A dictionary of Forex terms essential for successful trading

To start trading on the foreign exchange market, you need to know basic Forex terms. This terminology will allow you to quickly grasp the essence of trading.

This brief dictionary of forex terms contains just a few dozen of the most common terms and concepts, providing a general understanding of certain operations and helping you navigate emerging situations.

A breakdown of the symbols used in currency trading will be provided. They serve to describe basic operations and are used to characterize the state of an account, as well as in some other situations.

In this article, I will not burden the reader with a ton of technical jargon; there is a special section on forex terms . All attention will be paid to practical concepts necessary for everyday work in the forex market.

A forex dictionary is, so to speak, a brief summary of the main points.

A Brief Dictionary of Forex Terms

Many concepts included in the dictionary of forex terms are also applied when trading on other exchanges - stock and commodity.

Forex arbitrage is the practice of profiting from trading exchange-traded assets by exploiting temporal or spatial differences in exchange rates. Buy low today, sell high tomorrow; buy low at one bank, sell high at another.

The base currency is the primary asset in a currency pair quote; it appears first in the quote and is the currency used for the transaction. For example, in the USD/JPY quote, the US dollar is the base currency and is traded for the Japanese yen.

Buy – opens a buy order; profit increases as the base currency rate rises.

Sell ​​- a transaction to sell the base currency.

A currency pair is a trading instrument used on the Forex market. A currency trading transaction is recorded as a currency pair. The first currency is the base currency, and the second is the quoted currency.

This notation is adopted for the convenience of currency trading. For example, the euro-dollar currency pair is written as EUR/USD.

Volatility is the range of a currency's price movement over a given period of time. It is measured in pips, and the time period is typically a forex trading session. For example, if the EUR/USD currency pair moved 100 pips during the European trading session, this means the euro's exchange rate against the US dollar changed by 100 pips.

A gap is the occurrence of a price gap in the price movement curve of a currency pair, usually occurring after the weekend, when the session closed at one price and opened at another, as a result of a change in the exchange rate over the weekend.

Deposit – the funds in the trader's account; the amount is stated without taking into account the use of leverage. This does not include funds currently used to maintain open trades.

A long position is a currency purchase operation, usually designated as a buy order in the trader's terminal when the order is opened. You profit if the currency pair appreciates.

A correction (pullback) is a short price movement in the opposite direction of the trend. Typically, after consolidation, the price moves back in the direction of the existing trend. For example, the EUR/USD pair has been rising steadily throughout the day, but then there's a slight drop within 15 minutes, followed by a rally. This is a typical example of a pullback or correction.

A short position is the opening of a sell transaction. Such operations are called "sell" in the trader's terminal. Profit is made when the price of the base currency falls.

Leverage is the borrowed funds provided by a broker to a trader for currency transactions. It is expressed as 1:100, where 1 is the trader's collateral amount and 100 is the leverage amount.

For example, you deposited $1,000, the leverage is 1:200, resulting in $200,000 at your disposal.

A lot is the volume of transactions on Forex; 1 lot is equal to 100,000 units of the base currency. Transactions can also be made in fractional increments of 0.1, 0.8, or 0.5 lots.

An order is an instruction to execute a transaction. Orders can be executed instantly or when certain conditions are met, depending on the settings.

A breakout is when the price breaks through a certain level, after which the trend reverses or the price confidently continues its movement in the chosen direction. For example, the EUR/USD price moved within a price range of 1.3300–1.3400 for an hour, but then it fell to 1.3200, a breakout occurred, and the price is likely to continue declining.

Spread – the broker's commission charged when opening a position; it represents the difference between the purchase and sale price of a currency. Typically, it doesn't exceed a couple of pips.

Swap is a fee for transferring a position to the next day, calculated as the difference in the interest rates for the currencies involved in the exchange.

Stop-loss is an order to close a position when a certain price level is reached; it is used to insure a position against losses.

A trend is the main price movement of a currency pair over a specific time period. It can move in one of three directions: upward (rising price), downward (falling price), or flat (stagnant price).

Trailing stop – a floating stop-loss that allows you to move the order to close a position following the price, thereby moving the stop-loss to the break-even zone; the position is closed only if the price moves in an unprofitable direction.

Technical analysis is an analysis that uses the market situation as input data, analyzing both the current sentiment and historical data.

Fundamental analysis is based on external factors influencing exchange rates, such as the values ​​of various indices, an assessment of the economic and financial state of the country, and other events in the economic and political life of the state issuing the currency in question.

This dictionary of forex terms will help you navigate the initial stages of trading currencies and other popular assets.