Trading forex is like a language, and like any language, traders communicate with specific jargon (lingo). Whether on a financial news channel, the online social media network, or at a coffee table, knowledgeable investors will speak using specific terminology consisting of abbreviations, terms, colloquialism, and phrases.
Though it may seem insignificant, it is useful to understand these terms, especially for newer traders. This article will cover all the main jargon in a simplified A-Z style below.
The A-Z glossary of most commonly used jargon
| Term | Meaning |
| Ask price | The price a dealer is willing to sell a currency pair at |
| Base and quote currency | The currency on the left is the base, whereas the currency on the right is the quote |
| Bear trap and bull trap | A market phenomenon where traders are ‘trapped’ into opening a position in one direction only for the price to reverse immediately |
| Bid price | The price a dealer is willing to buy a currency pair at |
| Breakout | A moment at which price moves above resistance or below support with increased momentum |
| Broker | A financial services company acting as a middleman or bridge between liquidity providers and traders |
| Bull and bear markets | Metaphors referring to rising prices (bull market) and declining prices (bear market) |
| Carry trade | A trading strategy for position traders by collecting swaps between positive-yielding and negative-yielding interest rates |
| Correlation | A measurement of the degree to which forex pairs resemble each others’ price action |
| Day trading | A trading style where traders open positions and close them by the end of the trading day |
| ECN (Electronic Communications Network) | An electronic system used by brokers for matching orders directly to liquidity providers |
| Exotic pair | A pair consisting of at least one currency from a known developing country |
| Fixed spread | A spread that remains unchanged regardless of market conditions |
| Fundamental analysis | Analysis seeking to understand currency movements by looking at various economic, social, and political indicators |
| Hedging | A risk management technique where one buys and sells correlated and non-correlated currency pairs to mitigate the risks |
| IB (introducing broker) | An affiliate or agent who introduces clients to a broker in return for commissions |
| Indicator | Programmed charting tools used to measure trends, volume, volatility, momentum, and other aspects of price |
| Leverage | A ‘gearing’ mechanism allowing traders to control considerably larger positions with a smaller balance |
| Limit entry order | A pending buy or sell order set at a more advantageous level than the current market price |
| Liquidity | The measure to which an instrument can be traded on-demand with little volatility |
| Long and short | Colloquialism used in financial markets for buying (‘going long’) and selling (‘going short’) |
| Lot size | A volume measure of the base currency units a trader will buy or sell |
| Major pair | A pair consisting of any of the seven designated currencies expressed against the US dollar |
| Margin | The amount needed to open a leveraged position |
| Margin call | A trading platform feature warning a trader when they’ve used up too much margin |
| Market execution | An immediate order fill at the current market price |
| Market maker broker | A provider opposite to STP which doesn’t send orders directly to the interbank |
| Minor pair (or cross) | A pair consisting of any currency of a known developed country not expressed against the US dollar |
| Momentum | A measurement of the price movement strength in a trend |
| Moving Average | A technical indicator represented as a line reflecting a particular average price over a specific period |
| MT4/MT5 (MetaTrader 4/5) | The most popular forex proprietary trading platform developed by MetaQuotes |
| OTC (over-the-counter) | Decentralized trading conducted without a centralized exchange |
| Pending order | An order set to execute at a specific price automatically |
| Pip (point in percentage) | The tiniest change to the second or fourth decimal point of an exchange rate |
| Position trading | A trading style where positions are held for several months or years |
| Price action | A methodology for predicting price movements through studying candlesticks without indicators |
| Pullback (or retracement) | A price action pattern where price moves counter to the prevailing trend |
| Risk-to-reward ratio | A simple formula expressing the monetary risk in relation to the profit potential |
| Range | A sideways or consolidating market |
| Robot (expert advisor) | A trading platform system that automatically opens and closes positions based on pre-programmed functions. |
| STP (Straight-Through Processing) | An execution model where brokers pass their clients’ orders ‘straight through’ to external liquidity providers |
| Scalping | A trading style that involves opening and closing multiple positions within a short time aiming to ‘scalp’ the markets for small profits |
| Sentiment analysis | The study of the net long and net short positioning of a group of traders |
| Spot | The instantaneous delivery of an asset in the market at the specified time |
| Spread | The difference or mark-up between the bid and ask price |
| Stop entry order | An automatically set pending order at a less advantageous level than the current price |
| Stop loss | An order to close a position at a pre-defined loss once the price reaches a certain level |
| Support and resistance | Price zones where the market stalls and change direction in a downtrend or uptrend |
| Swap | Interest either incurred or credited by a broker for keeping a position overnight according to interest rate differentials between currencies |
| Swing trading | A trading style where traders hold positions for several days or weeks |
| Take profit | An order set to close a position at a pre-defined profit once the price reaches a certain level |
| Technical analysis | The study of historical price action using indicators and chart patterns |
| Trailing stop | An automatically set function to move a stop loss after some pips as price moves in favor of a trader |
| Trend | The perception for the price to move in one prolonged direction over a specific time-frame |
| Variable spread | A spread that fluctuates according to varying market conditions |
| Volatility | The measure of how prices change in value over a defined period |
Conclusion
Increasing the vocabulary expands a trader’s knowledge and improves their trading skills. By understanding the language, one will begin thinking more elaborately about the industry and learning more advanced ideas.
