Forex glossary: every trading term explained
Updated on 2026-09-19
A-Z forex glossary with definition, practical example and links to the courses: pip, lot, leverage, spread, order block, liquidity and more.
Every term has its own page with a definition, an explanation and a numeric example. Click to learn more.
A
B
- Backtest
- A simulation of a strategy on historical data to estimate how it would have behaved.
- Base currency
- The first currency in a pair: the price shows how many units of the quote currency you need to buy one.
- Bid and ask
- The bid is the price at which you can sell, the ask the price at which you can buy. The ask is always higher than the bid.
- Bollinger Bands
- A moving average (usually 20 periods) with two bands at 2 standard deviations above and below.
- BOS and CHoCH
- A Break of Structure is the break of a swing in the trend's direction (continuation); a Change of Character is the first break in the opposite direction (possible change).
- Breakout
- Price leaving a support or resistance area, or a range.
C
- Candlestick
- A representation of a period's open, high, low and close, with a body and two wicks.
- Carry trade
- A strategy of borrowing in a low-rate currency to invest in a high-rate one, earning the difference.
- Central bank
- The institution governing a currency's monetary policy, chiefly by setting rates: the Fed, ECB, Bank of England, Bank of Japan, RBA, SNB.
- CFD
- Contract for difference: an agreement with the broker to exchange the price difference between opening and closing, without owning the underlying asset.
- Cross pair
- A currency pair that doesn't include the US dollar, such as EUR/GBP or GBP/JPY.
D
- Demo account
- An account with virtual money and real prices, to learn and test without risk.
- Displacement
- A wide, fast move, with strong candles, that accompanies the break of a structure.
- Drawdown
- The decline of capital from its recent peak, usually expressed as a percentage or in R.
- DXY (Dollar Index)
- An index that measures the US dollar against a basket of currencies (mainly the euro, yen and pound).
E
- ECN / Raw account
- An account with very low spreads in exchange for a fixed commission per lot traded.
- Equity
- The value of the account including the unrealised profits and losses of open positions.
- Exotic pair
- A major against the currency of an emerging economy, such as USD/TRY or USD/ZAR.
- Expectancy
- The average gain per trade, usually measured in R: win percentage times average R won, minus loss percentage times average R lost.
F
- Fair Value Gap (FVG)
- An area of inefficiency in a three-candle sequence: the first candle's high is below the third's low (bullish) or vice versa.
- False breakout
- A move beyond a level that doesn't continue: price returns and often reverses.
- Fibonacci retracements
- Levels (23.6%, 38.2%, 50%, 61.8%, 78.6%) used to spot how far a move may retrace.
- FOMC decision
- The meeting of the Fed committee that sets US rates, with a statement and press conference, about eight times a year.
H
I
K
L
- Leverage
- The ratio between the value of a position and the margin required to open it. It amplifies both gains and losses.
- Limit order
- An order to buy or sell only at a price equal to or better than the one specified.
- Liquidity sweep
- A move beyond a level (an obvious high/low) with the wick, followed by a return that closes on the opposite side.
- Long (long position)
- A position opened by buying, to profit if price rises.
- Lot
- The unit of position size: a standard lot equals 100,000 units of the base currency.
M
- MACD
- An indicator that compares two exponential moving averages (usually 12 and 26) and shows a line, a signal and a histogram.
- Major pairs
- The most traded currency pairs, all against the US dollar: EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD, USD/CAD, NZD/USD.
- Margin
- The amount the broker sets aside in your account to keep a leveraged position open. It isn't a cost: it becomes available again on closing.
- Margin call
- A broker warning when free margin falls below a threshold: you can't open new positions and risk having existing ones closed.
- Market liquidity
- How easily you can buy or sell without moving the price: it depends on the number of participants ready to trade.
- Market maker
- A broker that acts as counterparty to clients' trades and sets its own prices.
- Market order
- An order executed immediately at the best available price.
- Market structure
- The sequence of price swing highs and swing lows, describing trend, range and break points.
- Moving average
- The average price of the last n periods: it smooths swings and shows direction.
N
O
P
- Pip
- The standard unit of price change: the fourth decimal place on most pairs (0.0001) and the second on yen pairs (0.01).
- Pipette
- A tenth of a pip: the fifth decimal place (the third for yen) shown by many brokers.
- Position sizing
- Calculating the lots to open from the chosen risk and the stop distance.
- Premium and discount
- The two halves of a reference range: above 50% price is "expensive" (premium), below it's "cheap" (discount).
- Pullback (retracement)
- A temporary correction of price against the trend's direction, before it resumes.
Q
R
- Risk-on and risk-off
- Phases of risk appetite (people buy stocks and risky currencies) and aversion (they seek havens).
- Risk/reward ratio
- The ratio between potential gain (target distance) and risk (stop distance) of a trade.
- RSI (Relative Strength Index)
- An oscillator from 0 to 100 that measures the speed and size of recent gains relative to losses, usually over 14 periods.
S
- Safe haven
- A currency or asset sought in moments of fear: the dollar, Swiss franc, yen and gold.
- Short (short position)
- A position opened by selling, to profit if price falls.
- Slippage
- The difference between the requested price and the price at which the order is executed, typical of fast moments.
- Spread
- The difference between the buying price (ask) and the selling price (bid): the implicit cost of every trade.
- Stop loss
- An order that automatically closes a losing position at a preset level, to limit risk.
- Stop order
- An order that activates only when price reaches a specified level: buy stop above price, sell stop below.
- Stop out
- The forced closing of positions by the broker when the margin level drops below the minimum threshold.
- Support and resistance
- Price areas where price has stopped in the past: support below price, resistance above.
- Swap (rollover)
- A cost or credit applied for holding a position past the daily close, linked to the interest rate difference between the two currencies.
T
- Take profit
- An order that automatically closes a winning position when a preset target is reached.
- Timeframe
- The duration of each candle on the chart: from 1 minute (M1) to a month (MN).
- Trailing stop
- A stop loss that follows price at a fixed distance as the position moves into profit.
- Trend
- The prevailing direction of price: bullish with rising highs and lows, bearish with falling highs and lows.
V
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Educational content, not financial advice. Trading involves risk.