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!
It is the nickname used for the currency pair of GBPUSD. It is also used to refer to the British pound itself. Communication between Europe and North America was conducted through a transatlantic cable in the Atlantic Ocean.
Canadian Dollar. The currency of Canada. It is subdivided into 100 cents.
Monthly economic report, based on a survey of about 400 purchasing managers in China. A reading above 50 indicates expansion of the manufacturing sector and the economy in general, whereas a reading below 50 indicates contraction.
Released by Markit.
It gives a trader the right to buy a financial instrument at a specific price, before the expiration date.
It is a calculation method that yields 4 resistance and support levels. It is used in pivot point level calculations. It makes use of the High, Low and Close price of the previous day.
R4 = Close + (High – Low) * 1.1 / 2
R3 = Close + (High – Low) * 1.1 / 4
R2 = Close + (High – Low) * 1.1 / 6
R1 = Close + (High – Low) * 1.1 / 12
PP = (High + Low + Close) /3
S1 = Close - (High – Low) * 1.1 / 12
S2= Close - (High – Low) * 1.1 / 6
S3 = Close - (High – Low) * 1.1 / 4
S4 = Close - (High – Low) * 1.1 / 2
A price charting method that originated in Japan in the 18th century. Merchants devised a system to predict future prices based on traders’ emotions. It makes use of all available prices; open, high, low and close. It consists of a rectangle (the body) which is white if the close is higher than the open, or black if the open is higher than the close price. A vertical line runs through the body representing the high at the top and the low price at the bottom.
A monthly report that shows the percentage of a country’s resources used by manufacturers, mines and utilities. A high reading is positive for the country’s currency whereas a low reading is negative. Released by the Federal Reserve.
Money used to acquire, improve or upgrade physical assets such as buildings, infrastructure, and equipment.
The appreciation in the value of capital assets.
The result of selling a capital asset at a lower price than the purchased price.
It is a tradeable certificate or permit (financial instrument) that allows the holder to emit 1 ton of CO2.
When an investor borrows at low interest rates so they can buy assets that are likely to produce higher interest rates.
A charge for the storage of physical commodities.
The amount of money going into and out of a business.
A market where delivery takes place immediately (almost) after the trade of financial instruments.
The market interest rate on overnight loans in Australia. Released monthly (except January) by the Reserve Bank of Australia.
The method of settling financial instruments by cash rather than physical delivery.
A monthly survey that reflects prevailing consumer attitudes, buying intentions and economic activity for the months ahead. Released by the Conference Board Inc. in the US.
See Chicago Board Options Exchange.
See Chicago Board of Trade.
See Commodity Channel Index.
See Certificate of Deposit.
Congolese Franc. The currency of the Democratic Republic of Congo. It is subdivided into 100 centimes.
A moving average type where more weight is assigned to the middle of the period (time span). Used in cycle analysis.
A state’s financial institution that oversees the monetary policy, commercial banking system, manages state’s currency so as to be attractive for international trade, manages inflation and interest rates.
A Central Bank buys or sells its currency in the foreign exchange market in order to raise or lower the value of its currency in respect to another currency. It does so with the primary goal of establishing a more competitive international trading environment.
A low-risk savings certificate with a fixed interest rate and maturity date.
See Contract for Difference.
See Commodities Futures Trading Commission.
A technical analysis oscillator developed by Marc Chaikin. It’s the difference between a 3-period EMA and a 10-period EMA of the Accumulation/Distribution Indicator. It generates buy/sell signals when crossing above/below the zero line.
A technical analysis tool, similar to the concept of a trendline. At times prices fluctuate between two parallel lines, the basic trendline and the channel or return line. Channels may be used to trigger buy/sell signals and calculate price targets. Once a breakout from the channel takes place, the price is expected to move a distance equal to the width of the channel.
A Graphical representation of price using a candlestick, bar or line chart.
An MT4 chart setting that when enabled, shifts the chart from the left window border to the shift label (a grey triangle in the upper part of the window) of the chart.
A technical analyst whose primary working tool is the price chart.
Swiss Franc. The currency of Switzerland and Liechtenstein. It is subdivided into 100 Rappen.
It is a futures and options exchange. Part of the CME Group.
The world’s largest options exchange.
One of the largest options and futures exchanges in the world.
The Chicago Purchasing Managers’ Index is a monthly survey where purchasing managers (in Illinois, Indiana and Michigan) are asked to rate employment, production, new orders, prices, supplier deliveries and inventories. A reading above 50 is bullish for the US Dollar while a reading below 50 is bearish. Released monthly by ISM-Chicago Inc.
A sideways market.
A monthly report that measures unemployment in the United Kingdom. Released by the United Kingdom's Office of National Statistics (ONS).
Funds in an account that are available for withdrawal or investment.
It is the process of reconciling purchases and sales of various financial instruments.
Part of the MT4 Trading Platform that allows traders to receive live incoming prices, open and manage orders, perform technical analysis, write, backtest and optimize trading robots, and develop indicators and scripts.
When a position is closed, the transaction has been completed – whether the position was long or short, or whether it was profitable or incurred losses.
Otherwise known as closing price, this is the final rate that a security is traded at on a specific day, candle or timeframe.
The final price at the end of a period (i.e. timeframe).
Chilean Peso. The currency of Chile. It is subdivided into 100 centavos.
See Chicago Mercantile Exchange.
One of the largest exchanges in the world. It is comprised of four exchanges - CME, CBOT, NYMEX and COMEX.
Chinese Yuan Renminbi. The currency of the People’s Republic of China. It is divided into 10 jiao and 100 fen.
An asset offered by the borrower to the lender to secure the loan.
See Commodity Exchange.
An amount the trader is charged by the broker for facilitating a trade.
*The US Commodity Futures Trading Commission was created in 1974 with the aim of fostering open, transparent, competitive, and financially sound markets. By working to avoid systemic risk, the Commission aims to protect market users and their funds, consumers and the public from fraud, manipulation and abusive practices related to derivatives and other products that are subject to the Commodity Exchange Act (CEA).
*Source U.S. Commodity Futures Trading Commission
A natural resource or agricultural product. There are two broad types - hard commodities and soft commodities. Hard commodities include for example crude oil, gold, silver and iron ore. Soft commodities include for example wheat, rice, soybean and corn.
A country’s currency that is highly correlated with the price of a specific commodity.
A technical analysis oscillator developed by Donald Lambert. It compares the current typical price ([High + Low + Close] / 3) with a simple moving average over a selected period of time usually 14 or 20. The oscillator values are normalized by using a divisor based on mean deviation. The majority of the values (about 70%) fluctuate between -100 and +100. Buying opportunities are suggested above +100 and selling opportunities below -100 while the same levels may be considered as overbought and oversold by others.
It is a leading market for trading metals. Part of CME Group.
A Japanese candlestick pattern signaling a bearish reversal.
It forms at the top of an uptrend or near a resistance area.
It consists of four candlesticks.
The first two long black bodies confirm the strength of the downward movement. Third black candle is smaller. It gaps lower, recording a new low but also produces a relatively long upper shadow extending into the body of the previous Marubozu. The last session is a long black candle that completely (including shadows) engulfs the previous candlestick range thus recording a new low.
In Technical Analysis, price is considered the most reliable indicator. Chart patterns are filtered by indicators and confirmed by price. For example, price makes a new high in a buy setup or a new low in a sell setup.
The CPI is a measure of the change in the cost of a fixed basket of products and services. Released monthly by the US Bureau of Labor Statistics.
A US report that indicates the number of individuals on unemployment benefits. A high reading is negative for the US Dollar, whereas a low reading is positive. Released monthly by the US Department of Labor.
It is a financial derivative where traders have the opportunity to trade assets without owning them. The buyer and the seller enter into a contact where the seller agrees to pay the buyer the difference between the entry and the exit price provided the difference is positive. If the difference is negative, then the buyer pays the seller.
The month at which a futures contract expires.
The principle of contrarian trading assumes that when the larger majority of the traders agree on the direction of the market then they are usually wrong. A true contrarian will trade in the opposite direction.
A crude estimate of Expert Advisor’s backtesting.
Colombian Peso. The currency of Colombia.
A US economic indicator used to measure inflation based on measurement of price movements of a representative shopping basket of goods and services, excluding food and energy. A high reading is positive for the country’s currency whereas a low reading is bearish. Released monthly by the Bureau of Labor Statistics.
A US Monthly report that measures the change in the overall value of initial orders for manufactured goods except transportation items. Released by the Census Bureau.
Economic report, released monthly, that measures the average amount of money consumers spend on durable goods, consumer products, and services excluding food and energy. A high reading is seen as bullish for the country’s currency whereas a low reading is bearish. Released by the Bureau of Economic Analysis, Department of Commerce.
Change in the total retail sales excluding automobiles. Released monthly by the US Census Bureau.
A temporary interruption of the prevailing trend in the opposite direction.
In Elliott Wave Theory, a corrective wave is a wave against the trend. Waves 2, 4 and a-b-c are considered corrective.
The average cost of a “basket” of products and services.
Refers to quote currency. The second currency in a pair.
See Meeting Lines (Bullish), Meeting Lines (Bearish).
The interest rate as a percentage of the face value paid on a fixed income security -for example, bonds.
A buy order of a financial instrument to close an existing short position. Also known as short covering.
See Consumer Price Index.
Costa Rican Colon. The currency of Costa Rica. It is subdivided into 100 centimos.
The exchange rate between two currencies that do not involve the US Dollar.
Unrefined petroleum found in liquid form and composed mostly of hydrocarbons, organic compounds and small amounts of metal.
A weekly report that measures the change in Crude Oil stocks (i.e. barrels). It includes domestic and Customs-cleared foreign crude oil stocks held at refineries, in pipelines, in lease tanks and in transit to refineries.
Released by the Energy Information Administration.
Digital currency in which encryption is used to regulate the generation of units of currency. It operates independently of the traditional banking system. Bitcoin, Ethereum and Litecoin are the most popular cryptocurrencies.
Cuban Convertible Peso. The currency (the other currency is Cuban Peso) of Cuba. It is subdivided into 100 centavos.
Cuban Peso. The currency (the other currency is Peso Convertible) of Cuba. It is subdivided into 100 centavos.
A means of exchange in the form of paper, metal or digital money.
When a currency increases in value against another.
A contract that specifies the price that a currency can be bought or sold at, or on a set future date. Future contracts are often used by investors to hedge against risk.
The pair formed by two different currencies which are traded in a forex transaction. For example: EUR/USD.
Currency policy to fix a country’s currency exchange rate to that of another currency.
The sum of trade (exports minus imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as foreign aid). A current account surplus is positive for the country’s currency whereas a low balance is viewed as negative.
Cape Verde Escudo. The currency of Cape Verde.
A technical analysis tool that draws vertical lines at equal intervals on the price chart to forecast future cycles.
Cycle Theory is based on the following principles:
The independent public supervisory authority responsible for the supervision of the investment services market and transactions in transferable securities; carried out in the Republic of Cyprus.
See Cyprus Securities and Exchange Commission.
Czech Koruna. The currency of Czech Republic.