A comprehensive A–Z dictionary of forex and CFD trading terms. From basic concepts to advanced strategies — understand every term you encounter.
The use of computer programs and algorithms to execute trades automatically based on pre-defined rules and criteria. Algo trading can process market data, generate signals, and execute orders at speeds impossible for human traders.
A set of laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income through the financial system. Forex brokers must implement AML policies, including transaction monitoring and suspicious activity reporting.
A trading strategy that exploits price differences of the same or similar financial instruments across different markets or brokers. Traders buy at a lower price in one market and simultaneously sell at a higher price in another to capture risk-free profit.
Australia's financial regulatory body that oversees forex and CFD brokers. ASIC is considered a top-tier regulator with strict requirements including leverage limits, client money segregation, and proper licensing. One of the most respected regulators globally.
A technical analysis indicator that measures market volatility by calculating the average range between high and low prices over a specified period. ATR is commonly used to set stop-loss levels and determine position sizes.
Slang term for the Australian Dollar (AUD) or the AUD/USD currency pair. Australia is a major commodity exporter, so the Aussie is often correlated with commodity prices.
The process of testing a trading strategy using historical price data to evaluate its performance before risking real capital. Proper backtesting accounts for spreads, slippage, commissions, and uses out-of-sample data to avoid curve fitting.
The first currency listed in a currency pair quotation. In the pair EUR/USD, the euro (EUR) is the base currency. The price of the pair shows how much of the quote currency is needed to buy one unit of the base currency.
A market condition characterized by declining prices and pessimistic investor sentiment. In forex, a bear market for a currency pair means the base currency is weakening against the quote currency.
A technical analysis tool consisting of a middle moving average band and two outer bands set at standard deviations above and below. Used to identify overbought/oversold conditions and volatility. When bands contract, it signals low volatility; when they expand, it signals high volatility.
A price movement through an identified level of support or resistance, often accompanied by increased volume and volatility. Breakouts can signal the start of a new trend. Traders use breakout strategies to enter positions early in a new move.
A financial intermediary that provides traders with access to a trading platform for buying and selling financial instruments. Forex brokers can be market makers, ECN brokers, or STP brokers, each with different execution models.
A market condition characterized by rising prices and optimistic investor sentiment. In forex, a bull market for a currency pair means the base currency is strengthening against the quote currency.
A pending order to buy a financial instrument at a price below the current market price. The order is executed when the ask price falls to the specified level. Used when a trader expects the price to drop to a support level before rising.
A pending order to buy a financial instrument at a price above the current market price. The order is triggered when the ask price rises to the specified level. Used when a trader expects a breakout above resistance.
Slang term for the GBP/USD currency pair. The name originates from the transatlantic telegraph cable used in the 19th century to transmit exchange rates between London and New York.
A type of price chart that displays the high, low, open, and close prices for a specific time period. Each "candle" has a body (showing open/close range) and wicks/shadows (showing high/low range). Originated in 18th-century Japanese rice trading.
A trading strategy that involves borrowing in a low-interest-rate currency and investing in a high-interest-rate currency to profit from the interest rate differential (swap). Popular in stable market conditions but risky during market turmoil.
A financial derivative that allows traders to speculate on price movements of an underlying asset without owning it. The contract settles the difference between the opening and closing trade prices. CFDs provide leverage and the ability to go long or short.
Currencies of countries whose economies are heavily dependent on commodity exports. The Australian Dollar (AUD), Canadian Dollar (CAD), and New Zealand Dollar (NZD) are classic examples, often correlated with commodity prices like oil, gold, and agricultural goods.
A statistical measure of how two currency pairs or assets move in relation to each other. A positive correlation means they move in the same direction; a negative correlation means they move in opposite directions. Understanding correlations is key to portfolio diversification.
A currency pair that does not include the US Dollar. Examples include EUR/GBP, EUR/JPY, and GBP/JPY. Cross pairs often have wider spreads and lower liquidity than major pairs.
A professional-grade trading platform developed by Spotware, known for its clean interface, advanced charting, Level II pricing, and fast ECN execution. cTrader supports automated trading through cAlgo (now cTrader Automate) using C# programming language.
The quotation of two different currencies in forex, where one is quoted against the other. The first currency is the base currency; the second is the quote currency. Example: EUR/USD means how many US dollars (quote) are needed for one euro (base).
A trading style where all positions are opened and closed within the same trading day, with no positions held overnight. Day traders aim to profit from intraday price movements and avoid overnight risk and swap charges.
A practice trading account funded with virtual money that simulates real market conditions. Demo accounts allow traders to test strategies, learn the platform, and gain experience without risking real capital.
A real-time display of all pending buy and sell orders at different price levels for a financial instrument. DOM shows the available liquidity at each price, helping traders understand supply and demand dynamics and potential support/resistance zones.
A candlestick pattern where the opening and closing prices are virtually the same, creating a cross or plus-sign shape. It indicates market indecision and can signal a potential reversal, especially when appearing after a strong trend.
The decline in an account's equity from its peak to its trough before a new high is reached. Expressed as a percentage, drawdown measures the risk of a trading strategy. Maximum drawdown is a key metric for evaluating trading system performance.
An automated trading program that runs on MetaTrader platforms (MT4/MT5). EAs can analyze the market, generate trading signals, and execute trades automatically based on pre-programmed rules without manual intervention.
A type of broker execution model that connects traders directly with liquidity providers (banks, institutions, other traders). ECN brokers offer raw spreads with a commission, faster execution, and more transparent pricing without dealing desk intervention.
A two-candlestick reversal pattern where the second candle completely engulfs the body of the first. A bullish engulfing (green candle engulfs red) signals potential upward reversal; a bearish engulfing (red engulfs green) signals potential downward reversal.
The current value of a trading account, calculated as the account balance plus or minus any unrealized profit or loss from open positions. Equity = Balance + Floating P/L. It determines the margin available for new trades.
The time it takes for a broker to process and fill a trade order after it is submitted. Faster execution reduces slippage risk. Top ECN brokers offer execution speeds under 50 milliseconds. Critical for scalping and high-frequency strategies.
A currency pair that includes one major currency and one currency from a developing or smaller economy (e.g., USD/TRY, EUR/ZAR). Exotic pairs typically have wider spreads, lower liquidity, and higher volatility than majors or crosses.
The total amount of capital at risk in the market at any given time. Net exposure considers the direction and size of all open positions. Managing exposure is critical to effective risk management.
A technical analysis tool that uses horizontal lines to indicate areas of support or resistance at key Fibonacci levels (23.6%, 38.2%, 50%, 61.8%, 78.6%) before the price continues in the original direction. Based on the Fibonacci mathematical sequence.
The execution of a trade order. A "filled" order means the trade has been completed at the specified or available price. Fill quality depends on market liquidity, order type, and broker execution speed.
The unrealized profit or loss on currently open positions. Floating P/L changes in real time as market prices fluctuate. It becomes realized (actual) P/L only when the position is closed.
The global decentralized market for trading currencies. With a daily volume exceeding $7.5 trillion, it is the largest and most liquid financial market in the world. Forex operates 24 hours a day, 5 days a week across major financial centers.
The amount of equity in a trading account that is not being used as margin for open positions. Free margin is available for opening new trades. Free Margin = Equity − Used Margin.
A method of evaluating currencies or assets by examining underlying economic, financial, and geopolitical factors. Key indicators include GDP, inflation, employment data, interest rates, and central bank policies.
Standardized contracts traded on exchanges that obligate the buyer to purchase, or the seller to sell, an asset at a predetermined price on a specific future date. Forex futures differ from spot forex in that they trade on centralized exchanges with set expiration dates.
A price gap occurs when the market opens at a significantly different price from the previous close, leaving a visible gap on the chart. Gaps commonly occur over weekends or after major news events and can lead to slippage on pending orders.
A type of order that remains active until the trader manually cancels it or the order is filled. Unlike day orders which expire at the end of the trading session, GTC orders persist across multiple sessions.
A bullish candlestick reversal pattern with a small body at the top and a long lower wick (at least twice the body length). It forms after a downtrend and suggests that buyers have overcome selling pressure, potentially signaling a reversal.
A risk management strategy that involves opening an opposite position to an existing trade to reduce or eliminate exposure to adverse price movements. Some brokers and regulators (like the NFA in the US) restrict hedging practices.
An algorithmic trading approach that uses powerful computers and ultra-low-latency connections to execute a large number of trades in fractions of a second. HFT strategies exploit tiny price inefficiencies and market microstructure patterns.
A comprehensive technical indicator that defines support/resistance levels, identifies trend direction, gauges momentum, and provides trading signals. It consists of five lines: Tenkan-sen, Kijun-sen, Senkou Span A, Senkou Span B, and Chikou Span.
A statistical measure of the performance of a group of stocks representing a market or sector. Common indices include S&P 500, Dow Jones, NASDAQ, FTSE 100, and DAX. Many brokers offer index CFDs for trading.
The top-level forex market where large banks and financial institutions trade currencies directly with each other. It offers the tightest spreads and deepest liquidity. Retail forex prices are derived from the interbank market.
The rate at which a central bank lends money to commercial banks, which directly influences currency values. Higher interest rates typically strengthen a currency as they attract foreign investment seeking better returns.
The official currency of Japan and the third most traded currency globally. The yen is considered a safe-haven currency that tends to strengthen during periods of global economic uncertainty. USD/JPY is one of the most heavily traded pairs.
A technical analysis indicator that consists of an upper, middle, and lower band based on the Average True Range (ATR) around an exponential moving average. Used to identify trend direction and potential breakout signals.
Slang term for the New Zealand Dollar (NZD) or the NZD/USD currency pair. Named after New Zealand's national bird and icon.
A regulatory process that requires brokers to verify the identity and assess the suitability of their clients. KYC typically involves submitting government-issued ID, proof of address, and sometimes financial information before an account can be activated.
The time delay between when a trade order is sent and when it is executed by the broker's server. Lower latency means faster execution, which is critical for scalpers and algorithmic traders. Latency depends on server location, internet connection, and broker infrastructure.
A mechanism that allows traders to control a larger position with a smaller amount of capital. Expressed as a ratio (e.g., 1:100 means $1 controls $100). While leverage amplifies potential profits, it equally amplifies potential losses.
The ratio of the trader's own capital to the total trading position size. A 1:500 leverage ratio means the trader needs only $200 to open a $100,000 position. Regulators in different jurisdictions impose maximum leverage limits (e.g., 1:30 in the EU for major pairs).
An order to buy or sell a financial instrument at a specified price or better. A buy limit is placed below the current price; a sell limit is placed above it. Limit orders guarantee price but not execution.
A financial institution (typically a large bank or prime broker) that supplies buy and sell quotes to the forex market, ensuring there is always a counterparty for trades. Multiple liquidity providers competing results in tighter spreads.
A trade where the trader buys a financial instrument expecting its price to rise. In forex, going long on EUR/USD means buying euros and selling US dollars. Profit is made when the price increases above the entry point.
Slang term for the Canadian Dollar (CAD) or the USD/CAD currency pair. The name comes from the common loon bird depicted on the Canadian one-dollar coin. CAD is strongly correlated with oil prices.
A standardized unit of measurement for trade size in forex. A standard lot is 100,000 units of the base currency, a mini lot is 10,000 units, a micro lot is 1,000 units, and a nano lot is 100 units.
A trend-following momentum indicator that shows the relationship between two moving averages (typically 12-period and 26-period EMA). The MACD line, signal line, and histogram are used to identify trend changes, momentum shifts, and potential entry/exit points.
The seven most traded currency pairs in forex, all including the US Dollar: EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD, USD/CAD, and NZD/USD. Major pairs account for over 80% of forex trading volume and have the tightest spreads.
The amount of money required in a trading account to open and maintain a leveraged position. Margin is not a fee but a deposit held by the broker. Margin = Position Size / Leverage. If account equity falls below required margin, a margin call occurs.
A warning from the broker that the account equity has fallen to or below the margin call level (typically 50–100% margin level). Traders must either deposit additional funds or close positions to reduce margin usage. Failure to act may result in automatic position liquidation.
A percentage that indicates the health of a trading account, calculated as (Equity / Used Margin) × 100. A margin level of 100% means equity equals used margin. Below the stop-out level, the broker will automatically close positions.
A type of broker that creates its own market by taking the opposite side of client trades. Market makers set their own bid/ask prices and profit from spreads. They provide guaranteed liquidity but may have a conflict of interest with client profitability.
An order to buy or sell a financial instrument immediately at the best available current price. Market orders guarantee execution but not the exact price, as the final fill price may differ from the quoted price due to slippage.
The most widely used retail forex trading platform, developed by MetaQuotes Software. MT4 offers charting tools, technical indicators, Expert Advisors (automated trading), and supports MQL4 programming language. Despite being older, it remains dominant due to its extensive ecosystem.
The successor to MT4, developed by MetaQuotes Software. MT5 offers additional timeframes, more order types, an integrated economic calendar, improved backtesting, depth of market (DOM), and support for stocks and futures alongside forex and CFDs.
The Markets in Financial Instruments Directive II, an EU regulatory framework that governs financial markets and investment services. It imposes leverage limits, requires negative balance protection, restricts marketing practices, and mandates risk disclosures for CFD providers.
A trade size equal to 10,000 units of the base currency (0.1 of a standard lot). One pip movement on a mini lot equals approximately $1 for USD-denominated pairs. Mini lots bridge the gap between micro lots and standard lots.
A broker execution model where orders are passed directly to liquidity providers without manual intervention from a dealing desk. NDD brokers include both ECN and STP models and offer more transparent pricing and fewer re-quotes.
A broker policy (mandatory under EU/UK regulation) that prevents a trader's account from going below zero. If losses exceed the account balance due to extreme market conditions, the broker absorbs the negative amount, protecting clients from owing money.
A key US economic indicator released monthly by the Bureau of Labor Statistics, measuring the change in the number of employed people (excluding farm workers, government employees, and nonprofit staff). NFP releases cause significant forex volatility, especially in USD pairs.
Stands for Open, High, Low, Close — the four key data points in a price bar or candlestick for a given time period. Open is the first trade price, High and Low are the extremes, and Close is the last trade price.
A real-time electronic list of all active buy and sell orders for a financial instrument, organized by price level. The order book reveals market depth and liquidity distribution. In forex, ECN brokers provide access to the order book.
A decentralized market where financial instruments are traded directly between two parties without a central exchange. The forex spot market is the largest OTC market. OTC trading offers flexibility but less regulatory oversight than exchange trading.
A market condition where the price has risen significantly and quickly, potentially beyond its fair value. Technical indicators like RSI above 70 or Stochastic above 80 suggest overbought conditions, which may precede a price pullback.
A trade that is held open past the daily market close (typically 5:00 PM New York time in forex). Overnight positions incur swap/rollover charges or credits depending on the interest rate differential of the traded currencies.
A market condition where the price has fallen significantly and quickly, potentially below its fair value. Technical indicators like RSI below 30 or Stochastic below 20 suggest oversold conditions, which may precede a price bounce.
An instruction to open a trade when the price reaches a specified level. Types include Buy Limit, Sell Limit, Buy Stop, and Sell Stop. Pending orders allow traders to plan entries in advance without monitoring the market constantly.
A technical analysis indicator calculated from the previous period's high, low, and close prices. Pivot points and their support/resistance levels are used to identify potential turning points in the market. Popular among intraday traders.
The number of units or lots traded in a single trade. Proper position sizing is one of the most important aspects of risk management, determining how much capital is at risk per trade relative to the account size.
A long-term trading style where positions are held for weeks, months, or even years. Position traders rely heavily on fundamental analysis and macroeconomic trends, requiring large stop losses and smaller position sizes relative to account equity.
A trading methodology that analyzes raw price movements on a chart without relying on lagging indicators. Price action traders focus on candlestick patterns, support/resistance levels, trendlines, and chart formations to make trading decisions.
The second currency listed in a currency pair quotation. In EUR/USD, the US Dollar (USD) is the quote currency. The pair's price indicates how much of the quote currency is needed to buy one unit of the base currency.
A sustained period of rising prices in a financial market or a specific asset. A rally can occur in any timeframe and may be driven by fundamental events, technical breakouts, or shifts in market sentiment.
A market condition where the price moves sideways between identifiable support and resistance levels without establishing a clear trend. Range-bound trading strategies involve buying at support and selling at resistance.
The framework of laws and rules governing financial markets and broker operations. Major forex regulators include FCA (UK), CySEC (Cyprus/EU), ASIC (Australia), BaFin (Germany), and FINMA (Switzerland). Regulated brokers must meet capital requirements, segregate client funds, and follow strict operational standards.
A situation where the broker cannot execute a trade at the requested price and offers a new price instead. Requotes typically occur during high volatility or when using market maker brokers. ECN/STP brokers generally have fewer requotes.
A price level where selling pressure is strong enough to prevent the price from rising further. Resistance acts as a ceiling. When resistance is broken, it often becomes support. Key resistance levels are identified through technical analysis.
The process of identifying, assessing, and controlling threats to trading capital. Key practices include proper position sizing, using stop-loss orders, maintaining a favorable risk-reward ratio, diversifying, and never risking more than 1-2% of account equity on a single trade.
The ratio comparing the potential loss (risk) to the potential profit (reward) of a trade. A 1:2 risk-reward ratio means the potential profit is twice the potential loss. Most professional traders aim for a minimum ratio of 1:1.5 to 1:3.
The process of extending the settlement date of an open forex position to the next trading day. This involves paying or receiving a swap fee based on the interest rate differential between the two currencies in the pair.
A momentum oscillator that measures the speed and magnitude of recent price changes on a scale of 0 to 100. Readings above 70 suggest overbought conditions; readings below 30 suggest oversold conditions. Developed by J. Welles Wilder Jr.
Assets or currencies that investors flock to during periods of economic uncertainty or market turmoil. Traditional safe havens include the Japanese Yen (JPY), Swiss Franc (CHF), US Dollar (USD), gold, and government bonds.
A high-frequency trading style that aims to profit from very small price movements by entering and exiting trades within seconds to minutes. Scalpers typically use high leverage, tight stop-losses, and require brokers with very low spreads and fast execution.
A regulatory requirement where broker must keep client funds separate from the company's operating funds. Segregated accounts protect client deposits in case the broker faces financial difficulties or insolvency.
A pending order to sell a financial instrument at a price above the current market price. The order is executed when the bid price rises to the specified level. Used when a trader expects the price to rise to a resistance level before falling.
A pending order to sell a financial instrument at a price below the current market price. The order is triggered when the bid price falls to the specified level. Used when a trader expects a breakdown below support.
A trade where the trader sells a financial instrument expecting its price to fall. In forex, going short on EUR/USD means selling euros and buying US dollars. Profit is made when the price decreases below the entry point.
The maximum acceptable difference between the expected and actual execution price that a trader is willing to accept. It can be set on most platforms to prevent trades from being filled at unfavorable prices during high volatility.
A momentum indicator that compares a particular closing price to a range of prices over a specified period. It generates values between 0 and 100, with readings above 80 considered overbought and below 20 considered oversold. Uses %K and %D lines.
An order placed to automatically close a losing position at a predetermined price level, limiting the trader's loss. Stop losses are a fundamental risk management tool. Types include fixed, trailing, and guaranteed stop losses.
The forced automatic closure of a trader's positions by the broker when the margin level falls to or below the stop-out level (typically 20-50%). Positions are closed starting with the most unprofitable one to bring the margin level back above the threshold.
A broker execution model where client orders are passed directly to liquidity providers without dealing desk intervention. STP brokers route orders automatically and profit from a markup on spreads. STP offers faster execution than dealing desk brokers.
A price level where buying pressure is strong enough to prevent the price from falling further. Support acts as a floor. When support is broken, it often becomes resistance. Key support levels are identified through technical analysis.
The interest fee paid or earned for holding a forex position overnight, based on the interest rate differential between the two currencies. Swaps can be positive (credit) or negative (debit). Also known as rollover. Triple swap is charged on Wednesdays.
A trading style that aims to capture medium-term price movements over days to weeks. Swing traders hold positions longer than day traders but shorter than position traders, using a combination of technical and fundamental analysis.
The official currency of Switzerland. The Swiss Franc is considered a safe-haven currency due to Switzerland's political neutrality, strong banking system, and low inflation. USD/CHF is known as "Swissy" among traders.
An order placed to automatically close a profitable position at a predetermined price level, locking in profit. Take profit orders remove the emotional element of deciding when to exit a winning trade.
A method of evaluating financial instruments by analyzing historical price data, volume, and chart patterns to forecast future price movements. Based on the premise that price action reflects all available information and that patterns tend to repeat.
A dynamic stop-loss order that automatically moves in the direction of the trade as the price moves favorably, maintaining a fixed distance from the current price. It locks in profits while still allowing room for the trade to develop.
The general direction of a market or asset's price movement. An uptrend is characterized by higher highs and higher lows; a downtrend by lower highs and lower lows. The adage "the trend is your friend" is a core principle of technical trading.
A straight line drawn on a chart connecting two or more price points, used to identify the direction and strength of a trend. An ascending trendline connects higher lows; a descending trendline connects lower highs. A break of a trendline may signal a trend reversal.
A strategy that exploits pricing inefficiencies between three currency pairs. A trader cycles through three currencies (e.g., USD → EUR → GBP → USD) to profit from discrepancies in cross rates. Opportunities are rare and fleeting in modern markets.
The profit or loss on open positions that has not yet been locked in by closing the trade. Also called floating P/L. It changes continuously as market prices fluctuate and only becomes realized when the position is closed.
A market direction characterized by a series of higher highs and higher lows. In an uptrend, each successive peak and trough is higher than the previous one, indicating that buyers are in control and demand exceeds supply.
The degree of variation in the price of a financial instrument over time. High volatility means large price swings; low volatility means small, steady movements. Measured by indicators like ATR, Bollinger Bands, or the VIX index.
The total number of units or contracts traded within a given time period. Higher volume indicates stronger market interest and typically leads to tighter spreads and better execution. In spot forex, tick volume (number of price changes) is used as a proxy.
A remote server that runs 24/7, used by traders to host their trading platforms and Expert Advisors without interruption. A VPS near the broker's servers minimizes latency. Essential for automated trading strategies that require constant connectivity.
A sharp price reversal that occurs quickly after a breakout or signal, catching traders on the wrong side. Whipsaws are common during choppy or ranging markets and can trigger stop losses before the price resumes its original direction.
The income return on an investment, typically expressed as an annual percentage. In forex, yield differentials between countries' government bonds influence currency flows. Higher-yielding currencies tend to attract investment, strengthening the currency.
A situation where one participant's gain equals another's loss, meaning the net change in wealth is zero. Forex trading is often described as a zero-sum game (before costs), since for every profitable trade there is a corresponding loss on the other side.
Now that you understand the terminology, explore our educational guides or find the perfect broker for your trading style.