Education · Glossary
Forex and trading glossary
Plain-English definitions of the terms you will meet when you trade forex and CFDs, from ask price to volatility.
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What do these trading terms mean?
Short, plain-English definitions of the words you will meet when you trade forex and CFDs. Each term has its own link, and longer guides are linked where we have one.
A
- Account currency
- The currency your trading account is denominated in. Profits and losses in other currencies are converted into it.
- Ask price
- The price at which you can buy an instrument. It is always higher than the bid price. Also called the offer.
- Average true range (ATR)
- A volatility indicator that shows the average size of recent price ranges. Traders use it to judge how far to place a stop-loss.
B
- Balance
- The amount of money in your account, not counting profit or loss on open positions. Compare equity.
- Base currency
- The first currency in a pair. In EUR/USD, the euro is the base currency, and the price shows how many US dollars one euro costs.
- Bearish
- Expecting prices to fall. A bearish trader often goes short.
- Bid price
- The price at which you can sell an instrument. It is always lower than the ask price.
- Breakout
- A price move through a level of support or resistance. Traders watch breakouts for the start of a new trend, but many fail.
- Broker
- A company that gives you access to a trading platform and markets. It executes your orders and holds your account. For CFDs, the broker is often the counterparty to your trades.
- Bullish
- Expecting prices to rise. A bullish trader often goes long.
C
- Candlestick
- A chart symbol showing the open, high, low and close price for a set period. The body shows the open and close, and thin lines show the high and low.
- Central bank
- The national institution that sets interest rates and manages a currency's supply, such as the Federal Reserve or the European Central Bank. Its decisions strongly influence forex prices.
- CFD (contract for difference)
- A contract to exchange the difference in an asset's price between opening and closing a trade. You never own the asset. See what is a CFD.
- Closing a position
- Ending a trade by doing the opposite of what opened it. You sell to close a long position and buy to close a short one. The profit or loss is then realised.
- Commission
- A fee charged for placing a trade. Accounts with raw, tight spreads usually charge a commission per lot. Others build the cost into a wider spread.
- Contract size
- The amount of the underlying asset in one lot. For a standard forex lot it is 100,000 units of the base currency.
- Correlation
- A measure of how closely two instruments move together. Trading two highly correlated pairs in the same direction can double your exposure to one idea.
- Cross pair
- A currency pair that does not include the US dollar, such as EUR/GBP. Also called a minor pair.
- Currency pair
- Two currencies quoted against each other, such as EUR/USD. The price shows how much of the quote currency buys one unit of the base currency.
D
- Day trading
- Opening and closing positions within the same day, so none are held overnight. It avoids swap charges but means more trades and more spread costs.
- Demo account
- A practice account that uses virtual money and real market prices. It is useful for learning a platform, though it does not reproduce the pressure of risking real money.
- Drawdown
- The fall in account value from a peak to a later low, usually shown as a percentage. It measures how deep a losing run has been.
E
- Economic calendar
- A schedule of upcoming data releases and events, such as inflation figures and interest rate decisions. See our economic calendar.
- Equity
- Your balance plus or minus the profit or loss on open positions. Margin calls and stop-outs are based on equity.
- Execution
- The process of filling your order. Speed and price accuracy of execution affect the price you get.
- Exotic pair
- A currency pair that combines a major currency with one from a smaller or emerging economy, such as USD/TRY. Spreads are usually wider.
- Expert advisor (EA)
- An automated program that trades on MetaTrader platforms by following coded rules. It still carries market risk and can fail.
F
- Forex (FX)
- Short for foreign exchange, the global market where currencies are traded. See forex trading for beginners.
- Free margin
- The part of your equity not used as margin for open positions. It is what you have available to open new trades or absorb losses.
- Fundamental analysis
- Studying economic data, interest rates, politics and news to judge what an instrument is worth and where its price may go.
- Futures contract
- A standardised contract traded on an exchange to buy or sell an asset at a set price on a future date. A CFD is different: it is a contract with your broker, usually without a fixed expiry.
G
- Gap
- A jump between one price and the next with no trading in between, often after a weekend or a major news event. Stops can fill at a worse price during a gap.
H
- Hedging
- Opening a position to offset the risk of another one. It can reduce exposure, though it adds costs and does not remove risk.
I
- Index
- A measure of a group of shares, such as the S&P 500. Index CFDs let you trade the index's movement in one position. See indices.
- Inflation
- The rate at which prices in an economy rise over time. High inflation often leads central banks to raise interest rates.
- Interest rate
- The cost of borrowing money. A central bank sets the benchmark (policy) rate that other rates follow. Changes, and expectations of them, are a major driver of currency prices.
L
- Leverage
- Using a small deposit to control a larger position. It magnifies gains and losses. See what is leverage.
- Limit order
- An order to buy at or below, or sell at or above, a price you set. It fills at your price or better, but may not fill at all.
- Liquidity
- How easily an instrument can be traded without moving its price. High liquidity usually means tighter spreads.
- Long position
- A trade that profits if the price rises. You open it by buying.
- Lot
- The standard unit of trade size. In forex, one standard lot is 100,000 units of the base currency. See mini lot and micro lot.
M
- Major pair
- A heavily traded currency pair that includes the US dollar, such as EUR/USD, GBP/USD or USD/JPY.
- Margin
- The deposit you set aside to open and maintain a leveraged position. It is not a fee. It is returned when you close the trade, adjusted for profit and loss. Use the margin calculator.
- Margin call
- A warning that your equity has fallen close to the margin your positions require. You may need to add funds or reduce positions. See what is leverage.
- Margin level
- Equity divided by used margin, shown as a percentage. A lower figure means less room before a margin call or stop-out.
- Margin requirement
- The share of a position's value you must deposit as margin. A 5% requirement equals 20:1 leverage.
- Market order
- An order to buy or sell immediately at the current market price. It fills quickly but the price may differ from the one you saw.
- MetaTrader
- A popular trading platform family, including MetaTrader 4 and MetaTrader 5. See MT4 vs MT5.
- Micro lot
- A trade size of 1,000 units of the base currency, or 0.01 of a standard lot.
- Mini lot
- A trade size of 10,000 units of the base currency, or 0.10 of a standard lot.
- Minor pair
- A currency pair made of two major currencies that are not the US dollar, such as EUR/GBP or GBP/JPY.
N
- Non-farm payrolls (NFP)
- A monthly US jobs report that often causes sharp moves in the dollar and other markets.
- Notional value
- The full value of a leveraged position, not just the margin you deposit. A $500 margin deposit at 20:1 controls $10,000 of notional value.
O
- Open position
- A trade that has been opened but not yet closed. Its profit or loss is unrealised until you close it.
- Overnight financing
- A charge or credit for holding a leveraged position past the daily cut-off. Also called swap or rollover.
P
- Pending order
- An order set to trigger later, when the price reaches a level you choose. Limit and stop orders are pending orders.
- Pip
- The standard unit for measuring forex price moves. For most pairs it is 0.0001, and for JPY pairs 0.01. See what is a pip and the pip calculator.
- Pipette
- A tenth of a pip, shown as the fifth decimal place (or third on JPY pairs).
- Pip value
- The money value of a one-pip move for your position size. For one standard lot of EUR/USD it is about $10.
- Point
- The unit used to measure moves in many indices and other instruments. Its money value depends on the contract size. On MetaTrader, a point is the smallest price step, so on a five-digit EUR/USD quote, 10 points equal 1 pip.
- Position size
- The number of units or lots you trade. Good risk management sets it from your stop distance and risk limit. Try the position size calculator.
- Profit and loss (P&L)
- The money you have gained or lost on trades. It is unrealised while a position is open and realised once it is closed.
Q
- Quote currency
- The second currency in a pair. In EUR/USD, the US dollar is the quote currency and prices are shown in dollars.
R
- Requote
- A new price offered when the price you asked for is no longer available. Requotes happen under instant execution. Under market execution the order fills at the next available price, so you get slippage instead of a requote.
- Resistance
- A price level where rises have tended to stall, because sellers step in. A close above it is a possible breakout.
- Risk-reward ratio
- The amount you stand to gain compared with the amount you risk. Risking 25 pips to target 50 is a 2:1 ratio.
- Rollover
- The daily process of extending open positions into the next day. It can add a swap charge or credit.
S
- Scalping
- A style of trading that aims for many small profits over very short periods. Costs matter a great deal because spreads are paid on every trade.
- Short position
- A trade that profits if the price falls. You open it by selling.
- Slippage
- The difference between the price you expected and the price your order filled at. It is more common in fast or thin markets.
- Standard lot
- A trade size of 100,000 units of the base currency.
- Stop-loss
- An order that closes a position when the price reaches a level you set, to limit loss. In fast markets it may fill at a worse price.
- Stop order
- A pending order that triggers when the price reaches a set level. A buy stop sits above the current price and a sell stop below it. It can be used to enter a trade on a breakout or to exit.
- Stop-out
- The automatic closing of positions when your margin level falls below a set threshold. See what is leverage.
- Support
- A price level where falls have tended to pause, because buyers step in.
- Swap
- A charge or credit for holding a position overnight, based on the interest rate gap between the two currencies. See overnight financing.
- Swing trading
- Holding positions for several days to catch a larger price move. It means paying swap and facing gap risk.
T
- Take-profit
- An order that closes a position when the price reaches a profit target you set.
- Technical analysis
- Studying price charts, patterns and indicators to judge where price may go next.
- Tick
- The smallest possible price change of an instrument.
- Trailing stop
- A stop-loss that moves with the price as a trade gains, staying a set distance behind. It locks in some profit but can be triggered by normal pullbacks.
- Trend
- The general direction of a market: up, down or sideways.
U
- Underlying asset
- The asset a CFD or other derivative tracks, such as a currency pair, a share or a commodity.
- Unrealised profit or loss
- Profit or loss on open positions that has not yet been locked in by closing them. It changes with every price move.
- Used margin
- The total margin currently held against your open positions.
V
- Volatility
- How much and how fast a price moves. High volatility means bigger moves in both directions, and often wider spreads.
- Volume
- The amount traded in a period. It is sometimes used as a sign of market interest in a price move. On forex CFDs, platforms usually show tick volume (the number of price changes), not the amount traded.
W
- Watchlist
- A custom list of instruments you follow on your platform, usually called market watch on MetaTrader.
Y
- Yield
- The income return on an asset, such as a bond. Differences in yield between countries affect currency demand.
Z
- Zero-spread account
- An account type that offers very low or zero spreads and charges commission instead. Check total cost, not only spread.
Risk note. CFDs are leveraged products. Prices can move quickly against you, and losses can exceed your deposit. This guide is general education, not personal advice. Read the Risk Disclosure before you trade.
Sources
Sources
Official references behind the facts in this guide. They are outside sites that we do not control.
Keep learning
Related guides
Forex trading for beginners
A step-by-step guide from currency pairs to your first demo trade.
What is leverage?
How leverage and margin magnify gains and losses.
What is a CFD?
How contracts for difference work, and what they cost.