Forex Trading Glossary

Account Balance
The net The net dollar amount of an account.

Autotrading
A computer automatically issues pre-defined buy and sell signals directly to the dealer.

Back Testing
The process of testing a trading idea or strategy using historical price data. Then to apply the strategy to the new data to see if the results are consistent.

Balance of Payments
The record of all transactions carried out by a country with the rest of the world within a certain time frame, including trade balances and capital flows.

Bar Chart
Used to plot price movements using vertical bars indicating price ranges.

Base Currency
The first currency in a pair is called the BASE CURRENCY.

Bear Market
A market characterized by declining prices.

Bid and Ask
Highest price and lowest price that an investor will pay for a currency.

Black Box
A proprietary, computerized trading system whose rules are not disclosed or readily accessible.

Bull Market
A market characterized by rising prices.

Candlestick Charts
A charting method originally developed in Japan, where the highs and lows are plotted as a single line and are referred to as shadows. The price range between the open and the close is plotted as a narrow rectangle and is referred to as the body. (If the close is above the open, the body is white. If the close is below the open, the body is black).

Capital Flows
Capital Flows measure the net amount of a currency that is being purchased or sold due to capital investments.

CFTC
The Commodity Futures Trading Commission, the US Federal regulatory agency for futures traded on commodity markets.

Charts
A display or picture of a currency pair that plots price data. The chart is the foundation of technical analysis, and over the years, many different types of charts have been developed.

Congestion Area or Pattern
A series of trading days or periods in which there is no major change in price. Typically a trend-less area of price data.

Consolidation
Also known as a congestion period. A pause that allows participants in a market to re-evaluate the market and sets the stage for the next price move.

Cross Currency
The second currency in a pair is called the CROSS CURRENCY.

Cross Rate
An exchange rate between two currencies.

Currency
The type of money that a country uses. It can be traded against other currencies on the foreign exchange market, so each currency has a value relative to another.

Curve-Fitting
Developing complicated rules that map known conditions while back-testing a strategy.

Doji
A candlestick formation in which the open and close are the same (or almost the same). Different varieties of doji lines (such as a gravestone or long-legged doji) depend on where the opening and close are in relation to the entire range. Doji lines are among the most important individual candlestick lines. They are also components of important candlestick patterns.

Entry
The point at which a trader gets into a position in the market.

Exit
The point at which a trader closes out of a trade.

Foreign Exchange
The purchase or sale of a currency against another.

Forex
An abbreviation of foreign exchange.

Fundamental Analysis
Fundamental Analysis focuses on the economic, social and political forces that drive supply and demand.

G7
The seven leading industrial countries, being US , Germany, Japan, France, UK, Canada, Italy.

G10
G7 plus Belgium, Netherlands and Sweden, a group associated with IMF discussions. Switzerland is sometimes peripherally involved.

Gold Standard
The original system for supporting the value of currency issued. This system was active before 1973 when the fixed exchange rates were prevalent.

Margin
This is a percentage of the total value of a transaction that a trader is required to deposit as collateral.

Market Makers
Organizations that maintain a firm bid and offer price in a given currency pair by standing ready to buy or sell at these executable prices (called making a market).

Moving Average (simple)
A mathematical procedure to smooth or eliminate the fluctuations in data and to assist in determining when to buy and sell. Moving averages emphasize the direction of a trend, confirm trend reversals and smooth out price and volume fluctuations or "noise" that can confuse interpretation of the market; the sum of a value plus a selected number of previous values divided by the total number of values.

Moving Average Crossovers
The point where the various moving average lines intersect each other or the price line on a moving average price bar chart. Technicians use crossovers to signal price-based buy and sell opportunities.

PIP
Price Interest Point. The smallest decimal point in an exchange rate.

Resistance
A price level at which rising prices have stopped rising and either moved sideways or reversed direction. Resistance can become a support area. It is an important area because it is where selling is expected to take place.

Rollover
Where the settlement of a deal is carried forward to another value date based on the interest rate differential of the two currencies.

Roll-Over Interest
Traders that hold a position overnight pay interest on the currency they borrow and earn interest on the currency they purchase. Typically roll-over interest is applied at 5PM EST (NY Time).

Skimming Pips
This can happen if the Broker/ IB varies what quotes are shown to specific clients or adds a pip or two to the quote screen to make an extra buck. At Forex.ca we charge no commissions and skim no pips.* We are forthright and disclose that we make our profit on the forex spread on all trades. As do most reputable market makers.

SMA
Simple Moving Average.

Spot Forex Prices
Same as cash price. The price at which a currency is selling at a particular time and place.

Spread
In cash forex trading it is the difference between the bid price and ask price.

Stops
Buy stops are orders that are placed at a predetermined price over the current price of the market. The order becomes a "buy at the market" order if the market is at or above the price of the stop order. Sell stops are orders that are placed with a predetermined price below the current price. Sell-stop orders become "Sell at the market" orders if the market trades at or below the price of the stop order.

Support
A historical price level at which falling prices have stopped falling and either moved sideways or reversed direction. Support can become a resistance area later in the chart. It is an important level because it is where the buying is expected to take place.

Technical Analysis
Technical traders focus on price movements and use historical data to forecast the direction of future prices. Technicians also attempt to identify price trends in a market using charts and modeling techniques.

Technical Correction
An adjustment to price not based on market sentiment but technical factors such as volume and charting.

Tick
The minimum fluctuation of a currency.

Trade Flows
Trade Flows represent a country’s net trade balance of exported goods minus imported goods.

Trading Range
The difference between the high and low prices traded during a period of time.

Trailing Stop
A stop-loss order that follows the prevailing price trend.

Trend
The general drift or tendency of a currency to move in a specific direction. An upward trend is categorized as having higher highs and higher lows. A downward trend is categorized as having lower highs and lower lows.

Trend Channel
A parallel price range centered about the most likely price line. An area between the base trend line and the reaction trend line defined by price moves against the prevailing trend.

Trend Day
A day in which the price of a currency moves consistently away from the opening range and does not return to the opening range prior to the close.

Trend-following
Moving in the direction of the prevailing price movement.

Trending Market
Price moves in a single direction.

Trend less
Price movement that changes but a clear trend cannot be identified.

Trend line
A line drawn that connects either a series of highs or lows in a trend. The trend line can represent either support as in an up trend line or resistance as in a down trend line. Consolidations are marked by horizontal or converging trend lines.

Volatility
A measure of the amount by which an asset price is expected to fluctuate over a given period. Normally measured by the annual standard deviation of daily price changes (historic).

Weighing Quotes
This can happen if the Broker/IB takes the opposite trade in a transaction and in effect is competing with their own client. In this case, there could be situations where the quotes could favour the Broker at the back-end. Forexte.com will not be associated with any market maker that practices this. We succeed if you succeed! It's that simple.

World Bank
A bank made up of members of the IMF whose aim is to assist in the development of member states by making loans where private capital is not available.