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.

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