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, suppose EUR/USD is trading at 1.2000 on one platform and 1.2005 on another. As an arbitrageur, you could buy on the first platform at a lower price and immediately sell on the other, making a profit of 0.0005.

Ascending Triangle

This is a bullish pattern characterised 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

Conversely, a bear market refers to a condition where prices are falling or are expected to fall, usually by 20% or more from recent highs. In a bear market, investors often turn pessimistic about the state of the market, fearing further losses. These markets usually occur during economic recessions or downturns, when unemployment is rising, and inflation is potentially high.

Bid Price

The price a buyer is willing to pay for a currency. If the 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

This is the point at which, if the trade were closed at that moment, there would be a net $0 gain. No gains and also no losses.

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

This term refers to a market condition where prices are either already rising or are expected to rise. In a bull market, investors are optimistic and confident that good results will continue, which can become a self-fulfilling prophecy. Bull markets are often associated with strong economic performance and low unemployment.

Bump and Run

This pattern is identified by a formation that starts with the lead-in trendline slope being at an angle of about 30 degrees. Then the trendline angle increases to about 45 degrees as the market advances rapidly, forming the "bump". Then the trend suddenly reverses and accelerates downward, forming the "run".

Buy Limit

A pending order is used when a trader expects the price of a currency to fall before it rises. In this case, they set a Buy Limit order at a value below the current market price because they anticipate that the price will rebound and rise after reaching their predetermined level.

Buy Stop

A buy stop is a type of pending order that is used to buy a security only when the price reaches the specified stop price. It is used when a trader expects the price of a currency to rise past a certain point and then continue rising. The trader sets a buy-stop order at a level above the current market price, predicting that the upward trend will continue after that point.

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, aiming to profit from the interest rate differential.

Central Bank Intervention

Actions taken by a country's central bank in the foreign exchange market to influence the value of its currency. Interventions can include buying or selling currencies to stabilize or change exchange rates.

Commodity Pairs

Currency pairs that include currencies from countries heavily reliant on commodity exports, such as Australia (AUD), Canada (CAD), and New Zealand (NZD). Examples include AUD/USD, USD/CAD, and NZD/USD.

Consolidation

A period when the price of a currency trades within a narrow range, often after a significant move up or down. It indicates a temporary pause or indecision in the market.

Consumer Price Index (CPI)

A measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. CPI is a key indicator of inflation.

Continuation Patterns

Patterns on a price chart that suggest the current trend will continue after a period of consolidation. Examples include flags, pennants, and triangles.

Contract for Difference (CFD)

A financial derivative that allows traders to speculate on the price movement of an underlying asset without actually owning it. CFDs are popular in forex trading as they enable traders to profit from both rising and falling prices.

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 (USD). Cross currency pairs are traded directly between two currencies, such as 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 its upward movement.

D

Day Trading

A style of trading in which positions are opened and closed within the same trading day. Day traders often use leverage and short-term trading strategies to capitalise on small price movements in highly liquid stocks or currencies. The targeted profit would be ideally 50-80 pips.

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

This is a bearish pattern characterised by a flat bottom and a descending top.

Direct Quote

A foreign exchange rate is 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 mixes a wide variety of investments within a portfolio. For example, a trader might diversify their portfolio by trading multiple currency pairs instead of just one.

Double Bottom

This is a pattern observed when the price of a currency drops twice to the same level before rebounding.

Double Top

This pattern is formed after a sustained trend and signals that the currency is unlikely to climb any further.

Dovish

A policy stance that favours lower interest rates to stimulate economic growth. For example, if a central bank is talking about cutting interest rates or implementing quantitative easing, it's being dovish.

Drawdown

The decline in one’s trading account from a trade or a series of trades. It's important to manage drawdown with proper risk management.

E

Easing Cycle

A period during which a central bank gradually reduces interest rates to stimulate economic activity. It's the opposite of a tightening cycle.

Economic Calendar

A schedule of economic events and indicators that are released periodically, such as GDP reports, employment figures, and interest rate decisions. Traders use economic calendars to anticipate market movements based on these events.

Economic Indicator

Statistics or data that reflect the economic performance of a country, such as GDP growth rate, unemployment rate, consumer price index (CPI), and retail sales figures. Economic indicators are crucial for fundamental analysis.

Elliott Wave

A theory in technical analysis that suggests financial markets move in repetitive cycles, consisting of five waves in the direction of the main trend (impulse waves) and three corrective waves (corrective waves). Traders use Elliott Wave analysis to predict market trends.

Exchange Rate

The price of one currency in terms of another currency. For example, if EUR/USD is 1.20, it means 1 euro is equivalent to 1.20 US dollars.

Exotic Currency Pair

A currency pair that includes a major currency (like USD, EUR, JPY) and a currency from a smaller or less traded economy (such as the South African Rand or Turkish Lira). Exotic pairs often have wider spreads and lower liquidity compared to major pairs.

Expert Advisors (EAs)

Software programs designed to automate trading operations on behalf of traders. EAs can execute trades, manage positions, and apply trading strategies based on predefined rules or algorithms.

Exponential Moving Average (EMA)

A type of moving average that places more weight on recent price data, making it more responsive to changes in price trends compared to simple moving averages. EMA is commonly used in technical analysis to identify trend direction and potential entry/exit points.

F

Fibonacci Expansion

A technical analysis tool used to identify potential price targets or retracement levels based on the Fibonacci sequence. Traders use Fibonacci expansions to anticipate where a price move might extend to after a retracement or correction.

Fibonacci Extension

Similar to Fibonacci expansion, Fibonacci extension levels are used to predict potential price targets in the direction of a trend. Traders apply Fibonacci extension levels to gauge how far a price move could go beyond a previous swing high or low.

Fibonacci Projection

A method of using Fibonacci retracement levels to project potential future price levels where a trend might reverse or continue. Traders combine Fibonacci retracement with other technical indicators to make trading decisions.

Fibonacci Retracement

A technical analysis tool that identifies potential support and resistance levels based on the Fibonacci sequence (typically 23.6%, 38.2%, 50%, 61.8%, and 100%). Traders use Fibonacci retracement levels to determine possible entry or exit points.

Flag

A chart pattern that resembles a flagpole with a rectangular flag shape. Flags are continuation patterns that occur after a strong price move, indicating a temporary pause before the trend resumes in the same direction.

Forward Contract

An agreement between two parties to buy or sell a specified asset (such as a currency pair) at a predetermined price on a future date. Forward contracts are used to hedge against currency risk or speculate on future price movements.

Fundamental Analysis

An approach to analyzing financial markets based on economic, political, and social factors that influence asset prices. Fundamental analysts assess economic indicators, news events, central bank policies, and geopolitical developments to make trading decisions.

G

Gaps

Spaces on a price chart where no trading activity occurs. Gaps can occur between the closing price of one trading session and the opening price of the next, often due to significant news events or market sentiment shifts. Traders analyze gaps for potential support, resistance, or continuation signals.

Gross Domestic Product (GDP)

A key economic indicator that measures the total value of goods and services produced within a country's borders over a specific period, usually annually or quarterly. GDP is a crucial factor in assessing the economic health and growth of a nation. Forex traders monitor GDP reports as they can impact currency values and monetary policies.

H

Hawkish

A term used to describe a positive or aggressive stance taken by central banks or policymakers regarding economic policies, particularly monetary policy. Hawkish statements or actions suggest a willingness to tighten monetary policy, which can influence currency values and interest rates.

Head and Shoulders

A popular chart pattern used in technical analysis to identify potential trend reversals. The head and shoulders pattern consists of three peaks: a higher peak (head) between two lower peaks (shoulders). Traders interpret this pattern as a signal that an uptrend may be reversing into a downtrend or vice versa.

Hedge

A strategy used to reduce or offset risk exposure in financial markets. Traders and investors hedge their positions by taking opposite positions or using derivative instruments like options or futures contracts. Hedging aims to protect against adverse price movements.

High-Frequency Trading (HFT)

A type of trading strategy that uses powerful computers and algorithms to execute a large number of trades within milliseconds or microseconds. High-frequency trading relies on speed and technology to capitalize on small price discrepancies in the market.

I

Ichimoku Cloud

A technical analysis indicator used to assess market trend direction, support, and resistance levels. The Ichimoku Cloud consists of several components, including the Kumo (cloud), Tenkan-sen (conversion line), Kijun-sen (baseline), Senkou Span A and B, and Chikou Span. Traders use the Ichimoku Cloud to make trading decisions based on the interplay of these components.

Indirect Quote

A method of quoting exchange rates where the domestic currency is the base currency and the foreign currency is the quote currency. In an indirect quote, the price expresses how much of the domestic currency is needed to purchase one unit of the foreign currency.

Interest Rate Differential (IRD)

The difference in interest rates between two countries or regions. Traders and investors consider the interest rate differential when trading currencies, as it can affect the attractiveness of holding assets denominated in different currencies. Positive IRD indicates a higher interest rate in one currency compared to another, potentially leading to capital flows.

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K

KYC (Know Your Customer)

KYC (Know Your Customer) is a verification required to verify the identity of users.

L

Leverage

A tool that allows a trader to get much larger exposure to the market using a relatively small amount of capital. For example, with 1:10 leverage, you can control $10,000 with just $1,000.

Liquidity

The ability of a currency to be quickly converted into cash. Major currencies like EUR, USD, and JPY typically have high liquidity.

Long Position

If a trader goes 'long' on a currency pair, it means they are buying the base currency and simultaneously selling the quote currency. They are betting that the base currency will strengthen against the quote currency. If it does, they stand to make a profit. For example, if a trader believes that the USD will strengthen against the JPY, they will go long on the USD/JPY pair.

Loose Monetary Policy

Also known as easy monetary policy, it involves lowering interest rates and increasing the money supply in an economy, often to stimulate economic growth.

Lot

The number of currency units a trader will buy or sell in a forex trade. For example, one standard lot in forex is 100,000 units of the base currency.

M

Margin

The amount of money a trader needs to hold a position in the market. For example, with a 1% margin, you can trade $100,000 worth of currency with just $1,000.

Margin Call

A broker's demand for an investor to deposit additional money to cover potential losses. For example, if losses make your margin drop below the required level, your broker may make a margin call.

Moving Average (MA)

A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random short-term price fluctuations. For example, a 50-day moving average might be used to determine the overall trend direction.

Moving Average Convergence Divergence (MACD)

A trend-following momentum indicator that shows the relationship between two moving averages of a currency’s price. When the MACD crosses above the signal line, it gives a bullish (buy) signal, and when it crosses below, it gives a bearish (sell) signal.

N

Non-farm Payrolls (NFP)

A key economic indicator in the United States that measures the number of jobs added or lost in the non-farm sector. The NFP report is released monthly and is closely watched by traders and investors as it can have a significant impact on the financial markets, particularly the currency and stock markets.

O

Options Contract

A financial instrument that gives the holder the right, but not the obligation, to buy or sell an asset at a specified price within a predetermined time frame. In forex trading, options contracts are less common compared to spot and futures contracts but can be used for hedging or speculative purposes.

Order Flow

The process of how buy and sell orders are executed in the market. Order flow analysis involves tracking the volume and direction of orders to gauge market sentiment and potential price movements.

Overbought

A market condition where the price of an asset has risen sharply and is considered to be trading at a level that is too high relative to its fundamental value or historical price movements. Overbought conditions can sometimes indicate a potential reversal or correction in price.

Oversold

A market condition where the price of an asset has fallen sharply and is considered to be trading at a level that is too low relative to its fundamental value or historical price movements. Oversold conditions can sometimes indicate a potential reversal or bounce in price.

P

Partial Profits

A strategy where a trader closes a portion of their position to lock in profits while keeping the remaining portion open to capture potential further gains. Partial profit-taking is common in trading to manage risk and secure returns.

Pennant

A bullish or bearish continuation pattern in technical analysis that resembles a small symmetrical triangle. Pennants typically occur after a strong price movement, followed by a period of consolidation before the price resumes its previous trend.

Pip

The smallest price movement in forex trading, usually represented by a one-digit change in the fourth decimal place of a currency pair. For example, if the EUR/USD moves from 1.2500 to 1.2501, it has moved one pip.

Pipette

A fractional pip used for more precise pricing in certain currency pairs. It represents a one-tenth of a pip movement, often denoted as the fifth decimal place in currency quotes. For example, if the EUR/USD moves from 1.25000 to 1.25001, it has moved one pipette.

Pivot Point

A technical analysis indicator used to identify potential support and resistance levels based on the previous day's price action. Pivot points are calculated using the high, low, and close prices from the previous trading session and are used by traders to determine entry and exit points.

Position Trading

A long-term trading strategy where positions are held for extended periods, ranging from weeks to months or even years. Position traders base their decisions on fundamental analysis and broader market trends rather than short-term price fluctuations.

Price Action

The movement of a security's price over time, often represented on a price chart. Price action analysis focuses on studying past price movements to predict future price movements, without relying on indicators or other technical tools.

Price Channel

A technical analysis tool that defines a range within which a security's price tends to fluctuate. Price channels consist of two parallel trendlines—one representing resistance and the other representing support—and traders use them to identify potential breakout or reversal points.

Q

Quantitative Easing (QE)

A monetary policy where a central bank buys government bonds or other financial assets in order to inject money into the economy to expand economic activity. This typically leads to currency depreciation.

Quote Currency

The second currency in a currency pair. For example, in the EUR/USD pair, the USD is the quote currency.

R

Range Trading

A trading strategy that identifies overbought and oversold conditions (ranges) and seeks to profit from the predictable movements within these ranges.

Relative Strength Index (RSI)

A momentum indicator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions. Values of 70 or above indicate an asset may be overbought, while values of 30 or below indicate an asset may be oversold.

Resistance Level

A price level that a currency's price has difficulty rising above. For example, if USD/JPY has failed to rise above 110.00 several times, that's a resistance level.

Reversal

A change in the direction of a price trend. For example, if GBP/USD has been falling but then starts rising, that's a reversal.

Reversal Patterns

These are chart patterns that signal that a current trend may be about to change direction.

Risk Management

The process of identifying and mitigating trading risks. This might involve setting stop-loss orders to limit potential losses or diversifying investments to spread risk.

Risk-on/Risk-off

Risk-on is market sentiment where traders are willing to take on more risk, typically benefiting higher-yielding currencies. Risk-off is when traders are risk-averse, typically benefiting safe-haven currencies like the USD, JPY, and CHF.

Rollover Rate (Swap)

The interest that you earn or owe for holding a currency position overnight. Each currency has an overnight interest rate associated with it, and because forex is traded in pairs, every trade involves not only two different currencies but also two different interest rates.

ROI

ROI (Return on Investment) is a metric used to calculate the profitability of a trade or investment.

Rounding Bottom

This chart pattern is observed when a series of market movements cause the price of a currency to reach a bottom, slightly recover, and then fall to the bottom again.

Rounding Top

This is a chart pattern that can be observed in the event of a peak reversal following a strong upward trend.

S

Safe Haven

Assets or currencies that are considered relatively safe to invest in during times of economic turmoil or geopolitical tensions. USD, JPY, and CHF are considered safe-haven currencies.

Sell Limit

This is a pending order used when a trader expects the price of a currency to rise before it falls. The trader sets a Sell Limit order at a value above the current market price, predicting that the price will reverse and fall after reaching the predetermined level.

Sell Stop

This is a pending order that a trader uses when they expect the currency price to fall past a certain level and then continue falling. They set a sell-stop order at a value below the current market price, predicting that the downward trend will continue after reaching the predetermined level.

Short Position

A 'short' position is the opposite of a long position. When a trader goes 'short' on a currency pair, it means they are selling the base currency and simultaneously buying the quote currency. They are betting that the base currency will weaken against the quote currency. If it does, they can make a profit. For example, if a trader believes that the EUR will weaken against the USD, they will go short on the EUR/USD pair.

Slippage

When a trade is executed at a different price than expected. For example, if you place an order to buy EUR/USD at 1.1800 but it gets filled at 1.1802, that's slippage.

Spot Market

The market in which commodities or currencies are immediately delivered and paid for upon purchase. This is contrasted with the futures market, where such commodities are traded for future delivery.

Spread

The difference between the bid price and the ask price. In the above example, the spread is 0.0003.

Stochastic Oscillator

A momentum indicator comparing a particular closing price of a security to a range of its prices over a certain period of time. The theory suggests that it's possible to predict a price reversal when the oscillator crosses above or below extreme values.

Stop-Loss Order

An order to sell a security once it reaches a certain price to limit loss. For example, if you bought EUR/USD at 1.1800, you might set a stop-loss at 1.1750 to protect against a major decline.

Supply and Demand

Basic economic principles where the price of an asset is dictated by the quantity of a product that producers want to sell (supply) and the amount that consumers are willing and able to buy (demand).

Support and Resistance

These are specific price levels or price areas on a trading chart that can signify the continuation or change of a trend.

Support Level

A price level where a currency's price has difficulty falling below. For example, if USD/JPY has bounced off 108.00 several times, that's a support level.

Swap

A rollover interest that is earned or paid for holding positions overnight. For example, if you hold a long position on a currency with a higher interest rate than the one, you're shorting, you'll earn a positive swap.

Swing Trading

A style of trading that attempts to capture gains in a market within a period of one day to a week. For example, a swing trader might try to profit from the ups and downs in the EUR/USD price over a period of several days. Targeted profit would be ideally 100 pips and above.

Symmetrical Triangle

This pattern is characterized by a set of trendlines converging together as time progresses.

T

Take-Profit Order

An order to sell a security once it reaches a certain price to lock in a profit. If you bought EUR/USD at 1.1800, you might set a take profit at 1.1900 to automatically close the trade if it reaches that level.

Technical Analysis

Analysis based on charts and statistical trends. For example, a trader might use support and resistance, moving averages, and volume patterns to predict future price movements.

Tight Monetary Policy

A course of action undertaken by a central bank, such as raising interest rates to reduce the money supply to curb inflation.

Tightening Cycle

A cycle in which a central bank raises interest rates to curb inflation. A tightening cycle is often negative for currency values due to the decreased money supply.

Trading Platform

The software used to open, monitor, and close trades in the forex market. Examples include MetaTrader 4, MetaTrader 5, and cTrader.

Trend

The general direction in which the market is moving. For example, if GBP/USD has been increasing over the last few months, it's in an uptrend. Conversely, if GBP/USD has been decreasing over the last few months, it's in a downtrend.

Triple Bottom

This is a variation of the double bottom. It's a bullish reversal pattern.

Triple Top

This is a variation of the double top and is considered a reversal pattern.

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V

Volatility

The rate at which the price of an asset increases or decreases. High volatility means the price moves up and down quickly, which can be both risky and potentially profitable for traders.

Volatility Index (VIX)

A measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. It's also known as the "fear gauge" because it tends to rise during periods of market turmoil.

W

Wedge

This is a price pattern marked by converging trend lines on a price chart. The two trend lines are drawn to connect the respective highs and lows of a price series over 10 to 50 periods.

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Z

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