Glossary

A

• Algorithmic Trading: The use of computer algorithms and systems to trade on the market according to pre-set strategies that do not require direct human intervention.
• Appreciation: An increase in the value of a currency. For example, if USD/JPY rises from 105.00 to 110.00, the USD has appreciated against the JPY.
• Arbitrage: A strategy that involves taking advantage of the price discrepancy between two markets, typically by buying an instrument in one market at a lower price and simultaneously selling it in another market at a higher price. For example, if EUR/USD is trading at 1.2000 on one platform and 1.2005 on another, an arbitrageur could buy on the first platform at a lower price and immediately sell on the other, making a profit of 0.0005.
• Ascending Triangle: A bullish pattern characterized by a flat top and a rising bottom.
• Ask Price: The price at which a seller is willing to sell a currency. In the above example, the ask price is 1.1103.

B

• Bear Market: A condition where prices are falling or expected to fall, usually by 20% or more from recent highs. Investors often turn pessimistic in bear markets, which usually occur during economic recessions or downturns.
• Bid Price: The price a buyer is willing to pay for a currency. If EUR/USD is quoted as 1.1100/1.1103, the bid price is 1.1100.
• Bollinger Bands: A technical analysis tool defined by a set of lines plotted two standard deviations away from a simple moving average. The bands widen when volatility increases and narrow when volatility decreases.
• Breakeven: The point at which a trade would result in no net gain or loss if closed at that moment.
• Breakout: When the price of a currency moves above a resistance level or below a support level. For example, if USD/JPY moves above the 110.00 resistance level, that's a breakout.
• Bull Market: A market condition where prices are rising or expected to rise, often associated with strong economic performance and low unemployment.
• Bump and Run: A pattern identified by a formation that starts with a lead-in trendline slope of about 30 degrees, then increases to about 45 degrees as the market advances rapidly, forming the "bump". The trend then reverses and accelerates downward, forming the "run".
• Buy Limit: A pending order set below the current market price, used when a trader expects the price to fall before rising.
• Buy Stop: A pending order set above the current market price, used when a trader expects the price to rise past a certain point and continue rising.

C

• Carry Trade: A strategy where an investor borrows money in a currency with low-interest rates and invests it in another currency with higher interest rates to profit from the interest rate differential.
• Central Bank Intervention: Actions taken by a central bank in the foreign exchange market to influence the value of its currency.
• Commodity Pairs: Currency pairs involving currencies from countries heavily reliant on commodity exports, such as AUD/USD, USD/CAD, and NZD/USD.
• Consolidation: A period when the price of a currency trades within a narrow range, indicating temporary market indecision.
• Consumer Price Index (CPI): A measure of the average change in prices paid by urban consumers for a basket of goods and services. It is a key indicator of inflation.
• Continuation Patterns: Patterns on a price chart suggesting that the current trend will continue after a period of consolidation. Examples include flags, pennants, and triangles.
• Contract for Difference (CFD): A financial derivative allowing traders to speculate on the price movement of an underlying asset without actually owning it.
• Correlation: A statistical measure of how two currency pairs move in relation to each other. Positive correlation means they move in the same direction, while negative correlation means they move in opposite directions.
• Cross Currency Pair (Cross Rate): A currency pair that does not include the U.S. dollar. Examples include EUR/JPY or GBP/AUD.
• Cup and Handle: A bullish continuation pattern characterized by a rounded bottom (the cup) followed by a small consolidation (the handle) before the price resumes upward movement.

D

• Day Trading: A style of trading where positions are opened and closed within the same trading day. Day traders aim to capitalize on small price movements.
• Depreciation: A decrease in the value of a currency. For example, if USD/JPY drops from 110.00 to 105.00, the USD has depreciated against the JPY.
• Descending Triangle: A bearish pattern characterized by a flat bottom and a descending top.
• Direct Quote: An exchange rate quoted as the domestic currency per unit of the foreign currency. For example, in the US, a direct quote for the Canadian dollar would be 0.75 USD/CAD.
• Diversification: A risk management strategy that involves spreading investments across various assets to reduce risk.
• Double Bottom: A pattern observed when the price drops twice to the same level before rebounding.
• Double Top: A pattern formed after a sustained trend, signaling that the currency is unlikely to climb further.
• Dovish: A policy stance favoring lower interest rates to stimulate economic growth.
• Drawdown: The decline in a trading account from a trade or a series of trades, requiring proper risk management.

E

• Easing Cycle: A period during which a central bank gradually reduces interest rates to stimulate economic activity.
• Economic Calendar: A schedule of economic events and indicators released periodically, such as GDP reports and employment figures.
• Economic Indicator: Statistics reflecting a country’s economic performance, such as GDP growth rate and unemployment rate. They are crucial for fundamental analysis.
• Elliott Wave: A theory suggesting financial markets move in repetitive cycles consisting of five waves in the direction of the main trend and three corrective waves.
• Exchange Rate: The price of one currency in terms of another. For example, if EUR/USD is 1.20, 1 euro is equivalent to 1.20 US dollars.
• Exotic Currency Pair: A currency pair that includes a major currency and a currency from a smaller or less traded economy, often with wider spreads and lower liquidity.
• Expert Advisors (EAs): Software programs that automate trading operations based on predefined rules or algorithms.
• Exponential Moving Average (EMA): A moving average that places more weight on recent price data, making it more responsive to changes compared to simple moving averages.

F

• Fibonacci Expansion: A technical analysis tool used to identify potential price targets or retracement levels based on the Fibonacci sequence.
• Fibonacci Extension: Levels used to predict potential price targets in the direction of a trend, beyond a previous swing high or low.
• Fibonacci Projection: Using Fibonacci retracement levels to project potential future price levels where a trend might reverse or continue.
• Fibonacci Retracement: A tool identifying potential support and resistance levels based on Fibonacci percentages (e.g., 23.6%, 38.2%, 50%, 61.8%).
• Flag: A chart pattern resembling a flagpole with a rectangular flag shape, indicating a temporary pause before the trend resumes.
• Forward Contract: An agreement to buy or sell an asset at a predetermined price on a future date, used for hedging or speculating.
• Fundamental Analysis: An approach that assesses economic, political, and social factors influencing asset prices, including economic indicators and news events.

G

• Gaps: Spaces on a price chart where no trading occurs, often due to significant news events or market sentiment shifts.
• Gross Domestic Product (GDP): Measures the total value of goods and services produced within a country over a specific period. It is crucial for assessing economic health.

H

• Hawkish: A policy stance suggesting a willingness to tighten monetary policy, often through raising interest rates.
• Head and Shoulders: A chart pattern identifying potential trend reversals, consisting of three peaks: a higher peak (head) between two lower peaks (shoulders).
• Hedge: A strategy to reduce or offset risk exposure by taking opposite positions or using derivative instruments.
• High-Frequency Trading (HFT): A trading strategy using algorithms and powerful computers to execute a large number of trades within milliseconds or microseconds.

I

• Ichimoku Cloud: A technical indicator assessing market trend direction, support, and resistance, consisting of several components such as the Kumo (cloud) and various lines.
• Indirect Quote: A method of quoting exchange rates where the domestic currency is the base currency, expressing how much of it is needed to purchase one unit of the foreign currency.
• Interest Rate Differential (IRD): The difference in interest rates between two countries or regions, affecting the attractiveness of holding assets in different currencies.

K

• KYC (Know Your Customer): Verification required to confirm the identity of users.

L

• Leverage: Allows a trader to control a larger position with a relatively small amount of capital. For example, 1:10 leverage lets you control $10,000 with $1,000.
• Liquidity: The ability to quickly convert a currency into cash. Major currencies like EUR, USD, and JPY typically have high liquidity.
• Long Position: Buying the base currency in a pair, betting that it will strengthen against the quote currency.
• Loose Monetary Policy: Involves lowering interest rates and increasing the money supply to stimulate economic growth.
• Lot: The number of currency units in a trade. For example, one standard lot is 100,000 units of the base currency.

M

• Margin: The amount of money required to open and maintain a trading position. It acts as a security deposit to cover potential losses.
• Margin Call: A broker's demand for additional funds when a trader's margin balance falls below the required level to maintain open positions.
• Moving Average (MA): A technical indicator that smooths out price data by creating a constantly updated average price, often used to identify trends.
• Moving Average Convergence Divergence (MACD): A trend-following momentum indicator showing the relationship between two moving averages of a security’s price.

N

• Non-Farm Payrolls (NFP): A U.S. economic report measuring the number of jobs added or lost in the economy, excluding the agricultural sector. It is a major market mover.

O

• Options Contract: A financial instrument giving the right, but not the obligation, to buy or sell an asset at a set price before a specific date.
• Order Flow: The analysis of buy and sell orders in the market to gauge the direction and strength of price movements.
• Overbought: A condition where an asset’s price is considered excessively high, suggesting a potential reversal or correction.
• Oversold: A condition where an asset’s price is considered excessively low, indicating a potential rebound or reversal.

P

• Partial Profits: Taking profits on a portion of a position while keeping the rest open for potential further gains.
• Pennant: A continuation pattern formed after a strong price movement, resembling a small symmetrical triangle.
• Pip: The smallest price movement in a forex pair, typically the fourth decimal place. For example, in EUR/USD, a movement from 1.2000 to 1.2001 is one pip.
• Pipette: A fractional pip, representing one-tenth of a pip, used for more precise pricing.
• Pivot Point: A technical analysis indicator used to determine potential support and resistance levels based on the previous period’s high, low, and closing prices.
• Position Trading: A trading style involving holding positions for weeks, months, or even years based on long-term trends and fundamental analysis.
• Price Action: The movement of an asset’s price over time, analyzed to make trading decisions based on historical price patterns.
• Price Channel: A technical analysis tool defining a trading range with parallel lines marking support and resistance levels.

Q

• Quantitative Easing (QE): A monetary policy where a central bank buys assets to increase money supply and stimulate the economy, often leading to currency depreciation.
• Quote Currency: The second currency in a currency pair, representing how much of it is needed to purchase one unit of the base currency. In EUR/USD, USD is the quote currency.

R

• Range Trading: A strategy involving buying at support levels and selling at resistance levels within a defined price range.
• Relative Strength Index (RSI): A momentum oscillator measuring the speed and change of price movements to identify overbought or oversold conditions.
• Resistance: A price level where selling pressure tends to outweigh buying pressure, preventing the price from rising further.
• Risk Management: The process of identifying, assessing, and mitigating risks associated with trading to protect capital and achieve consistent profitability.

S

• Scalping: A trading strategy focused on making small profits from very short-term price movements, often executed within minutes or seconds.
• Short Position: Selling the base currency in a pair, betting that it will weaken against the quote currency.
• Slippage: The difference between the expected price of a trade and the actual executed price, often occurring during high volatility or low liquidity.
• Support: A price level where buying pressure tends to outweigh selling pressure, preventing the price from falling further.
• Spread: The difference between the bid and ask prices of a currency pair, representing the cost of executing a trade.
• Stochastic Oscillator: A momentum indicator comparing a security’s closing price to its price range over a specific period, used to identify overbought or oversold conditions.

T

• Take Profit: An order placed to close a position once it reaches a specified profit level.
• Technical Analysis: An approach to analyzing markets by examining historical price data, chart patterns, and technical indicators to forecast future price movements.
• Trendline: A line drawn on a chart to represent the direction and speed of price movements, helping to identify trends and potential reversal points.

U

• Unemployment Rate: The percentage of the labor force that is unemployed and actively seeking employment, serving as a key indicator of economic health.

V

• Volatility: A measure of the price fluctuations of an asset over a given period, often used to gauge market risk and potential price movements.
• Volume: The total number of shares or contracts traded in a security or market, indicating the level of activity and liquidity.

W

• Wedge Pattern: A technical analysis pattern characterized by converging trendlines that form a wedge shape, signaling potential reversals.

Z

• Zero-Sum Game: A situation in trading where one participant’s gain is equivalent to another participant’s loss, resulting in a net change of zero.