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!
See Exchange Rate.
A market governed by legislative rules and regulations which are in place to protect investors.
A technical indicator based on the premise that during an uptrend, the closing price is usually higher than the open price. Conversely, during a downtrend, the closing price is usually lower than the open price. The calculation formula is:
RVI = (Close – Open) / (High – Low)
For further smoothing, a 10-period Simple Moving Average may be applied on the resulting RVI. Furthermore, a 4-period Signal Line may be constructed by applying a Symmetrical Weighted Moving Average on RVI.
A potential buy signal is triggered when there is a positive divergence between the oscillator and price, especially when RVI is in extreme oversold territory. Conversely, a potential sell signal is in place when there is a negative divergence and RVI is in extreme overbought territory.
A price level usually defined as a previous top, where selling pressure overcomes buying pressure. As a result, prices may find it difficult to break above.
It refers to the controls applied to mitigate trading risk, for example:
It is a technical oscillator that measures the rate of ascent or descent in the price of a financial instrument. It measures the difference between the current price and the price n periods ago (Close Recent – Close n periods ago). If the difference is above the zero-line and rising then it is presumed that the uptrend is accelerating. If the difference is below the zero-line and falling, the downtrend is accelerating. If the difference is above the zero-line and falling, the uptrend is decelerating. Similarly, if the difference is below the zero-line and rising, the downtrend is decelerating. ROC follows the general oscillator analysis:
In forex, the rollover rate is the interest rate that traders pay or earn when they hold (rollover) a position open overnight.
Refers to the total amount of funds involved in opening and closing a position.
Relative Strength Index. A popular technical indicator developed by Welles Wilder. It addresses erratic price movements in the markets by smoothing prices using the following formula:
RSI = 100 - (100 / (1+ (Average of n up closes / average of n down closes)))
The default value is 14 but 9 may also be used. RSI is bounded between 0 and 100. When the oscillator moves above 70 it is considered overbought and a reversal warning is indicated. If there is a negative divergence between the price and the RSI, then a potential sell indication is in place. When the oscillator moves below 30 it is considered oversold and hence a reversal alert is indicated. If there is a positive divergence between the price and the RSI, a possible buy indication may be in place.