Forex Trading Glossary

The 1% rule states you should never risk more than 1% of your account on a single trade. This risk management principle protects you from catastrophic losses - even 20 consecutive losses only cost 18% of your account at 1% risk vs 88% at 10% risk per trade.

A-book execution routes client orders to external liquidity providers, so the broker acts as an agent and earns commission instead of profiting from client losses.

Accumulation is the market phase where institutions quietly build long positions after a downtrend, leading to a range before a bullish breakout.

Algorithmic trading uses automated rules or code to execute trades at high speed, enforcing discipline and allowing strategies to run around the clock.

Analysis paralysis occurs when traders overanalyze data and become unable to make timely trading decisions.

Anchoring is a cognitive bias where traders fixate on an initial price or forecast and underreact to new market information.

Arbitrage exploits price discrepancies between markets or instruments to capture low-risk profit, often via rapid execution.

An ascending triangle is a bullish continuation pattern with horizontal resistance and rising support. It shows buyers gaining strength, typically breaking upward.

The ask is the price at which you can buy a currency pair - it represents what the market charges you. It is always slightly higher than the bid price.

An asset is any resource with economic value that can be traded, such as currencies, stocks, commodities, or bonds. In forex, currencies are the primary asset class.

Asymmetric risk means the potential upside on a trade outweighs the downside, creating favorable risk/reward ratios.

Information asymmetry occurs when one market participant has better or faster information than others, gaining an edge in execution.

The Australian Dollar is a commodity-linked currency driven by exports, Chinese demand, and Reserve Bank of Australia policy.

Average True Range measures the average price range over a set period, helping traders size positions and set volatility-based stops.

The Awesome Oscillator is a momentum indicator that compares fast and slow SMAs of median price to highlight shifts in trend strength.

B-book execution keeps orders inside the broker, meaning the broker becomes the counterparty and profits when clients lose.

Backtesting is testing a trading strategy on historical data to see how it would have performed. It validates your edge, reveals win rate, risk/reward, and drawdown before risking real money. Minimum 100 trades over 1-2 years is recommended for reliable results.

Balance is the total money in your account after all closed positions, excluding open trades. It only changes when you close trades, deposit, or withdraw. Balance represents your realized account value, while equity includes unrealized profit/loss.

The balance of trade measures the difference between a country's exports and imports, signaling trade surpluses or deficits.

The Bank of England is the UK's central bank, setting interest rates and guiding monetary policy via the Monetary Policy Committee.

The Bank of Japan is Japan's central bank, known for ultra-loose policy, yield-curve control, and occasional currency intervention.

A bar chart plots the open, high, low, and close for each period, giving traders a clean view of volatility and swing structure.

The base currency is the first currency in a currency pair (e.g., EUR in EUR/USD). It represents what you are buying or selling, and is always valued at 1.0.

A bear market is a sustained downward trend with falling prices, pessimism, and strong selling pressure. Bears believe prices will continue falling and sell aggressively.

The Beige Book is a qualitative Federal Reserve report that summarizes economic conditions ahead of each FOMC meeting.

The bid is the price at which you can sell a currency pair - it represents what the market will pay you. It is always slightly lower than the ask price.

A black swan event is a rare, unpredictable shock that creates extreme volatility and can overwhelm standard risk controls.

Bollinger Bands are volatility bands placed above and below a moving average. They expand during high volatility and contract during low volatility, helping identify overbought/oversold conditions.

A bond is a debt security whose yield influences currency values through interest-rate expectations and capital flows.

A breakdown occurs when price moves below support with conviction, typically on increased volume and selling pressure. Valid breakdowns signal sellers overwhelmed buyers, often accelerating downtrends. Breakdowns trigger stop losses, creating self-reinforcing selling cascades.

A breakout occurs when price moves above resistance with conviction, typically on increased volume and momentum. Valid breakouts signal that buyers overwhelmed sellers, potentially starting new trends. False breakouts (fakeouts) briefly break resistance then reverse.

A bull market is a sustained upward trend characterized by rising prices, optimism, and strong demand. Bulls believe prices will continue rising and buy aggressively.

The business cycle describes recurring expansions and contractions in economic activity that drive currency performance.

A buy limit order is placed below current price to buy at support, expecting price to bounce upward. Used for "buying the dip" strategies.

A buy stop is placed above current price to trade breakouts. It triggers when price breaks resistance with momentum, entering the trade automatically.

The Canadian Dollar is a commodity-linked currency moved by oil prices, Bank of Canada policy, and global risk appetite.

A candlestick chart displays open, high, low, close (OHLC) for each period using colored rectangles (bodies) and lines (wicks). Green/white candles show bullish periods, red/black show bearish. Candlesticks reveal price action and market psychology better than line charts.

Capital flows track money moving across borders for trade and investment, creating sustained demand for a currency.

Capital preservation focuses on protecting trading funds with conservative sizing, strict stops, and disciplined process.

A carry trade is a strategy where you borrow a low-interest-rate currency (like JPY) to buy a high-interest-rate currency (like AUD). You profit from the interest rate differential through daily rollover payments, but face risk if the exchange rate moves against you.

Central banks control monetary policy, set interest rates, and manage currency supply. The Fed, ECB, BOJ, and BOE are the most influential for forex trading.

Chaikin Money Flow is a volume-weighted oscillator that reveals whether money is flowing into or out of a market.

Chart patterns are recognizable formations in price action that suggest future price movements. They include reversal patterns (head and shoulders) and continuation patterns (triangles).

The Swiss Franc is a safe-haven currency backed by Switzerland's stability and often influenced by Swiss National Bank policy.

Cognitive biases are mental shortcuts that can distort trading decisions, ranging from anchoring to loss aversion.

Commodities are raw materials like gold, oil, and agricultural products. They significantly influence commodity currencies like CAD, AUD, and NZD.

Commodity currencies are currencies from countries whose economies heavily depend on exporting raw materials. The major commodity currencies are AUD (Australian Dollar tied to iron ore/gold), CAD (Canadian Dollar tied to oil), and NZD (New Zealand Dollar tied to dairy products).

Compounding reinvests profits so that gains begin generating additional returns, accelerating long-term growth.

Confirmation bias is the tendency to seek information that supports an existing trade idea while ignoring evidence against it.

Confluence occurs when multiple independent signals align, increasing the probability that a trade setup will work.

Consolidation is a sideways trading range where buyers and sellers balance out before the next directional move.

Consumer confidence gauges household optimism about the economy; rising sentiment supports spending and risk appetite.

Contagion occurs when financial stress spreads from one market or region to others, often driving investors into safe havens.

A continuation pattern signals that a trend is likely to resume after a brief consolidation, such as flags or triangles.

Contrarian trading involves taking positions opposite the crowd when sentiment or positioning reaches extreme levels.

The Coppock Curve is a long-term momentum indicator that helps identify when a major downtrend may be bottoming.

Core inflation excludes volatile items such as food and energy, giving central banks a clearer read on underlying price trends.

A correction is a counter-trend move that retraces part of the prior advance or decline, often creating better entry prices.

Currency correlation measures how pairs move relative to each other, with values near +1 moving together and -1 moving opposite. Traders use correlation to manage exposure, hedge positions, and confirm market themes.

Counterparty risk is the chance that the party on the other side of a trade fails to honor its obligations, such as a broker default.

CPI tracks consumer price inflation by measuring how the cost of a basket of goods changes over time. It is the primary inflation gauge central banks use when setting interest rates, making every release a high-impact event.

A cross rate is an exchange rate between two currencies where neither is the US Dollar. Examples include EUR/GBP, AUD/JPY, and EUR/CHF. Cross rates are calculated from the respective USD exchange rates of both currencies.

cTrader is a trading platform favored for its depth of market, modern interface, and C# based automation via cBots.

A cup and handle is a bullish continuation pattern featuring a rounded base followed by a shallow pullback before breakout.

A currency pair represents the exchange rate between two currencies (e.g., EUR/USD). The first currency is the base, the second is the quote. You buy one and sell the other simultaneously, speculating on their relative value change.

The current account records trade in goods, services, and income flows, showing whether a country runs a surplus or deficit.

A current account deficit means a country imports more goods, services, and income than it exports, relying on foreign financing.

Curve fitting is over-optimizing a trading strategy to fit historical data, often producing poor real-world performance.

A market cycle moves through accumulation, markup, distribution, and markdown phases, guiding strategy selection.

Dark Cloud Cover is a bearish candlestick reversal where a strong rally candle is followed by a candle that closes deep into the prior body.

Day trading involves opening and closing all positions within the same trading day to avoid overnight risk. Day traders use small timeframes (1-15 min) and make multiple trades daily.

A dead cat bounce is a brief rally within a strong downtrend that quickly fails as sellers regain control.

A death cross occurs when a short-term moving average drops below a long-term moving average, confirming bearish momentum.

Deflation is a sustained fall in the general price level, often accompanied by weak demand and aggressive monetary easing.

A demo account simulates real market pricing with virtual funds, allowing traders to practice without risking capital.

A derivative is a financial contract whose value derives from an underlying asset. Most retail forex trading uses CFDs (Contracts for Difference), a type of derivative.

A descending triangle is a bearish continuation pattern with horizontal support and declining resistance. It shows sellers gaining control, typically breaking downward.

Discipline is consistently following your trading plan and rules regardless of emotions or market conditions. It means taking only valid setups, honoring stop losses, controlling position size, and not revenge trading - discipline separates profitable traders from gamblers.

Discretionary trading relies on the trader's judgment rather than rigid rules, offering flexibility but demanding strict discipline.

The disposition effect is the bias of selling winners quickly while holding losers too long in hopes of recovery.

Distribution is the phase where large players sell into strength after an uptrend, often preceding a downtrend.

Divergence occurs when price and an indicator move in opposite directions, hinting at weakening momentum.

Diversification reduces risk by spreading exposure across multiple pairs, strategies, or timeframes.

A doji is a candlestick where open and close prices are virtually identical, creating a small or nonexistent body with wicks above/below. It signals market indecision - neither buyers nor sellers gained control. Dojis at trend extremes can signal potential reversals.

A double bottom is a bullish reversal pattern with two troughs at similar levels, showing buyers are defending support. Confirmed when price breaks resistance between the bottoms.

A double top is a bearish reversal pattern with two peaks at similar levels, indicating sellers are defending resistance. Confirmed when price breaks the support between peaks.

Dovish describes a central bank policy stance favoring lower interest rates to stimulate economic growth. When central bankers are dovish, they prioritize employment and growth over inflation control, which typically weakens the currency.

A downtrend features lower highs and lower lows, signalling persistent selling pressure and bearish sentiment.

Drawdown is the peak-to-trough decline in your account value, expressed as a percentage. For example, if your account drops from $10,000 to $8,000, that's a 20% drawdown. Large drawdowns require exponentially larger gains to recover.

Durable goods orders track new orders for products meant to last at least three years, offering insight into manufacturing demand.

The European Central Bank sets monetary policy for the Eurozone, shaping the euro through rate decisions and guidance.

An ECN (Electronic Communication Network) broker connects traders directly to liquidity providers (banks, institutions) without a dealing desk. ECN brokers offer direct market access, variable spreads, and don't trade against clients, making them transparent but often charging commissions.

ECN/STP brokers route orders directly to liquidity providers, earning commissions instead of trading against clients.

An economic calendar lists upcoming data releases and events so traders can plan around high-impact market catalysts.

Economic data includes official statistics on growth, inflation, labor markets, and sentiment that influence currency valuations.

Edge is a statistical advantage that makes your strategy profitable over many trades. It comes from superior analysis, execution, risk management, or psychology - not luck.

Elliott Wave Theory views price action as repeating waves driven by crowd psychology, combining impulsive and corrective moves.

An exponential moving average gives more weight to recent prices so it reacts faster than a simple average. EMAs help traders track momentum, define dynamic support, and time entries on pullbacks.

An engulfing pattern is a two-candle reversal where the second candle fully engulfs the first. Bullish engulfing (large green candle engulfs small red) signals potential upside reversal. Bearish engulfing (large red engulfs small green) signals potential downside reversal.

Equity is your current account value including unrealized profits/losses (Balance + Floating P/L). It represents what you would have if you closed all positions right now. Equity fluctuates constantly and is used to calculate margin level and free margin.

The euro is the shared currency of the Eurozone and a major global reserve currency, influenced by ECB policy and regional data.

The Evening Star is a bearish three-candle reversal pattern that signals buyers are losing control after an uptrend.

An exchange rate is the price of one currency in terms of another (e.g., EUR/USD = 1.0850 means 1 Euro costs $1.0850). Rates fluctuate constantly based on interest rates, economic data, central bank policy, and market sentiment.

Execution covers how orders are routed, filled, and confirmed, with latency, liquidity, and broker model determining quality.

An exhaustion gap appears near the end of a trend when price gaps beyond prior extremes but quickly fails, signaling trend fatigue and potential reversal.

Expectancy is a formula that calculates the average amount you can expect to win or lose per trade over many trades. Positive expectancy means your trading system is profitable long-term. Formula: (Win% × Avg Win) - (Loss% × Avg Loss).

An Expert Advisor is an automated trading program—especially on MetaTrader—that executes trades according to coded rules.

A Fair Value Gap (FVG) is a price inefficiency where price moved so quickly that it left an imbalance - an area where normal buying and selling didn't occur. Markets often return to "fill the gap" by revisiting these zones, making them key support/resistance areas.

Fear is a powerful trading emotion that causes traders to exit winning positions prematurely, avoid valid setups, or panic-sell during normal pullbacks, undermining rational decision-making.

The fed funds rate is the U.S. overnight interbank lending rate set by the Federal Reserve, anchoring global short-term interest rates.

Fibonacci retracement uses horizontal levels (23.6%, 38.2%, 50%, 61.8%, 78.6%) to identify potential support/resistance during pullbacks in trends. Traders draw from swing high to low (or vice versa), watching for price reactions at Fibonacci levels to enter trades.

A fill occurs when your order executes at a specific price and size, with quality influenced by liquidity, order type, and platform latency.

Fiscal policy encompasses government decisions on taxation and spending, influencing economic growth, deficits, and currency strength.

A fixed exchange rate pegs one currency to another or a basket, with the central bank intervening in markets to defend the band and maintain stability.

A flag is a counter-trend consolidation that follows a sharp move and typically breaks in the direction of the original trend.

A floating exchange rate allows market forces to set currency values, with price reacting to macro data, policy expectations, and capital flows.

A Fill or Kill order demands immediate and complete execution at the specified price, otherwise it cancels instantly—a strict condition traders use when partial fills are unacceptable.

The FOMC is the Federal Reserve committee that sets U.S. monetary policy through rate decisions, balance sheet plans, and forward guidance.

FOMO (Fear of Missing Out) is the emotional urge to enter a trade after a big move has already happened, fearing you will miss profits. FOMO leads to buying tops, selling bottoms, and poor-risk entries - it is one of the most destructive trading emotions.

Forex (Foreign Exchange) is the global marketplace for trading currencies. It is the largest financial market with over $7 trillion traded daily, operating 24/5 with no central exchange.

Forward guidance is a communication tool where central banks outline future policy intentions to steer market expectations.

Forward testing validates a strategy in live market conditions after backtesting, using demo or small-risk trades to confirm fills, slippage, and trader discipline before scaling up.

Fractals are five-candle swing patterns that highlight potential reversal points by showing local highs or lows surrounded by opposing candles.

Free Margin is the amount of money in your trading account available to open new positions. It's calculated as Equity minus Used Margin. When free margin drops too low, you risk a margin call - always maintain at least 30% of your balance as free margin buffer.

Fundamental analysis studies economic indicators, central bank policies, and geopolitical events to determine currency values and predict long-term trends.

The G7 is a coalition of major developed economies that coordinate on global economic policy. Their statements can hint at coordinated currency actions.

The gambler’s fallacy is the bias that past random outcomes influence future ones—tempting traders to fight trends simply because “it must turn soon.”

Gann angles are diagonal support and resistance lines based on fixed time-price ratios that help gauge trend strength and potential reversals.

A gap is a price discontinuity on charts where an asset opens significantly higher or lower than the previous close, creating empty space with no trading activity.

GBP is the United Kingdom's official currency and one of the oldest and most traded currencies, known for high volatility and sensitivity to Bank of England policy and UK economic data.

GDP measures the total value of goods and services produced in an economy. Forex traders monitor GDP surprises to gauge growth momentum, policy shifts, and potential currency strength or weakness.

Geopolitical events include elections, wars, and diplomatic negotiations that shift risk sentiment and capital flows across currencies.

A golden cross occurs when a shorter-term moving average crosses above a longer-term average, signaling a potential shift to bullish momentum.

Government debt is the total amount a state owes to creditors. High debt loads influence credit ratings, yields, and currency stability.

Greed is the intense desire for excessive profits that causes traders to hold winners too long, take oversized risks, or abandon disciplined risk management in pursuit of unrealistic gains.

Grid trading places staged orders above and below price to capture range oscillations, but it requires strict controls to survive breakouts.

GTC orders remain active until executed or manually canceled. They persist across trading sessions, ideal for swing traders waiting for specific price levels.

A hammer is a bullish reversal candlestick with a small body and long lower wick, appearing after downtrends. It signals sellers pushed price down but buyers regained control.

A harami is a two-candle reversal pattern where a small candle is contained within the previous large candle's range, signaling potential trend exhaustion.

Hawkish describes a central bank policy stance favoring higher interest rates to combat inflation. When central bankers are hawkish, they prioritize price stability over economic growth, which typically strengthens the currency by attracting foreign investment.

Head and shoulders is a reversal chart pattern with three peaks - a higher peak (head) between two lower peaks (shoulders). It signals trend reversal when the neckline breaks.

A hedge is an offsetting position designed to reduce adverse currency moves, whether via the same pair, a correlated market, or options that cap downside.

HFT uses ultra-fast algorithms to capture microsecond inefficiencies. While retail traders cannot compete on speed, HFT shapes spreads and liquidity.

A higher high forms when price exceeds the prior swing high, confirming buyers remain in control during an uptrend.

A higher low appears when a pullback bottoms above the previous low, reinforcing bullish structure and providing logical stop locations.

Hindsight bias makes traders believe they “knew it all along,” warping performance reviews and encouraging reckless overconfidence.

Housing starts measure the number of new residential construction projects begun, acting as a leading gauge of economic momentum.

Ichimoku Cloud is a comprehensive technical indicator providing support/resistance, trend direction, momentum, and trading signals through five components forming a dynamic cloud on charts.

An order imbalance occurs when aggressive buyers or sellers overwhelm available liquidity, leaving inefficient price gaps that often draw a retest.

An impulse wave is the five-leg move in Elliott Wave Theory that drives price in the direction of the dominant trend with expanding momentum.

Indicators are mathematical calculations based on price and volume that help identify trends, momentum, and potential reversals in forex trading.

Industrial production tracks overall output from factories, mines, and utilities, offering insight into the health of the real economy.

Inflation is the rate prices increase over time, measured by CPI. Moderate inflation (2%) is healthy. High inflation weakens currency as central banks raise rates to control it.

An inside bar is a candle whose range fits entirely within the prior candle, signaling temporary consolidation ahead of potential breakout.

The interbank market is the decentralized network where major banks and prime brokers quote two-way currency prices to one another, establishing wholesale spreads that flow down to retail brokers and ultimately dictate execution quality for everyday traders.

Interest rates are the cost of borrowing money, set by central banks. Higher rates attract foreign investment, strengthening the currency. Rate differentials drive carry trades.

An intermediary connects traders with liquidity, credit, or infrastructure—such as prime brokers, introducing brokers, or payment providers.

Intraday charts display sub-daily price action, helping traders track momentum, liquidity shifts, and session reactions in real time.

An introducing broker refers clients to a brokerage in exchange for compensation while the broker handles execution, custody, and compliance.

An Immediate or Cancel order executes whatever quantity is available at the desired price instantly and cancels the remainder, balancing speed with flexibility for partial fills.

Island reversal is a rare chart pattern where price gaps in one direction, consolidates briefly, then gaps in the opposite direction, leaving an isolated price island signaling strong trend reversal.

The J-curve explains how a falling currency can initially worsen a trade deficit before improving exports as volumes adjust over time.

JPY is Japan's official currency and a primary safe-haven asset that strengthens during market stress, heavily influenced by Bank of Japan policy and carry trade dynamics.

A Kagi chart is a time-independent price chart that changes direction only when price reverses by a set amount, filtering noise and signaling sentiment shifts.

The Kelly Criterion is a position-sizing formula that allocates capital based on edge and payoff ratio, guiding how much equity to risk per trade for maximum long-term growth when inputs are accurate.

Keltner Channels are volatility-based bands using an exponential moving average and Average True Range to identify trend direction, overbought/oversold conditions, and breakout opportunities.

Latency is the time delay between sending an order and receiving confirmation, with higher latency increasing slippage and harming strategies that rely on fast execution.

Leverage allows you to control a large position with a small amount of capital. For example, 1:100 leverage means you can control $100,000 with just $1,000. While leverage magnifies profits, it equally magnifies losses, making risk management essential.

A line chart connects closing prices across periods, providing a simplified view of trend direction without intraday noise.

Liquidity is how easily you can buy or sell an asset at a stable price. High liquidity in forex means tight spreads, better execution, and minimal slippage.

A Liquidity Grab (or "stop hunt") is a deliberate price move by institutional traders designed to trigger clusters of stop-loss orders above/below key levels, before reversing sharply. These appear as long wicks or false breakouts that trap retail traders.

A liquidity provider streams continuous bid and ask prices into a broker's platform, aggregating order flow so traders can execute with tight spreads and deep depth.

A liquidity void is a price zone with little traded volume created by explosive moves, often revisited later as order flow rebalances.

Longevity means protecting capital so you can trade for years, emphasizing disciplined risk sizing, controlled leverage, and sustainable routines over short-term excitement.

Loss aversion is a psychological bias where the pain of losing money is felt 2-2.5 times more intensely than equivalent gains, causing traders to hold losing positions too long.

A lot is a standardized unit of trade size. A standard lot is 100,000 units of base currency, mini lot is 10,000, and micro lot is 1,000.

Lot size is the standardized unit for forex trades. A standard lot is 100,000 units, mini lot is 10,000 units, and micro lot is 1,000 units. Your lot size determines how much each pip movement is worth - for example, 1 pip = $10 for a standard lot of EUR/USD.

A lower high forms when a rally stalls below the previous swing high, signaling emerging seller dominance in a downtrend.

A lower low prints when price breaks beneath the prior swing low, confirming bearish control and extending the downtrend.

MACD (Moving Average Convergence Divergence) shows the relationship between two moving averages, identifying trend direction, momentum, and potential reversals.

Macroeconomic trends track long-run shifts in growth, inflation, and policy that steer currency valuations and global capital flows.

Margin is the amount of money required in your trading account to open and maintain a leveraged position. It acts as a good-faith deposit while you control a much larger position. Understanding margin is essential for managing risk and avoiding margin calls.

A margin call is a warning that your equity has fallen below required margin level (typically 100%). If your account continues losing and hits the stop-out level (typically 50%), your broker automatically closes positions. Margin calls signal dangerous account risk.

Margin level is the ratio of equity to used margin expressed as a percentage: (Equity / Used Margin) × 100%. It measures account health - above 200% is safe, below 100% triggers margin call, below 50% causes stop-out.

Market depth measures the volume of buy and sell orders resting at each price level, signaling how much size the market can absorb before price shifts materially.

Market efficiency describes how quickly forex prices incorporate new information, with liquid currency pairs often reflecting data within seconds yet still leaving micro-inefficiencies around sessions, liquidity gaps, and behavioral biases for skilled traders to exploit.

A Market Maker (or Dealing Desk broker) creates the market for their clients by taking the opposite side of trades. They offer fixed spreads, no commission, and instant execution, but may have conflicts of interest since client losses can be their profits.

A market maker dealing desk broker internalizes client flow, quoting prices from its own book instead of routing orders straight to the interbank market.

Market microstructure studies how trading mechanisms and order flow shape price discovery, spreads, and execution quality.

A market order executes immediately at the best available current price. It guarantees execution but not the exact price due to potential slippage.

Market profile organizes price and time into value distributions, highlighting where auctions were accepted or rejected.

Market sentiment represents the overall attitude and mood of traders toward a currency pair, ranging from bullish optimism to bearish pessimism, often driving short-term price movements.

Martingale doubles trade size after each loss in hopes of one win recovering prior losses, but the exponential exposure quickly overwhelms margin and leads to catastrophic drawdowns.

A marubozu is a full-bodied candlestick with little or no wicks, showing relentless one-sided order flow from open to close.

Max drawdown captures the largest peak-to-trough equity decline for a strategy, defining worst-case pain and the capital cushion you need to survive it.

Mean reversion assumes price will return to its average after deviations, using statistical tools to fade overextended moves.

MetaTrader 4 and 5 are popular forex platforms that deliver charting, order management, and automation through custom indicators and expert advisors.

Momentum measures the speed or velocity of price changes in a market, with high momentum indicating strong trends and potential continuation of directional moves.

Monetary policy is the central bank’s use of interest rates, balance sheet tools, and guidance to manage inflation, employment, and financial stability.

Morning Star is a three-candle bullish reversal pattern appearing at downtrend bottoms, consisting of a bearish candle, a small-bodied star, and a strong bullish candle.

A moving average smooths price data to identify trend direction. The 50 and 200 EMA are popular for determining market trends and support/resistance.

The neckline connects swing points in reversal patterns; a break and retest often confirm head-and-shoulders and double top or bottom setups.

Negative balance protection ensures traders cannot owe a broker more than their deposits, resetting balances to zero after extreme events.

NFP is the monthly US jobs report showing employment changes excluding farm workers. It is the most important economic indicator, causing massive forex volatility on first Friday of each month.

Notional value is the total value of a leveraged position - the full amount of currency you're controlling, not just the margin you deposited. For example, 1 standard lot (100,000 units) has a notional value of $100,000, even if you only put up $1,000 margin.

NZD is a commodity-linked currency driven by Reserve Bank of New Zealand policy, dairy export demand, and Asia-Pacific risk appetite, making NZD pairs favorites for carry traders seeking yield differentials.

On-Balance Volume is a momentum indicator using cumulative volume flow to predict price changes, adding volume on up days and subtracting it on down days.

An Order Block is a price zone where large institutional traders (banks, hedge funds) have placed significant buy or sell orders. These zones act as strong support or resistance because "smart money" is positioned there, often causing price to respect these levels on retests.

The order book lists resting buy and sell orders at different price levels, revealing where liquidity may support or resist price although forex books remain fragmented across venues.

Order flow is the analysis of buy and sell orders to understand where institutional traders are positioned and predict price movements.

OTC forex trading occurs on decentralized dealer networks where banks and brokers quote prices directly, enabling 24-hour access but making execution quality dependent on counterparties.

Overbought describes a market condition where sustained buying has pushed prices to potentially unsustainable levels, suggesting a possible correction or pullback may occur.

Overconfidence is a cognitive bias where traders have excessive belief in their abilities after winning streaks, leading to reckless risk-taking and abandoned risk management rules.

Oversold describes a market condition where sustained selling pressure has pushed prices to potentially unsustainably low levels, suggesting a possible bounce or reversal ahead.

Parabolic SAR is a trend-following indicator appearing as dots above or below price, signaling trend direction and providing trailing stop levels that accelerate as trends progress.

A partial fill happens when only part of your order executes at the requested price, leaving the remainder pending until more liquidity becomes available or the order expires.

Patience is the discipline to wait for quality setups and manage trades without emotional exits, protecting expectancy and mental capital.

Pending orders are instructions to enter a trade automatically when price reaches a predetermined level. They include limit orders and stop orders.

A pennant is a continuation pattern where price consolidates into a small triangle after a sharp flagpole move. Breakouts typically continue the prior trend, with targets based on the flagpole height.

Piercing pattern is a two-candle bullish reversal where a bearish candle is followed by a bullish candle that opens lower but closes within the upper half of the first candle's body.

A pip (Percentage in Point) is the smallest price movement in forex trading. For most currency pairs, a pip is the 4th decimal place (0.0001), while for JPY pairs it's the 2nd decimal place (0.01). Pips measure profit, loss, and price changes.

A pipette is a fractional pip - one-tenth of a pip. While a pip is the 4th decimal place for most pairs (0.0001), a pipette is the 5th decimal place (0.00001). Brokers use pipettes to offer more precise pricing and tighter spreads.

Pivot points are technical levels calculated from the previous period's high, low, and close, providing key support and resistance zones for the current trading session.

PMI is a monthly survey of purchasing managers that signals whether manufacturing or services activity is expanding above 50 or contracting below 50. Because it is released early, PMI offers traders an advance look at growth trends.

A point and figure chart plots price in X and O columns based on box-sized moves, removing time to emphasize trend and breakout levels.

A trading portfolio is the collection of strategies and positions you manage together, allowing you to diversify edges, balance correlations, and monitor performance metrics beyond single trades.

Position sizing is calculating how many lots to trade based on your account size, risk tolerance, and stop loss distance. Professional traders use the formula: Lot Size = (Account × Risk%) / (Stop Loss Pips × Pip Value) to never risk more than 1-2% per trade.

Position trading is a long-term forex approach that holds trades for months or years based on macroeconomic trends and central bank policy. Traders target multi-hundred-pip moves with low trade frequency and wider stops.

The Producer Price Index tracks price changes received by domestic producers, offering an early look at inflation pressures before they reach consumers.

Price action is the analysis of raw price movement without indicators. Price action traders read candlesticks, support/resistance, and chart patterns to make trading decisions based on what the market is actually doing, not lagging indicators.

Prime brokerage services provide institutional traders with aggregated liquidity, financing, and clearing so they can access interbank markets efficiently.

Probability quantifies outcome likelihoods. Successful traders anchor decisions in probabilities, not certainties, to maintain positive expectancy.

Profit factor is a performance metric calculated by dividing gross profit by gross loss, with values above 1.0 indicating profitable systems and higher numbers showing stronger edges.

A pullback is a temporary pause or minor reversal during an ongoing trend, offering lower-risk entry opportunities before the primary trend resumes.

PPP compares currencies based on the cost of identical goods, offering a long-term valuation benchmark for exchange rates.

Quantitative easing is a central bank program that creates money to buy bonds and other assets when policy rates are near zero. QE lowers yields, expands the money supply, and often weakens the currency while supporting risk sentiment.

Quantitative Tightening is when a central bank shrinks its balance sheet by letting assets roll off or selling them, withdrawing liquidity from markets.

The Quasimodo pattern is a market structure trap where price makes a false breakout before reversing, forming a distinctive shoulder-head-shoulder sequence.

A quote is the real-time bid and ask price displayed for a currency pair, reflecting current market depth, liquidity, and broker pricing quality.

The quote currency is the second currency in a pair (e.g., USD in EUR/USD). It shows the price of one unit of the base currency.

An R-multiple expresses a trade outcome as a multiple of the initial risk, making performance comparisons consistent across markets and strategies.

A ranging market oscillates between horizontal support and resistance levels, reflecting balanced order flow without sustained trend direction.

Recency bias makes traders overweight recent results, leading to constant system tweaks and emotional decision-making.

A recession is a sustained decline in economic activity marked by falling GDP, rising unemployment, and weak demand. It usually leads to easier monetary policy, safe-haven flows, and elevated forex volatility.

Recovery factor divides net profit by maximum drawdown, revealing how efficiently a system rebounds after losses and how productively it uses risk capital.

Reflexivity describes feedback loops where market participants’ perceptions influence fundamentals, reinforcing trends until sentiment shifts.

Regulation covers the laws and oversight governing brokers and banks, including capital standards, client fund protections, and disclosure requirements.

A Renko chart builds same-sized bricks whenever price moves a set amount, filtering noise and highlighting trend direction without time.

A requote occurs when your broker cannot execute at the requested price and offers a different price. Common during high volatility and with market maker brokers.

A resistance level is a price where selling pressure historically prevents further rise. It acts as a ceiling where sellers consistently step in. Multiple tests without breaking strengthen resistance. When resistance breaks, it often becomes support (role reversal).

Retail sales track consumer spending at stores and online, a critical gauge of demand in consumption-driven economies.

Revenge trading is the emotional urge to win back recent losses by breaking your plan, overtrading, or increasing size. It destroys discipline and often turns a manageable drawdown into a catastrophic loss.

A reversal represents a complete change in the primary trend direction, where an uptrend transitions to a downtrend or vice versa, marking a fundamental shift in market sentiment.

Risk aversion is the flight from volatile assets into safe-haven currencies like USD, JPY, and CHF when uncertainty spikes, widening spreads, shrinking liquidity, and reshaping market sentiment across asset classes.

Risk management is the process of identifying, analyzing, and mitigating uncertainty in trading decisions through strategies like stop-losses, position sizing, and leverage control to preserve capital.

Risk of ruin measures the probability that a trader loses so much capital they can no longer participate, a value driven by win rate, payoff ratio, and the percentage of equity risked per trade.

Risk premium is the additional return investors demand for holding a risky asset versus a risk-free benchmark, shaping currency valuations and capital flows.

Risk-off is market sentiment where investors feel pessimistic and seek capital protection. Money floods into safe-havens (JPY, CHF, USD, gold) and exits growth currencies (AUD, NZD, CAD). Risk-off is triggered by negative data, geopolitical crises, or financial stress.

Risk-on is market sentiment where investors feel optimistic and take more risk for higher returns. Capital flows into growth currencies (AUD, NZD, CAD) and out of safe-havens (JPY, CHF, USD). Risk-on is driven by positive economic data, rising stocks, and geopolitical calm.

Risk/Reward Ratio (R:R) compares your potential profit to potential loss on a trade. A 2:1 R:R means you risk $100 to potentially make $200. Professional traders aim for minimum 2:1 ratios, which allows profitability even with 50% or lower win rates.

Rollover (swap) is the interest paid or earned for holding a position overnight, based on the interest rate differential between the two currencies. You earn if buying higher-rate currency, pay if buying lower-rate currency. Rollover happens at 5 PM EST.

A rounding bottom is a long-duration reversal pattern where price forms a smooth U-shape, signaling accumulation before an upside breakout.

RSI (Relative Strength Index) is a momentum indicator measuring overbought/oversold conditions on a 0-100 scale. Above 70 is overbought, below 30 is oversold.

Safe-haven currencies (JPY, CHF, USD) are currencies investors buy during market stress for capital preservation. They strengthen during crises as capital repatriates, carry trades unwind, and risk assets are sold. JPY is the ultimate safe-haven, CHF for European crises.

Scaling in means building a position in stages as price action confirms the trade thesis, letting traders control initial risk while increasing size when conditions improve.

Scaling out takes profits in stages as price reaches predetermined levels, locking in gains, reducing psychological pressure, and letting a core position ride larger trends.

Scalping is an extremely short-term trading style targeting tiny price movements of 2-10 pips, holding positions for seconds to minutes while executing dozens or hundreds of trades daily.

Seasonality refers to recurring calendar-driven patterns in currency behavior, such as month-end flows or commodity-linked cycles.

A security is a tradable financial asset—equity, debt, or derivative—that represents ownership, creditor claims, or contractual rights between market participants.

A segregated account keeps client funds separate from broker operational capital, helping protect deposits if the broker faces insolvency.

A sell limit order is placed above current price to sell at resistance, expecting price to reverse downward. Used for selling rallies and range trading.

A sell stop is placed below current price to trade breakdowns. It triggers when price breaks support with downward momentum.

Sentiment indicators track trader positioning and market mood, helping spot crowded trades and potential reversals.

The Sharpe ratio measures risk-adjusted returns by dividing excess performance by volatility, helping compare trading strategies.

A shooting star is a bearish reversal candle with a tiny body near the low and a long upper wick that appears after an uptrend. It signals buyers were rejected and selling pressure may follow when confirmed by the next candle.

Slippage is the difference between your expected execution price and actual fill price. It occurs during high volatility, low liquidity, or news events when prices move faster than orders can be filled. Slippage can work for or against you.

Slippage tolerance is the maximum deviation from your requested price that you are willing to accept on execution, protecting you from fills far worse than expected.

A simple moving average smooths price by averaging closes over a set period. Traders use SMAs to define trend direction, dynamic support or resistance, and crossover signals between short- and long-term averages.

Smart money refers to institutional capital whose order flow can create liquidity grabs, order blocks, and structural shifts that retail traders aim to follow.

The Sortino ratio measures returns relative to downside deviation only, rewarding strategies that deliver gains while minimizing harmful drawdowns.

Sovereign debt is money owed by a national government. Traders monitor debt levels, financing costs, and default risk because solvency concerns directly influence currency strength.

Speculation is entering forex positions purely to profit from anticipated price movement, combining directional analysis with disciplined risk controls rather than hedging business exposure, while expectancy tracking keeps the process professional.

A spike is a sudden, sharp price move often triggered by news or order imbalances, leaving long wicks that can trap traders.

The spread is the difference between the buy price (ask) and sell price (bid) of a currency pair. It represents the broker's commission and is your immediate cost when opening a trade. Major pairs like EUR/USD typically have 0.5-2 pip spreads.

A spring is a false breakdown below support that quickly reverses higher, signaling accumulation and fresh buying interest.

A squeeze is a volatility expansion that forces trapped traders to exit, producing sharp moves like short squeezes or long squeezes.

Stagflation describes an economy stuck with weak growth and elevated inflation at the same time, leaving policymakers with few good options.

Standard deviation measures how far price deviates from its average, forming the backbone for volatility tools and risk management metrics.

The Stochastic Oscillator compares a closing price to its recent range to highlight overbought and oversold conditions. Traders watch crossovers and divergence to spot momentum shifts before price turns.

A stop hunt is a deliberate price probe through obvious liquidity pools of clustered stop-loss orders, often followed by a quick reversal once those stops provide fill for larger players.

A stop loss is an automatic order that closes your trade at a predetermined price level to limit losses. It's the most important risk management tool - professional traders always use stop losses and typically risk only 1-2% of their account per trade.

A stop loss automatically closes your trade at a predetermined price to limit losses. It is the most important risk management tool in forex trading.

A stop out is the broker’s forced liquidation when margin level falls below its threshold, closing positions to keep the account from going negative.

An STP (Straight-Through Processing) broker routes client orders directly to liquidity providers, reducing dealing-desk conflicts and offering aggregated pricing.

A sub-account is an additional account under a main profile used to separate strategies, currencies, or risk exposures without opening new paperwork.

Supply and demand zones mark price areas where aggressive selling or buying previously launched large moves, offering potential reversal or continuation entries.

A support level is a price where buying pressure historically prevents further decline. It acts as a floor where buyers consistently step in. Multiple tests without breaking strengthen support. When support breaks, it often becomes resistance (role reversal).

Swing trading captures price swings over days or weeks using 4-hour and daily charts. It balances substantial profit potential with manageable time commitment - ideal for working professionals.

A symmetrical triangle is a chart pattern with converging trendlines representing market indecision and consolidation, typically breaking out in the direction of the prior trend.

Systematic trading relies on rule-based strategies, often automated, to remove discretion and execute an edge consistently.

Systemic risk is the danger that stress at a single institution or market will cascade across the financial system, sparking liquidity crises and extreme FX volatility.

Tail risk encompasses the low-probability, high-impact events—such as shock policy moves or flash crashes—that can gap markets far beyond normal volatility and overwhelm stop-loss protection.

A take profit order automatically closes your trade when it reaches your profit target, ensuring you actually take profits instead of watching winners reverse.

Tapering occurs when a central bank reduces asset purchases, signaling a shift away from emergency quantitative easing toward tighter policy.

Technical analysis uses price charts, patterns, and indicators to predict future price movements based on historical data and market psychology.

Exotic pairs combine a major currency with an emerging market currency (e.g., USD/TRY). They have wider spreads, lower liquidity, and higher volatility.

Major pairs are the most traded currency pairs that always include USD (e.g., EUR/USD, GBP/USD). They have the tightest spreads and highest liquidity.

Minor pairs (crosses) are currency pairs without USD, like EUR/GBP or GBP/JPY. They offer diversification and higher volatility than majors.

Three Black Crows is a bearish candlestick pattern of three consecutive long-bodied red candles closing lower, signaling potential trend reversal.

Three White Soldiers is a bullish candlestick formation with three strong green candles that close progressively higher, hinting at trend reversal or continuation.

A tick is the smallest possible price movement of a trading instrument. In forex, a tick equals a pipette (the 5th decimal place for most pairs, or 3rd decimal for JPY pairs). It represents the minimum price fluctuation brokers can quote.

Tick volume counts how many times price changes during a period, offering a reliable proxy for trading activity in the decentralized forex market.

A time frame defines how much market activity each candle represents, from minutes to weeks, shaping how traders interpret trends and execute setups.

Top-down analysis evaluates markets from higher to lower time frames, aligning macro bias with tactical execution levels.

Top-down analysis starts with macro trends, while bottom-up analysis begins with micro data. Traders often blend both for holistic decision-making.

A trade deficit occurs when a country imports more than it exports. Persistent gaps require financing from investors or depreciation, making them vital for currency analysis.

A trade war occurs when countries impose tariffs or quotas on each other’s goods, disrupting trade flows and rattling currency markets.

A trading journal is a structured log of trades, plans, and emotions that turns experience into data-driven improvement.

A trading plan is a written document defining your strategy, risk management rules, entry/exit criteria, and trading psychology guidelines. Professional traders never trade without one.

A trading platform is the software traders use to analyze markets, place orders, and manage risk—ranging from broker terminals to third-party tools.

Trading psychology encompasses the emotional and mental state dictating trader success, involving management of fear, greed, and discipline to execute strategies consistently.

TradingView is a cloud-based charting and social platform offering multi-asset analysis, Pine Script automation, and broker integrations.

A trailing stop is a dynamic stop-loss that moves with favorable price movement, locking in profits while giving trades room to run. It trails behind price by a set distance (e.g., 50 pips), never moving backward, triggering if price reverses by that amount.

A trend is the general direction a market is moving. Uptrends show higher highs and higher lows, downtrends show lower highs and lower lows.

A tweezer top/bottom is a two-candle reversal signal where back-to-back highs or lows match closely, highlighting rejection of a price level and potential trend change.

A two-way price is the simultaneous bid and ask quote streamed by liquidity providers, revealing the spread a trader must cross to transact and signaling underlying market liquidity conditions.

The unemployment rate shows the share of the labor force that is jobless but actively seeking work. Shifts in unemployment influence central bank decisions and currency strength through growth and inflation expectations.

An upthrust is a Wyckoff concept where price briefly breaks above resistance, triggers breakout buying, then quickly reverses lower as smart money distributes positions.

An uptrend is a market condition characterized by prices consistently making higher highs and higher lows, indicating sustained buying pressure and bullish momentum.

USD is the world's foremost reserve currency involved in 88% of forex transactions, with Federal Reserve policy influencing global markets and capital flows.

The VIX measures implied volatility for S&P 500 options and serves as a global fear gauge—rising during risk-off episodes that impact currency markets.

Volatility measures the magnitude and frequency of price movements. High volatility means large rapid swings, low volatility means stable prices. Volatility is driven by news, geopolitical events, low liquidity, and risk sentiment shifts. It creates both opportunity and risk.

Volume measures the total amount of currency traded for a specific pair within a given period, indicating market activity levels and the conviction behind price movements.

Volume profile maps traded volume at each price level, revealing value areas, rejection zones, and the point of control that guide support and resistance.

A VPS is a dedicated server that runs your trading platform in a data center near your broker, reducing latency and keeping automated strategies online 24/7.

Wage growth tracks how quickly workers’ pay is rising. It feeds into inflation expectations and central bank policy, influencing currency valuations.

A wedge is a converging pattern where both trendlines slope in the same direction, usually preceding a breakout opposite the slope.

A weekend gap is the price difference between Friday’s close and Sunday’s open, caused by news released while forex markets were closed.

A white label broker uses another firm’s infrastructure and liquidity while operating under its own brand to acquire and service clients.

A wick (or shadow) shows intraperiod highs and lows on candlesticks, revealing where price was rejected by opposing order flow.

Win rate is the percentage of trades closed with profit, calculated as winning trades divided by total trades, but meaningless without considering average win and loss sizes.

The winner’s curse happens when traders overpay to participate—chasing crowded breakouts or absorbing excessive slippage, leading to poor returns.

The World Bank funds development projects and publishes economic research that shapes expectations for emerging-market growth and currency performance.

The Wyckoff Method studies accumulation and distribution cycles using price, volume, and structure to anticipate market turning points.

XAU/USD quotes the spot price of gold in US dollars, acting as a safe-haven barometer that moves with shifts in real yields, inflation expectations, and geopolitical stress.

Yield is the return on an investment. In forex, yield differentials between countries drive carry trades and reflect policy expectations.

The yield curve plots interest rates across maturities; its slope reveals growth expectations, inflation pressures, and looming recession risks.

Support and resistance zones are price regions where order flow repeatedly stalls or reverses, offering clear risk-reward frameworks.