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Top 50 Forex Terms and their Definitions

Elijah Oluwagbemiga
Top 50 Forex Terms and Definitions
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There are over a hundred Forex Terms used in the Foreign exchange industry. This article focuses on the most likely used ones on a daily basis, particularly by Forex technical analysts.

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Top 50 Forex Terms and Their Definitions

Since the Forex term ‘technical analyst’ was used earlier, let’s start with it.

  1. Technical Analysis

Forex traders use technical analysis to forecast price action in the Foreign exchange market. It gives an idea of future prices based on past chart movements.

  1. Forex Chart

A Forex chart shows vital information about the paired currencies over specific periods of time. It could be a daily chart, hourly, monthly or even covering a span of years. Technical analysts rely on Forex charts to forecast future price actions.

  1. Leverage

Leverage refers to the lending service offered by Forex brokers. It helps to maximize the trading or purchasing power of the Forex trader. Leverage is expressed in ratio. For example, a 1:1000 leverage maximizes the trader’s purchasing power by a thousand.

  1. Spread

Spread is a Forex term that means the difference between ask price and the bid price of any currency pair. Both forex exchange terms; bid price and ask price are explained below. Keep reading.

  1. Candlestick

Candlestick are lines that shows the movement of price in the forex chart. It tells the opening and the closing of prices. Forex traders also use the candlestick to predict future happenings in the fires market.

  1. Margin call

Margin call is a forex term that signifies when the trader needs to close a losing position or deposit more money in his trading account.

  1. Broker

A forex broker is a financial service company that provides the platform for forex trading that involves buying and selling foreign currencies. Examples of Forex Brokers are IG and CMC markets.

  1. Stop loss order

The stop loss order is a forex term that helps prevent more losses in a forex trade. Simply put, a price that you want your loses to stop, if a forex trade goes against your predicted analysis.

  1. Fundamental Analysis

The fundamental analysis is a forex term used to describe the cumulative effect of social, political and economic factors on the relative currency being traded.

  1. Major Pairs

Forex Major pairs is a forex term used to depicts pairs that contain the US Dollar on one side either on the base side or quote side. They are the most frequently traded pairs in the FOREX market. Some of the are listed below:

  1. Minor Pairs

The minor pairs are those that do not contain the US Dollar on either side.

  1. Risk Management

Risk Management in forex refers to the action taken to assess/control risks. This is essential to maintain healthy forex trading and prevent a catastrophic loss.

  1. Drawdown

One of the forex terms that I dislike is Drawdown also referred to as DD. It is the amount of loss incurred in a forex trade or forex account balance.

  1. Forex Scalping

Forex scalping is a forex term that refers to the action of opening a position at the bid price or ask price and then closing the position immediately at a few points higher or lower to make profit. Scalping makes forex traders little profits.

  1. Open position

An open position in forex is a term used to refer to the process when the forex trader enters a buy or sell trade without being financially compensated yet. This means that when the trader buys an asset and expects it to increase in value, he has a open buy position and when he or she sells an asset expecting same asset to gi down in value to a point lower than when she bought, the trader has an open sell position.

  1. Arbitrage

Arbitrage is a Forex term that refers to the process of profiting from the price difference of same asset in different market. Hope I didn’t lost you there. Okay, I will explain with an example. There are various platforms that offer the services of Forex. These platforms are referred to as markets. And on various platforms, there are slight differences in prices so as to attract customers. An arbitrage trader takes advantage of the small differences he notices by buying from a platform that offers a lesser price and selling on a platform that offers a slightly higher price.

  1. Ask or the ‘Ask price’

This forex term simply refers to the price the foreign exchange trader agrees to buy a particular currency.

  1. Asset

This refers to a currency or a pair of currency with an intrinsic value.

  1. Base Currency

This refers to the first pair of assets. For example, in the case of the EUR/USD pair, the base currency is the EUR because it is the first in the pair.

  1. Bear Market

This is a foreign exchange term that is used to describe the foreign exchange market when prices of assets are low. The term ‘Bear’ and ‘Bearish’ are also used interchangeably.

  1. Bull Market

This term refers to the opposite of the Bear market where prices are high and assets are rising. The terms ‘Bull’ and ‘’Bullish’ are also used interchangeably.

  1. Bid

This is a Forex term used to describe the price at which a trader agrees to sell an asset.

  1. Buy Limit Order

This explains the process by which a trader sets a target to buy at a specific price.

  1. Carry Trade

Describes the prices by which a trader or investor borrows at a low-interest rate to buy assets that can potentially yield high-interest rates.

  1. Closed position

As it implies, it means closing a trade. Thereby taking profits or avoiding further losses.

  1. Closing Market Rate or Closing Price

It represents the price of an asset at the close of the day or any other specific time like the end of the month or year. Traders measure this based on the last candle during a specific time frame.

  1. Currency Appreciation

This is a forex term that refers to the event when an asset or currency rises in value above another.

  1. Currency Futures or Futures

This refers to the contract that states when an asset could be bought or sold at a predetermined date by betting on the market if it will rise or fall.  They are widely used as a result hedging tool by traders.

  1. Currency Pair

This is the central point of Forex as it refers to what is being traded during any foreign exchange. Currency pairs are either tagged “major”, “minor” or “exotic” with the GBP/USD pair tagged as major and minor pairs don’t include the USD but other major world currencies while the exotic pair refers to an exotic currency such as the South African Rand paired with any major world currencies like the Euro or Dollar.

  1. Going Long or Short

When a Forex goes long on a pair, he buys the first and sells the other. Going long or buying a currency means that the trader expects the price to rise in value.

  1. Margin

This Forex term refers to the initial capital that a trader needs to put up in order to open a position.

  1. PIP

It is an acronym that stands for Percentage In Point. It is the smallest movement reflected in an exchange rate on a currency pair. It is the 4th decimal on a price quote of a currency pair that is used in measuring value. For instance, on a CAD/USD pair the price quote is 0.7646. This means that 1 Canadian Dollar will enable you to buy about 0.7646 US Dollar. If the PIP increase by 0.0001 to 0.7647, it means that for one CAD, you can earn a bit more of USD.

  1. Lot Size

A Lot in Forex trading is the size of trade or the position that the forex trader opens. 1 Lot in standard Forex trading on a currency pair is the equivalent of 100,000 units of the base asset or currency of the pair. For instance, a GBP/USD pair means that opening a trade in USD would mean the trade size is $100,000. EUR being the base currency. 1 standard PIP is worth $10. This means a 10 PIP incremental movement in a buy trade, this would represent a $100 gain.

  1. Support

This is a Forex term that means the level at which a forex trader buys an asset based on technical analysis. This point refers to the lowest and safest level to enter a trade.

  1. Resistance

This is the opposite of the support level. The resistance level according to technical analysis refers to the levels at which prices of an asset are predicted to decline based on historical price actions

  1. Price Action

It describes the way a market moves, including its trends and key support and resistance levels.

  1. Demo account

Also referred to as Dummy account or Practice account is a simulator for practice. It trains you in forex trading by exploring the market with virtual currencies and not actual real currencies. It is also referred to as virtual currency account.

  1. Depth of Market

Refers to the volume of active buying and selling orders placed for a currency, covering a wide degree of prices.

  1. Fill Price

A forex term that means the completion of an order, along with the price that it has been completed at.

  1. Forex Signal

It is a forex term that means an action that alerts you that it’s a suitable time to either buy or sell a particular currency.

  1. Hedge

A method of trading that is used to protect an investor by reducing the risk that is associated with volatile markets.

  1. Liquidity

The amount (or volume) of a set currency currently available for active trading.

  1. One Cancels the Other (OCO)

As it implies, the OCO is made up of two limit orders, where the execution of one automatically triggers the cancellation of the other.

  1. Market Maker

A market maker is an individual or institution that buys and sells large amounts of a particular asset in order to facilitate liquidity

  1. Rally

Rally is a forex term that references a currency’s recovery in price after a period of either short-term or long-term decline.

  1. Yield

Yield is a forex term that refers to the income generated by an investment. It could be annually, As per Annual Percentage Yield (APY).

  1. Day Trader

This is a common forex term that refers to a forex trader who opens and closes his or her position on the same day. It could also be referred to as flat, as per, no open position after the close of the day.

  1. Falling knife

This refers to the period whereby prices of an asset or currency nose dives. Despite prices declining, the trader still buys. It could also be referred to as ‘catching the falling knife.’

  1. Moving Average

A moving average (often shortened to MA) is a common indicator in technical analysis, used to examine price movements of assets while lessening the impact of random price spikes

  1. Order

In trading, an order is a request sent to a broker or trading platform to make a trade on a financial instrument

  1. Position

A position is the expression of a market commitment, or exposure, held by a trader. It is the financial term for a trade that is either currently able to incur a profit or a loss – known as an open position

Final Thoughts on Top 50 Forex Terms and Definitions

In conclusion, as earlier stated that there are so many forex terms used in the foreign exchange industry, the above is our top 50 forex terms specially curated for you. We hope this will help you to navigate the Forex market with ease. Additional research can also be made in order to add to your forex vocabulary.

Disclaimer

Deriv offers complex derivatives, such as options and contracts for difference (“CFDs”). These products may not be suitable for all clients, and trading them puts you at risk. Please make sure that you understand the following risks before trading Deriv products: a) you may lose some or all of the money you invest in the trade, b) if your trade involves currency conversion, exchange rates will affect your profit and loss. You should never trade with borrowed money or with money that you cannot afford to lose.


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