  • A crossing of the oscillator above the 100-line triggers a buy signal.
  • A crossing of the oscillator below the 100-line triggers a sell signal.
  • Divergence between the oscillator and price gives early signals of a reversal.
  • Overbought/Oversold levels are not easily spotted on the Momentum Oscillator since it is unbounded. Hence, visual inspection is used instead, to identify extreme readings above and below the 100-line.
The monetary policy statement of a nation’s Central Bank. It communicates the committee’s decision on policy measures, interest rates their economic outlook and hints for future decisions.  It is released by the nation’s Central Bank.

It is a momentum oscillator developed by Gene Quong and Avrum Soudack.

It combines both price and volume.  It measures the strength of money flowing in and flowing out of a financial instrument over a period.

There are two general interpretations:

  • Overbought/Oversold: A reading above 80 is considered Overbought and a market top may be in place.  A reading below 20 is considered oversold and a market bottom may be imminent.
  • Divergence between the oscillator and price hints at reversals.
It is an important factor in trading the financial markets.  It involves, position size, stop loss, diversification, asset allocation and reward to risk ratio.
Pataca.  The currency of Macao.  It is subdivided into 100 avos. 

A Japanese candlestick pattern signaling a bullish reversal.  A long black candlestick forms in the direction of the prevailing trend, signifying that the decline is still in force. Next session gaps below, forming a small candle, in this case a Doji that acts as an obstacle to further decline.  A long white candle drives the market higher, well into the long black candle’s body and more specifically above its mid-point, indicating a bullish reversal.

A Japanese candlestick pattern signaling a bullish reversal.  A long black candlestick forms in the direction of the prevailing trend, signifying that the decline is still in force. The next session gaps below, forming a small candle that acts as an obstacle to further decline.  A long white candle drives the market higher, well into the long black candle’s body and more specifically, above its mid-point - Indicating a bullish reversal.

In Elliott Wave theory, a complete cycle has two phases, Motive and Corrective.

The Motive phase consists of the waves 1, 2, 3, 4 and 5. The Motive wave moves in the direction of the wave of one larger degree.

A trend following indicator. It is a series of averages of sequential data subsets.  It may be used as a curving trend line that follows the price action.  Buy signals are seen when prices cross above the moving average whereas sell signals are in place when prices cross below the moving average.  There are many moving average calculation methods:

  • Simple
  • Exponential
  • Time Series
  • Linearly Weighted
  • Triangular
  • Centered
  • Variable
  • Adaptive
  • Volume Adjusted

The major difference between the calculation methods is the weight attached to the most recent prices.

A technical oscillator that plots the difference between MACD and the Signal Line.

Extremely high readings warn for overbought conditions whereas extremely low readings warn for oversold conditions. A crossing above the zero line signals uptrend confirmation while a crossing below the zero line signals downtrend confirmation

Ouguiya.  The currency of Mauritania.  It is subdivided into 5 khoums.
Mauritius Rupee.  The currency of Mauritius.  It is subdivided into 100 cents.
Rufiyaa.  The currency of the Maldives.  It is subdivided into 100 laari.
Malawi Kwacha.  The currency of Malawi.  It is subdivided into 100 tambala.
Mexican Peso.  The currency of Mexico.  It is subdivided into 100 centavos.
Malaysian Ringgit.  The currency of Malaysia.  It is subdivided into 100 sen.
Mozambique Metical.  The currency of Mozambique.  It is subdivided into 100 centavos.
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