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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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Balboa. The currency of Panama. It is subdivided into 100 centésimos.

See XPD.

Parabolic Stop and Reverse is a technical indicator developed by Welles Wilder. It is based on the premise that a strong trend will continue to increase in strength and hence it will follow a parabolic arc. During an uptrend a SAR point starts far from the price and as the price accelerates upwards the SAR points (below the price in an uptrend and above the price during a downtrend) close the gap. When the SAR point reaches the price the long position is closed and a short is opened. It is a system that is always in the market either as long or short. The points (SAR) serve as trailing stop loss and trailing take profit. It works well during trending markets but it produces many false signals during sideways markets.

See MOP.

See TOP.

See Personal Consumption Expenditures.

Sol. The currency of Peru. It is subdivided into 100 centimos.

Orders to buy or sell a financial instrument in the future when certain conditions are met. They consist of limit orders and stop orders.

Buy Limit Order: A predefined price to buy in the future. This is lower than the current market price.

Sell Limit Order: A predefined price to sell in the future. This is higher than the current market price.

Buy Stop Order: A predefined price to buy in the future. This is higher than the current market price.

Sell Stop Order: A predefined price to sell in the future. The price is lower than the current market price.

A Continuation price pattern composed of a small symmetrical triangle, preceded by an almost straight-line move called a flagpole. The breakout of the pennant should be accompanied by heavy volume where available. The measuring implication is equal to the length of the pole. The pennant pattern causes a brief pause in the market that lasts less than 3 weeks.

A monthly report that measures the total expenditure by individuals. A high reading is seen as positive for the US Dollar. Released by the Bureau of Economic Analysis, Department of Commerce.

See Personal Consumption Expenditures.

Kina. The currency of Papua New Guinea. It is subdivided into 100 toea.

Philippine Peso. The currency of the Philippines. It is subdivided into 100 centimos.

During the course of a decline, a long white candlestick exceeds the midpoint of the previous long black candle. The white candle opens below the previous close or low. It is a bullish reversal pattern.

A point in price, or pip for short, is the measure of change in a currency pair in the forex market. The acronym can also stand for a “percentage in point” and “price interest point”. It is a standardized unit and is the smallest unit of measurement by which a currency quote can change. Most currency pairs are measured to five decimal places. For pairs like EURUSD, a pip corresponds to the fourth decimal digit [EURUSD 1.06712]. Yen-based currency pairs like USDJPY are the exception, and are measured to three decimal places and the pip corresponds to the second decimal digit (USDJPY 114.612).

Pivot Points are popular technical tools used by traders to identify price direction and get a feel for market sentiment. There are five calculation methods:

  • Standard
  • Fibonacci
  • Camarilla
  • Woodie’s
  • De Mark’s

The Standard pivot point calculation method, also known as the Classic or Floor method, uses the previous period’s high, low and close price to calculate the current period’s direction/sentiment, as well as future support and resistance levels.

Just like the Standard method, the Fibonacci method uses the previous candlestick’s high, low and close price to determine the current period’s direction. Future support and resistance levels are estimated by employing Fibonacci ratios 0.382, 0.618 and 1.00.

Unlike all other pivot point methods, DeMark’s method uses the relationship between the previous period’s close and open prices, to determine which of the 3 formulas to use, when calculating support and resistance. The main Pivot Point is not part of the DeMark method.

Camarilla Pivot Points provide a “road map” for both range and break-out traders, looking for potential turning points in the market. The emphasis is focused on the third support and resistance levels as potential reversals. Also, the fourth support and resistance levels play a key role in accelerating markets in both upward and downward directions.

Woodie’s method is another variation of pivot points. The main pivot point represents the deciding factor of the market’s sentiment and its future direction.

The corresponding support and resistance levels provide take profit opportunities and possible turning points.

Unlike other pivot point methods, Woodie’s use the current period’s open price when calculating the main pivot point. Just like the other methods, the daily timeframe is the preferred timeframe for calculations.

Pakistan Rupee. The currency of Pakistan. It is subdivided into 100 paisa.

See XPT.

Zloty. The currency of Poland. It is subdivided into 100 groszy.

See ISM Manufacturing PMI.

It is the smallest increment of an exchange rate.

Price charts that display supply and demand. Demand is represented as a column of X’s and supply as a column of O’s. They ignore time and volume. Each box (i.e. X or O) represents a predefined price movement called the box size. Price movement less than the box size is ignored, thus noise is not recorded. A reversal, i.e. a column of X’s, is created after a column of O’s, when there is a price movement to the upside equal to the number of boxes - known as the reversal size. Conversely A reversal, i.e. a column of O’s, is created after a column of X’s, when there is a price movement to the downside- equal to the number of boxes - known as the reversal size. Point and figure charts are named after their box and reversal size, for example 1 x 3.

A long or short trade taken by a trader.

A monthly report showing the monthly change in price of finished goods and services charged by producers. It provides an indication of consumer inflation. A high reading is seen as positive for the US Dollar whereas a low reading is perceived as bearish. Released by the Bureau of Labor Statistics.

The ratio between gross profits and gross losses.

Closing a position to take a profit.

The number of profitable trades.

See BWP.

See ISM Manufacturing PMI.

Guarani. The currency of Paraguay.

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