Forex Glossary

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Ask price: The price at which you can buy a currency pair. It is the higher of the two prices in a quote. Also called the offer.

Balance: The amount in your trading account from deposits, withdrawals and closed trades, ignoring any trades that are still open.
Base currency: The first currency in a currency pair. The quote shows the price of one unit of the base currency.
Bid price: The price at which you can sell a currency pair. It is the lower of the two prices in a quote.

Candlestick: A chart bar that shows the opening, highest, lowest and closing price for a chosen period.
CFD: A contract for difference: a leveraged product that lets you speculate on price movements without owning the underlying asset.
Currency pair: Two currencies quoted against each other, such as EUR/USD. The price shows how much of the second currency buys one unit of the first.

Demo account: A practice trading account funded with virtual money, offered free by most brokers so you can learn a platform without risking real money.
Drawdown: The fall in an account from its highest value to a later low, usually shown as a percentage.

Equity: Your account balance plus or minus the floating profit or loss on all open trades. It is what your account would be worth if you closed everything now.

Forex broker: A company that gives you access to the currency market through a trading account and platform, and holds your deposited funds.
Free margin: The money in your trading account that is not tied up as margin and is available to open new positions or absorb losses.

Leverage: Borrowed exposure from your broker that lets you control a position much larger than your deposit. It magnifies both profits and losses.
Liquidity: How easily something can be bought or sold without moving its price. The more buyers and sellers, the more liquid the market.
Lot: A standardised trade size. One standard lot is 100,000 units of the base currency; a mini lot is 10,000 and a micro lot is 1,000.

Margin: The amount of your own money a broker sets aside as a deposit to keep a leveraged position open.
Margin call: A warning from your broker that your account equity has fallen too low to support your open positions.
Market order: An instruction to buy or sell immediately at the best price currently available.

Pending order: An order to buy or sell automatically if the price reaches a level you choose in the future.
Pip: The standard unit for measuring how far an exchange rate has moved. For most currency pairs a pip is 0.0001; for pairs quoted in Japanese yen it is 0.01.
Pipette: One tenth of a pip. Brokers that quote prices to five decimal places (or three for yen pairs) show pipettes as the last digit.
Position size: How large a trade is, in lots or units. Choosing it based on how much you are willing to lose is the core of risk management.

Quote currency: The second currency in a currency pair. Profits and losses are first calculated in the quote currency.

Resistance: A price area where rising prices have repeatedly stalled and turned lower, because sellers tended to appear there.
Risk-reward ratio: A comparison of how much a trade could lose (to the stop loss) against how much it could gain (to the take profit).

Slippage: The difference between the price you expected when placing an order and the price at which it was actually filled.
Spread: The difference between the buy (ask) price and the sell (bid) price of a currency pair. It is the main trading cost on most forex accounts.
Stop loss: An order that automatically closes a trade at a set price to limit your loss if the market moves against you.
Stop out: The point at which a broker automatically closes your open positions because your equity can no longer support them.
Support: A price area where falling prices have repeatedly stopped and turned higher, because buyers tended to step in there.
Swap: Interest paid or charged for holding a position open overnight, based on the interest rate difference between the two currencies.

Take profit: An order that automatically closes a trade once it reaches a chosen profit level.
Trading plan: A written set of rules that defines what you trade, when you enter and exit, how much you risk and how you review your results.

Volatility: How much and how quickly a price moves. Highly volatile markets move further in less time, which raises both opportunity and risk.