New to trading, or just met a term you don't recognise? Here are 53 common forex and CFD trading terms explained in plain English. Put them into practice with our free trading calculators.
A
- Ask price
- The price at which you can buy an instrument. It is always slightly higher than the bid price.
B
- Base currency
- The first currency in a pair. In EUR/USD, the euro is the base currency.
- Bear market
- A market in which prices are falling or expected to fall.
- Bid price
- The price at which you can sell an instrument.
- Bull market
- A market in which prices are rising or expected to rise.
C
- CFD (contract for difference)
- A contract to exchange the difference in an asset's price between opening and closing a trade, without owning the asset.
- Commission
- A fee charged per trade or per lot, typically on raw spread accounts.
- Correlation
- How closely two markets tend to move together. EUR/USD and GBP/USD, for example, are often positively correlated.
- Cross pair
- A currency pair that does not include the US dollar, such as EUR/GBP or GBP/JPY.
D
- Day trading
- Opening and closing positions within the same trading day.
- Demo account
- A practice account that uses virtual money on live prices.
- Drawdown
- The fall in account equity from a peak to a trough, usually shown as a percentage.
E
- Economic calendar
- A schedule of upcoming economic data releases and central bank events.
- Equity
- Your account balance plus or minus the profit or loss on open positions.
- Exotic pair
- A pair combining a major currency with the currency of a smaller or emerging economy, such as USD/TRY.
F
- Free margin
- Equity not being used as margin, available to open new positions or absorb losses.
- Fundamental analysis
- Analysing economic data, interest rates and news to judge where a market may move.
G
- Gap
- A jump in price between one trade and the next, often over a weekend or after major news.
H
- Hedging
- Opening a position to offset the risk of another position.
I
- Index
- A measure of the performance of a group of stocks, such as the S&P 500 or the DAX.
L
- Leverage
- Using borrowed exposure so a small deposit controls a larger position. It magnifies both profits and losses.
- Limit order
- An order to buy below or sell above the current price, filled only at your price or better.
- Liquidity
- How easily a market can be bought or sold without moving its price.
- Long
- A position that profits if the price rises. Also called buying.
- Lot
- A standard unit of trade size. One standard lot in forex is 100,000 units of the base currency; a mini lot is 10,000 and a micro lot 1,000.
M
- Major pair
- The most traded currency pairs, all including the US dollar, such as EUR/USD, USD/JPY and GBP/USD.
- Margin
- The deposit required to open and keep a leveraged position open.
- Margin call
- A warning that your equity has fallen close to the margin required. Positions may be closed if it falls further.
- Margin level
- Equity divided by used margin, shown as a percentage.
- Market order
- An order to buy or sell immediately at the best available price.
P
- Pip
- The standard unit of price movement for a currency pair: 0.0001 for most pairs and 0.01 for JPY pairs.
- Pipette
- One tenth of a pip, the fifth decimal place on most pairs.
- Position
- An open trade in a market.
Q
- Quote currency
- The second currency in a pair. In EUR/USD, the US dollar is the quote currency.
R
- Raw spread
- A spread close to the underlying market price, usually paired with a commission.
- Requote
- When a broker offers a new price because the market moved before an order was filled.
- Resistance
- A price level where selling pressure has tended to stop a market rising further.
- Risk-reward ratio
- The potential loss on a trade compared with its potential gain, for example 1:2.
- Rollover
- The daily point, around 22:00 UTC, at which open positions are carried to the next day and financing is applied.
S
- Scalping
- A trading style that targets very small price moves over very short periods.
- Short
- A position that profits if the price falls. Also called selling.
- Slippage
- The difference between the price you expected and the price your order was filled at.
- Spread
- The difference between the bid and ask prices; the main cost on a standard account.
- Stop order
- An order to buy above or sell below the current price once a level is reached.
- Stop out
- The level at which positions are closed automatically because equity is too low to support them.
- Stop-loss
- An order that closes a position at a set price to limit losses.
- Support
- A price level where buying interest has tended to stop a market falling further.
- Swap
- Overnight financing charged or credited for holding a position past the daily rollover.
- Swing trading
- Holding trades for days or weeks to capture larger price moves.
T
- Take-profit
- An order that closes a position at a set price to lock in profit.
- Technical analysis
- Studying price charts, patterns and indicators to judge where a market may move.
- Trailing stop
- A stop-loss that moves with the price as a trade moves in your favour.
V
- Volatility
- How much and how quickly a market's price moves.
