Glossary

Base Currency

In a currency pair the base currency refers to the currency listed on the left hand side of the pair. The base currency's value is always equal to 1. The currency listed on the right is called the quote currency. The quote currency shows how much of that currency is necessary to purchase 1 unit of the base currency.

Bearish

The term bearish refers to a market in which prices are moving down continually. The term can also be used to describe the price direction of a single candle or bar within a chart. If the stock market has been trending downwards, traders will refer to it as a 'bearish market'. If a single price candle closes at a lower price than it opened, it can be referred to as a 'bearish candle'. Professional traders also often refer to 'the bulls' or the 'the bears' of a market, in this case 'the bears' would represent the sellers in the market.

Bullish

The term bullish refers to a market in which prices are moving up continually. The term can also be used to describe the price direction of a single candle or bar within a chart. If the stock market has been trending upwards, traders will refer to it as a 'bullish market'. If a single price candle closes at a higher price than it opened, it can be referred to as a 'bullish candle'. Professional traders also often refer to 'the bulls' or the 'the bears' of a market, in this case 'the bulls' would represent the buyers in the market.

Central Bank

Most modern nations have central banks that perform similar functions. Usually a branch of government, a central bank is responsible for setting interest rates, stabilizing the economy and reporting to the general public on economic conditions. Typically, central banks will loan funds to commercial banks at a certain set interest rate. Commercial banks then base their lending rates accordingly. Key central banks to the global economy include: The Federal Reserve (USA), The Bank of Japan, the Bank of Canada, The European Central Bank, The Bank of England, etc. etc.

Chart Patterns

Price data plotted onto charts often forms unique and distinct patterns; patterns that often precede very specific bullish or bearish price moves. Also referred to as ‘chart formations' or 'price patterns'; these patterns can be very helpful to technical traders when analyzing the market.

Consolidation

Price consolidation refers to the narrowing of price highs and lows in a given time frame. This is usually a result of buyers and sellers that are unsure of market direction. Often, consolidation occurs as a means to test the strength of a trend. Lower highs and higher lows demonstrate a lack of domination from either the buyers or sellers, and as if being squeezed through a narrow passage, prices eventually break free and typically do so in favor of a strong move up or down.

EMA

EMA (exponential moving average) refers to the type of moving average that more heavily weighs recent price data when calculating average levels. Simple moving averages (SMA) sometimes react too slowly to price changes because they give equal weight to even the oldest prices in the equation.

Exchange Rate

When examining currency pairs one must understand what is meant by ‘exchange rate'. Obviously, the exchange rate refers to the rate, or price at which one currency can be exchanged for another. However, many traders look at a currency pair, EUR/USD for example, without understanding a very basic concept: A price quote of 1.4760 is to say that 1.4760 US Dollars (currency on the right) will purchase 1 Euro (currency on the left).

Fibonacci Levels

Leonardo of Pisa, also known as Fibonacci, was a famous mathematician. He also credited with discovering a number sequence called "Fibonacci numbers", a sequence of numbers where each successive number is the sum of the two previous numbers. For example:

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, ...

Fibonacci numbers are approximately exponential. The higher up in the sequence, the closer the two consecutive numbers of the sequence divided by each other will approach the golden ratio (approximately 1:1.618). Traders use Fibonacci levels as a means to gauge potential market retracements. Fibonacci levels offer traders a look at where prices might retrace or extend to in the form of a series of numbers (price levels) that are represented as lines plotted on a chart.

Indicators

Fundamental and technical indicators are comprised of statistical or mathematical data. Technical indicators are generally used to track the patterns of historical price data. The calculations and methods behind technical indicators vary depending on the purpose - be it to track price averages, price ranges, or repeated price cycles. Common technical indicators include moving averages, MACD, Oscillators and so on. Fundamental indicators are more often referring to statistical economic data published relating to the money flow and health of a given economy. Common fundamental indicators include GDP, Nonfarm Payroll, Producer Price Index and so on.

Intra-day Trader

An intra-day trader generally prefers to open and close positions within the same trading day. This type of trader is generally trading shorter time frame charts, and tends to stay in positions for hours at a time, as opposed to days at a time.

Inter-day Trader (or swing trader)

The term inter-day describes those traders who prefer to hold positions overnight and possibly for days or weeks at a time.

Lagging Indicator

A lagging indicator refers to a technical indicator that gives traders an indication that a trend has already begun, in other words the notification is a bit after the fact, hence the term 'lagging'. Though lagging indicators can be a bit behind, they still help traders catch onto trends that otherwise might have gone overlooked. Moving averages are considered lagging indicators.

Leading Indicator

The opposite of lagging indicators would be 'leading indicators', indicators that work to warn traders ahead of time that something is developing.

Leverage

Leverage describes the set level at which a trader is essentially borrowing money from their broker or bank. Leverage set at 50:1 is to say that a trader can control a position or contract in the market that is 50 times the size of the margin they have posted in order to place the trade. For example, a standard $100,000 contract (1 lot) in the Forex market would require a margin post of $2,000 if a trader were at 50:1 leverage.

Limit Order

An order in which the customer specifies a price limit at which the order will be executed.

Liquidate

In financial markets the term liquid and its various forms take on a few different meanings; in this instance if a broker's trading agreement refers to the possibility that a trade will be liquidated, that is to say that the trade will be close, and unrealized profit or loss will become realized profit or loss.

Liquidity

A liquid market refers to a market that is cash heavy, and liquidity refers to substantial level of capital or funds existing within a market or bank. Markets with high trading volume and substantial money flow are considered liquid markets. Banks and brokerages that clear trades are considered liquidity providers, as they are providing the funds necessary to support the execution of trades.

Long

The Term 'long' refers to the buying side of the market and is most often used by traders as a verb, i.e. 'I went long the Euro', thus meaning that I bought the Euro/US Dollar. Traders might also say that they are 'long 20 lots on the Pound', meaning of course that they have bought 20 lots of the GBP / USD.

Lot

In the off-exchange retail Forex market contracts are most often referred to as lots. 1 lot would be the same as saying 1 contract. In a standard account a full lot is equal to $100,000. Thus, a trader placing a 4 lot trade, for example, would be controlling $400,000. In a mini account a full lot is equal to $10,000. Thus, a trader placing a 4 mini lot trade would be controlling $40,000.

Margin

Margin describes the amount of funds a trader must post in order to control a leveraged contract in the market. Often, accounts that are traded with leverage are also referred to as margined, or margin, accounts. At 50:1 leverage a standard FX contract of $100,000 will require $1,000 of margin. If a trader's account has less than a $2,000 in equity they would not be allowed to open a position of this size.

Margin Call

Traditionally, a margin call occurs when a broker actually contacts a trader and informs them that their trade has moved against them enough to require a deposit of more margin (if they wish to keep the position open). In the FX market the term is more often used to describe a situation in which a brokerage firm actually closes the trader's position, usually without warning. Most brokerages have set margin call levels that traders are informed of when opening their account. It is generally safe to assume that if your position reaches this level, your broker will automatically close the trade.

Market Order

A market order is an order to buy or sell currency at the prevailing market price.

Market Sentiment

Market sentiment refers to the general feeling of the majority of traders in a given market. If, because of a weak Nonfarm Payroll report, the majority of currency traders feel that the US Dollar will weaken; market sentiment surrounding the Dollar is thus negative. Often, a negative market sentiment surrounding a particular currency or economy can become reality. If many traders feel that the dollar should be weak and subsequently start selling the Dollar, the initial market sentiment may become a market reality as a mass of traders all selling the Dollar would in theory weaken its global standing.

Mini Account

In the off-exchange retail Forex market, a mini account refers to an account in which the full value of one single mini lot or contract is equal to $10,000 (10% the value of a standard account). Traders can of course set trades that are multiple mini lots, or even fractional mini lots, but a single mini contract will always be equal to $10,000. Many retail FX brokers offer 200 : 1 leverage on mini accounts; though traders can request to have their leverage set to a lower level.

Off-Exchange

The term off-exchange is often used to describe the Forex Market place. Because the Forex market has no central exchange, or physical location wherein trading is facilitated, it is considered an off-exchange market place. The NYSE (New York Stock Exchange) and CME (Chicago Mercantile Exchange) are examples of physical exchanges. Forex is essentially a network of banks and brokerages, all of which are connected globally to one another, but not through any one physical foreign currency exchange.

Oscillate

To oscillate is to volley between two key levels or values within a specified technical indicator. Most often, oscillating indicators are attempting to plot short-term overbought and oversold levels, thus offering traders a visual look at where prices might be too high or two low when an obvious trend is otherwise unidentifiable. Oscillating indicators are very popular, and include: Stochastic Oscillator, RSI, and many others.

PIP

The term PIP stands for Percentage In Point. Essentially, Forex traders are after profit in terms of pips; not Dollars or Yen or Euros, but pips. The reason for this is because the pip is the last digit represented in most currency's price quotes (on a four decimal price feed). For most pairs this is the equivalent of 1/100 of one percent (or one basis point).

Price Volatility

Can also be referred to as price movement; price volatility describes continued and rapid price movement either bullish or bearish, or sometimes both. A market whose prices are fairly stagnant and not moving might be referred to as a sideways market. A volatile market on the other hand refers to prices that are moving and adjusting rapidly.

Quote Currency

In a currency pair the quote currency refers to the currency listed on the right hand side of the pair. The quote currency's value is always set in comparison to 1 unit of the base currency. The quote currency, establishes at what rate or price the currency will equal or purchase 1 unit of the base currency.

Range

A currency pair's low and high prices for a particular trading period. If a currency pair trades in a range for an extended period of time it is sometime said to be trading in a channel.

Resistance

The price level that a currency pair has had difficulty rising above in the past.

Short

The Term 'short' refers to the selling side of the market and is most often used by traders as a verb, i.e. 'I went short the Euro', thus meaning that I sold the EUR/USD. Traders might also say that they are 'short 20 lots on the Pound', meaning of course that they have sold 20 lots of the GBP/USD.

Sideways Market

Sideways markets typically suggest low volatility and a trading period in which, prices are neither trending up or down.

Standard Account

In the off-exchange retail Forex market, a standard account refers to an account in which the full value of one single standard lot or contract is equal to $100,000.

Stop Loss

Stop loss orders are set to help a trader limit losses by closing the trade at a predetermined level. A stop loss order is a type of stop order, where the order is filled at the set price, or prevailing market price.

Stop Order

An order that becomes a market order when the currency reaches a particular price level. A sell stop is placed below the market; a buy stop is placed above the market.

Support

The price level that a currency pair has had difficulty falling below in the past.

Take Profit

Take profit orders are set to help a trader realize profits by closing a position at a predetermined level. A take profit order is a type of limit order, where the order is filled at the set price.

Trend

In any given market, prices can essentially trend in one of three directions: up, down, or sideways. A trend is formed when prices maintain one of these three directions for a specified period of time, whether it is an hour or a week.

Trend Reversal

By definition, any dramatic change in the direction of a trend can be considered a reversal, but shorter term directional trends should be viewed only as retracements; directional changes lasting the duration of multiple candles, or hours and days on the other hand can be considered actual reversals.

Volume

In any market, trading volume refers to the number of contracts traded in security or market. Due to the decentralized nature of the currency market, there is no true volume indicator.