Forex Trading Terms: 60 Terms You Must Know Before Trading Forex!
Forex Trading Terms: 60 Terms You Must Know Before Trading Forex!
In short, you simply cannot master forex trading if you do not know all these forex trading terms!
In this article, we’ll look at the 60 most well-known forex trading terms. If you know them, great, you’re on track to becoming a forex trader.
If these terms are all new to you, then you probably should dedicate more time to learning them before you start trading forex.
Want to learn how to trade forex like a pro? Take our forex trading course!
60 forex trading terms you must know before you start!
Pip stands for ‘percentage in point’. With most currencies, a pip is the fourth digit after the decimal point. For example, 1.8956 - the six at the end is the pip.
A pip is the smallest denomination in forex trading.
2. Central Bank
A central bank is a bank that issues currency. For example, the Bank of England issues the Pound sterling and the Federal Reserve issues the US dollar.
3. Copy trading
Copy trading is where you can see the trades of other traders and choose to copy the trade they have made.
4. Mirror trading
Mirror trading is similar to copy trading but is more automated. You can pick to follow a trader and copy all their trades automatically.
5. Trading Signals
Trading signals can inform traders when they should make a trade. They can come in many different forms, such as SMS, email or even in-app notifications.
CFD stands for Contract for Difference. Today, CFD forex trading is the most common way people trade forex.
When you trade CFDs, you are basically creating a contract to buy an asset at a certain price. You never technically own the asset.
7. Spread betting
Spread betting is another way to trade forex and has many similarities with CFD trading. Spread betting mostly takes place in the UK and Ireland.
Scalping is a sophisticated form of trading where a trader opens and closes a large number of trades very quickly.
9. Demo account
A type of trading account offered to traders so they can see how well a broker works. You don’t trade with real money.
At Trading Education, we advise traders to be cautious of demo accounts as they can give you false perceptions of the service a broker offers.
Your broker is the company that you trade through. They provide you with access to the market. Today, the majority of brokers are online firms.
A spread is the price difference between the bid price and the asking price.
12. Win-loss ratio
This is basically the rate in which you are winning and losing your trades. If your rate was 4:3, you have won four trades and lost three.
Confluence is a great thing to look for when trading forex. It is defined as where two points meet.
For example, when two indicators are signalling to you to make a trade, it can be seen as confluence.
Because you have two (or more) signs to trade, it increases your chances of success.
14. Fundamental analysis
Fundamental analysis is where a trader predicts what will happen to the market based on news events.
15. Technical analysis
Technical analysis is where a trader predicts what will happen to the market based on analysing historical charts.
An indicator is a tool that measures something specific about the market that can inform a trader if they should make a trade. There are many different things indicators can measure.
Your portfolio consists of all your open positions. It might also contain stocks, cryptocurrency and other tradeable instruments.
A trend is an overarching direction a forex pair is moving. A trend can either be upwards, downwards or sideways.
An effective trader should know that they should trade in the direction of a trend, not against it.
19. Market cycle
Market cycle refers to the fact that the forex market appears to go through four stages.
- Ranging low
- Ranging high
20. Bull market (bullish)
A bull market or bullish market is where prices are trending upwards.
21. Bear market (bearish)
A bear market or bearish market is where prices are trending downwards.
22. Ranging market
A ranging market is when prices are neither bullish nor bearish.
23. Price action
Price action is the change of a currency pairs price marked over time.
A stop-loss is a tool on a trading platform that allows you to exit a position if the price gets too low. This can stop you from making huge losses.
There are a variety of different stop-losses. An excellent one to mention is the ‘trailing stop-loss’.
25. Take profit order
A take profit order is essentially the opposite of a stop-loss. It closes your trade when it reaches a certain level of profit.
26. Major pair
Major pairs are the most commonly traded forex pairs and always include the US dollar. They are as follows:
- CAD/USD - Canadian dollar/US dollar
- GBP/USD - Pound sterling/US dollar
- EUR/USD - Euro/US dollar
- AUD/USD - Australian dollar/US dollar
- JPY/USD - Japanese yen/US dollar
- NZD/USD - New Zealand dollar/US dollar
- CHF/USD - Swiss franc/US dollar
27. Minor pair
Minor forex pairs are made from any of the currencies listed when they don’t use the US dollar. For example, EUR/GBP would be a minor pair.
28. Exotic pair
Exotic pairs are currency pairs made from any of the currencies that are not considered minor. Even if one of the currencies is the USD, it could still be considered an exotic pair.
29. Trading strategy
A trading strategy is a plan you implement when you trade forex. Not everyone trades forex in the same way.
30. Candlestick chart
The candlestick chart originates from Japan and today is the most commonly used type of chart for trading forex.
It is hugely popular because it can represent so much information in just one glance, including the opening price, closing price and the amount a currency pair rose or fell.
31. Economic Calendar
Forex traders use an economic calendar to keep track of important events that could affect the price of the currency pair they trade.
You can check out our economic calendar here.
32. Trading Psychology
Trading psychology is a big topic that broadly covers how our mental state affects how we trade. By mastering this, we can remove mental blockers that affect our trading strategy.
33. Trading platform
A trading platform is a programme that forex traders use to input trades.
Liquidity generally refers to how easy it is to buy or sell a forex pair. If a pair is very liquid, it is easy to get in and out of a trade. If it’s not very liquid, it can be difficult.
Volatility relates to how much a forex pair is changing in price. If a currency pair is very volatile, it usually means that it is jumping from extreme highs and lows rapidly.
Inflation refers to the general increase in the price of products. As the value of things increases, the value of a currency is not as strong.
For example, £10 could buy you a lot more 20 years ago than today.
37. Carry trade
A carry trade is when you borrow a currency with a low inflation rate and then use that currency to buy a currency with a high inflation rate.
You profit from the difference in interest rates.
38. Managed accounts
A managed account is where you invest your money so someone can trade on your behalf.
There are a few variations of managed accounts, depending on the amount of control you want to have.
39. MetaTrader 4 (MT4)
The most commonly used trading platform, it has dominated forex trading for almost the last two decades. Most brokers allow you to trade with it.
40. Trading journal
A trading journal is where you can keep track of all your trades.
By keeping a trading journal, you can see what parts of your trading strategy work and which don’t.
Leverage allows you to borrow from your broker so you can make larger trades. Remember though, you need to pay back your broker, even if your trade fails.
Margin is a portion of your funds that is temporarily locked up by your forex broker when you open a position to ensure you can cover it if the trade fails.
43. Day trading
Day trading a trading style where you trade full-time, every day, typically opening positions in the morning and closing them by the end of the day.
44. Swing trading
Swing trading is often said to be the opposite of day trading. Swing traders will open a position and leave it open for days, weeks or months before closing it.
Support is a point where a currency pair won’t go any lower.
Resistance is a point where a currency pair won’t go any higher.
47. Naked trading
Naked trading is when you trade without the aid of indicators. Typically, such traders rely on support and resistance levels.
48. Quantitative easing
In short, this is where a central bank attempts to increase the circulating money supply. How effective this is debatable; however, it does increase liquidity for traders.
GDP stands for ‘Gross Domestic Product’ and is a common way to measure the strength of a country’s economy.
50. Dealing desk broker
Essentially, this a broker that sets their own prices. Some traders prefer this as prices are less volatile, while other traders want to trade the volatility.
51. No dealing desk broker
No dealing desk brokers do not set their own prices as dealing desk brokers do.
Instead, they allow traders to trade in ‘real’ market conditions, though there are several different ways in which they enable this.
52. Market maker
Another name for a dealing desk broker.
ECN stands for ‘Electronic Communication Network’ and it is a type of market access that can be provided by no dealing desk brokers.
STP stands for ‘Straight Through Processing’ and it is a type of market access that can be provided by no dealing desk brokers.
Stands for ‘Fear Of Missing Out’ and refers to when a trader feels that they are missing out on good trades. FOMO can lead traders to enter the market too soon or at the wrong moment.
Slippage is basically when you open or close a trade and the price is different from the number you were aiming for. This typically happens when the market is very volatile.
57. Mobile trading
As you can probably guess, mobile trading is just like normal trading, just on a mobile device. In the last decade, mobile trading has become quite popular.
However, mobile trading isn’t without its drawbacks and probably shouldn’t be used for complicated trades.
58. Analysis paralysis
Analysis paralysis is where you become overwhelmed by too much information and you don’t know if you should make a trade or not.
Typically, traders who suffer from analysis paralysis are looking at too many indicators.
59. Trading bot
A trading bot is a computer programme that automates trades for you.
60. Risk management strategy
A risk management strategy is essentially the precautions you take to avoid losses when trading.
If you remember anything from this article, make it these key points.
- If you don’t know all these terms, you are not ready to trade! These are all basic terms that beginners must know.
- By knowing these terms, you’ll find it easier to communicate with other forex traders. You’ll also be able to ask better questions.
- Plenty of these terms can also be used when trading other instruments. Such as cryptocurrency or stocks.
- Understanding these terms is just the beginning. Knowing them doesn’t mean that you can actually trade yet!
Learn forex trading with our forex trading course
Want to learn more about forex and how to trade? Then sign up to our forex trading course!
If you enjoyed reading Forex Trading Terms: 60 Terms You Must Know Before Trading Forex from Trading Education, please give it a like and share it with anyone else you think it may be of interest too.