A comprehensive glossary of terms used in the Forex Market, arranged alphabetically:
Common Terms:
A:
- Ask price: The price at which the market is willing to sell a currency pair.
- Aggregate demand: The total demand for goods and services in an economy.
B:
- Base currency: The first currency in a currency pair.
- Bear market: A market characterized by falling prices.
- Bid price: The price at which the market is willing to buy a currency pair.
C:
- Cable: A slang term for the GBP/USD currency pair.
- Candlestick chart: A chart that shows the open, high, low, and close prices for a currency pair.
- Carry trade: A trading strategy that involves borrowing at a low interest rate currency and investing in a high interest rate currency.
D:
- Demand: The amount of a good or service that consumers are willing to buy at a given price.
- Depreciation: A decline in the value of a currency.
E:
- Economic indicators: Statistical data that is used to measure the health of an economy.
- Equilibrium price: The price at which supply and demand for a good or service are in balance.
F:
- Forex: The short form of “foreign exchange,” referring to the buying and selling of currencies.
- Fibonacci retracement: A technical analysis tool that uses horizontal lines to indicate areas of support and resistance.
G:
- Gross Domestic Product (GDP): The total value of all goods and services produced in an economy.
- Great Britain pound (GBP): The currency of the United Kingdom.
H:
- Hedge: A strategy that reduces the risk of an investment.
- High: The highest price a currency pair reaches during a certain period of time.
I:
- Inflation: A sustained increase in the general price level of goods and services.
- Interest rate: The rate at which a central bank lends money to commercial banks.
J:
- Japanese yen (JPY): The currency of Japan.
K:
- Kiwi: A slang term for the NZD/USD currency pair.
L:
- Leverage: The ability to control a large amount of money using very little of your own money.
- Long position: A position that benefits from an increase in the price of a currency pair.
M:
- Margin: A deposit required to open or maintain a position in the forex market.
- Moving average: A technical analysis tool that calculates the average price of a currency pair over a certain period of time.
N:
- New Zealand dollar (NZD): The currency of New Zealand.
O:
- Offer: Another term for the ask price.
- Open price: The price at which a currency pair is traded at the start of a trading session.
P:
- Pip: The smallest unit of price movement for a currency pair.
- Political risk: The risk that a government will take actions that negatively.
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Pip: A pip is the smallest unit of price movement in the Forex market. It is typically equal to 0.0001 for most currency pairs, except for the Japanese Yen, where a pip is equal to 0.01.
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Price Action: Price action is the study of the movement of prices in the market, without the use of any indicators or other analysis tools. Traders who use price action focus on identifying patterns in the market and making trade decisions based on those patterns.
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Quote Currency: The quote currency is the second currency in a currency pair. It is the currency that is quoted in the market and it is the currency that the base currency is being exchanged for. For example, in the EUR/USD currency pair, the quote currency is the US Dollar.
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Resistance: Resistance is a level on the chart at which the price of a currency pair has difficulty breaking above. It is a level where selling pressure is greater than buying pressure, and it is often used by traders as a level at which to place a stop-loss or take-profit order.
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Rollover: Rollover is the process of extending the settlement date of a currency trade. It typically occurs when a trader holds a position overnight, and it results in the trader either paying or receiving interest on the trade based on the interest rate differential between the two currencies involved in the trade.
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Scalping: Scalping is a style of trading in which a trader opens and closes positions quickly, often in a matter of minutes or even seconds. Scalpers aim to profit from small price movements, and they typically use high leverage and tight stop-loss orders to limit risk.
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Stop-Loss Order: A stop-loss order is an order placed with a broker to close a trade when the price of the currency pair reaches a certain level. This level is typically determined by the trader based on their risk tolerance and is used to limit potential losses on a trade.
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Technical Analysis: Technical analysis is the study of historical price and volume data to identify patterns and make trade decisions. Technical analysts use charts and other tools to identify trends, support and resistance levels, and other market indicators.
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Yen Carry Trade: The Yen carry trade is a popular strategy in which traders borrow Japanese Yen at a low interest rate and use the proceeds to buy higher-yielding currencies. This strategy aims to profit from the interest rate differential between the two currencies and can be risky if the value of the Japanese Yen appreciates.
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Zigzag indicator: A technical indicator that is used to identify the important changes in trends within the price action. Zigzag indicator is based on the idea that market trends are composed of a series of waves and that the most important changes in direction take place at the tops and bottoms of these waves.
Advanced Terms:
- Carry Trade: A strategy in which an investor borrows money at a low interest rate to invest in a currency or security with a higher interest rate
- Technical Analysis: The study of past market data, primarily price and volume, to identify patterns and make trading decisions
- Fundamental Analysis: The study of economic, financial and other qualitative and quantitative factors to forecast the future performance of a currency
- Position Trading: A long-term strategy in which an investor holds a currency pair for an extended period of time, often several weeks or months
- Order Flow: The study of the buying and selling pressures of a currency pair in the market