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Risk warning: Trading is risky. Your capital is at risk. Exinity Limited is regulated by FSC (Mauritius).

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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A financial instrument or asset where the risk of it losing its value is relatively low.

Saudi Riyal. The currency of Saudi Arabia. It is subdivided into 100 halalas.

Solomon Islands Dollar. The currency of the Solomon Islands. It is subdivided into 100 cents.

A trading strategy that benefits from small price movements.

Seychelles Rupee. The currency of the Seychelles. It is subdivided into 100 cents.

Sudanese Pound. The currency of the Sudan. It is subdivided into 100 piasters.

Swedish Krona. The currency of Sweden. It is subdivided into 100 ore.

A pending order to sell at a predefined price higher than the market price in anticipation that the market will eventually decline.

A pending order to sell at a predefined price lower than the market price, in anticipation that the market will continue to decline.

A pending order that combines the Sell Stop and Sell Limit Orders. It allows a trader to specify a price lower than the current price that when reached, a Sell Limit ordered is placed at a higher price level.

Substantial sale of a financial instrument with rapidly declining prices. It is usually characterised by panic amongst traders.

The investors’ expectations about the direction of a financial instrument or market.

Japanese candlestick bearish continuation pattern. During the course of a downtrend, the appearance of a long white candlestick is common, as a correction is part of the prevailing trend. The Next candlestick is a long black body opening at the same price level as the opening of the previous white candlestick but eventually closing lower, signaling the continuation of the downtrend.

Japanese candlestick bullish continuation pattern. During the course of an uptrend, the appearance of a long black candlestick is common, as a correction is part of the prevailing trend. The next candlestick is a long white body opening at the same price level as the opening of the previous black candlestick, signaling the continuation of the uptrend.

The transfer of ownership of a financial instrument to a buyer.

Singapore Dollar. The currency of Singapore. It is subdivided into 100 cents.

The vertical line than extends above and below the body/real body of a Japanese candlestick. It defines the range between the high and the low price for the specific period.

Japanese candlestick bearish pattern. A Shooting Star formed at the end of an uptrend or at a resistance area has bearish reversal implications. Traders enter the market with long positions but eventually the sellers’ pressure overcomes buyers’ pressure and the candlestick closes at the lower area of the Shooting Star. The small body and the long upper shadow reveals the weakness of the bulls, who are unable to maintain the upward move.

The sale of a financial instrument to be bought later at a lower price.

Saint Helena Pound. The currency of Saint Helena, Ascension and Tristan da Cunha. It is subdivided into 100 pence.

Japanese candlestick bearish continuation pattern. During a downtrend, a black candlestick is followed by two white candles that gap down-their high price is lower than the black candle’s low price. The two white candles open at about the same price and have a similar body size.

Japanese candlestick bullish continuation pattern. During an uptrend, a white candlestick gaps above the previous white candle thus creating a rising window. The third white candle opens near the preceding open, creating a bullish continuation pattern.

The 9-period Simple Moving Average of the Moving Average Convergence/Divergence (MACD). It may also refer to a moving average of any other oscillator.

See XAG.

A trend following indicator. It also known as arithmetic moving average. It is calculated by adding the closing (other prices may also be used like open, high low, typical, median etc.) price of a number of candlesticks (equal to the time period of the moving average) and then dividing this number by the total number of prices. The result is known as the average. The oldest price is then dropped (i.e. discarded from the calculation) and the same formula is applied to the next prices. Therefore, it becomes the moving average.

Simple Moving Average = [Price(n) + Price(n-1) + Price(n-2) + … + Price(1)] / n

Where n is the period of the moving average.

This is when a trader executes an order at a price which is very different to the price they expected the trade to be executed at. This usually happens during periods of high volatility, when traders use market orders and stop loss orders.

Leone. The currency of Sierra Leone. It is subdivided into 100 cents.

A currency that is sensitive to political and economic events and thus fluctuates greatly and is generally unstable.

See PEN.

See KGS.

See TJS.

Somali Shilling. The currency of Somalia. It is subdivided into 100 senti.

A trader in financial markets who aims to gain from anticipated future market moves.

A sudden upward or downward movement in price that happens in a short time period.

The current market price of a financial instrument.

The difference between the Ask and Bid price of a currency pair.

Surinam Dollar. The currency of Surinam. It is subdivided into 100 cents.

South Sudanese Pound. The currency of South Sudan. It is subdivided into 100 piasters.

It is a statistical term denoted by the Greek letter (sigma). It is calculated by the following steps:

  • Calculate the mean for a population of n prices (i.e. close)
  • Subtract each price from the mean and then square the result
  • Sum all squared differences and then divide by the population n
  • Take the square root of the above

Or

  • Square root of the sum of the squared difference from each closing price to the mean and then dividing by the population (i.e. number of prices).

Standard Deviation formula:

formula

  • 68% of the values (prices) will fall within the range of 1 standard deviation of the mean
  • 95% of the values (prices) will fall within the range of 2 standard deviations of the mean
  • 99.7% of the values (prices) will fall within the range of 3 standard deviations of the mean

A Technical Analysis tool based on the Linear Regression Trendine and the specified number of Standard Deviations. It is attached on the chart by selecting the first price representing the beginning of the trend and then dragging the mouse to the second price in the direction of the trend.

It consists of three lines:

  1. Linear Regression Trendline
  2. Upper Channel Line
  3. Lower Channel Line
  • 68% of the prices will fall within the range of 1 standard deviation of the Linear Regression Trendline
  • 95% of the prices will fall within the range of 2 standard deviation2 of the Linear Regression Trendline
  • 99.7% of the prices will fall within the range of 3 standard deviations of the Linear Regression Trendline

Prices trading above or below the Channel Lines hint for a reversal.

100 000 units of the base currency.

Dobra. The currency of Sao Tome and Principe. It is subdivided into 100 centimos.

Japanese Candlestick bullish pattern. During a downward movement, this three-line pattern consists of two long black candles and a white candle in the middle. The two black candles close at the same price level, while the white candle extends higher than the previous black body.

It is a momentum oscillator developed by George Lane. It determines where the price closed relative to a specific price range over a chosen time period. It is based on the premise that prices tend to close near the upper end of the candlestick during upward price movements whereas they tend to close near the lower end of the candlestick during downward movements. It consists of two lines; %K and %D.

%K=(Current Close-Lowest Low)/(Highest High-Lowest Low) x 100

Current Close – represents the latest closing price

Lowest Low – represents the lowest price for a specific time period

Highest High – represents the highest price for a specific period

Specific Period – is by default 5

Range – is the difference of Highest High – Lowest Low

The %D is a 3 (default value) period Simple Moving Average of %K.

The formula for %D is:

%D = SMA (%K,3)

This is known as fast stochastics.

By taking an additional 3-period Simple Moving Average of %D and %K, slow stochastics are calculated:

%K = SMA(%K,3)

%D = SMA(%D,3)

The Stochastic Oscillator ranges between 0 and 100.

A reading of 0 means that the latest closing prices is equal to the lowest price of the price range over the chosen time period. A reading of 100 means that the latest closing price is equal to the highest price recorded for the price range over the chosen time period.

Also, a reading above 80 is considered to be an indication that the market has reached extreme overbought levels, whereas a reading below 20 means that the market has declined to extreme oversold levels.

The Stochastic Oscillators follows the general rules of oscillator analysis:

  • Signals are generated by the crossover between the %K and the %D line.
  • A buy signal is generated when %K crosses above the %D line at the oversold area below 20 and then %D rises above the 20-line.
  • A sell signal is generated when %K crosses below the %D line at the overbought area above 80 and then %D falls below the 80-line.
  • Divergence between price and Stochastics especially at the oversold and overbought areas hints for a potential turning point in the market.

An order placed to close a position when a certain price is reached. These orders are placed to limit loss on a position.

A price level usually defined as a previous bottom, where buying pressure overcomes selling pressure. As a result, prices may find it difficult to break below.

El Salvador Colon. The currency of El Salvador. It is subdivided into 100 centavos.

After the swap-free period expires, the account will be charged with the Swap Free Fee for every night it remains open.

A swap in forex refers to the interest that you either earn or pay for a trade that you keep open overnight. There are two types of swaps: Swap long (used for keeping long positions open overnight) and Swap short (used for keeping short positions open overnight). They are expressed in pips per lot, and vary depending on the financial instrument you’re trading.

A trading strategy that aims to make potential profits by taking advantage of a financial instrument’s change in price direction.

It is the nickname used for the Swiss Franc and USDCHF.

Syrian Pound. The currency of the Syrian Arab Republic. It is subdivided into 100 piasters.

The risk associated with an event that can trigger substantial uncertainty and loss of confidence in the financial markets, financial system or even the whole economy.

Lilangeni. The currency of Swaziland. It is subdivided into 100 cents.

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