Trader's Glossary: Glossary of Forex and CFD Terms


This page provides a collection of terms necessary for traders to understand the complex terminology of Forex and CFD trading. The most commonly used trading terms, acronyms, and abbreviations are presented here explaining the core ideas and methods used by traders every day. Each term is given a specific concept explaining its exact meaning in the financial market. At first sight, the terms in the dictionary of a trader may seem difficult for beginners, but this useful Forex and CFD trading glossary will make the learning process much easier.

In the terms of Forex and CFD trading you may find expressions you are unaware of and learn their meanings. By a simple click, you can get much more detailed information of these terms.

 

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Ask price

The ask price is the price at which one buys any financial instrument.

Average True Range Indicator

The ATR indicator was developed to measure market volatility.

Average Directional Index (ADX)

Average Directional Index (ADX) is a technical indicator developed by Welles Wilder to determine the strength of a trend and the further price movement by analyzing the dynamics and the differences between the lowest and highest trading prices.

Accumulation/Distribution

Accumulation/Distribution is an indicator designed to reflect cumulative inflows and outflows of money by comparing closing prices with corresponding highs and lows.

Alligator

Alligator is an indicator created to identify the trends and their directions.

Ascending Triangle

The Ascending triangle graphical price pattern is a chart pattern of an existing trend continuation, which is usually formed in an uptrend and confirms its further direction.

Aussie

Slang term for the Australian dollar.

Awesome Oscillator

Awesome Oscillator (AO) is an indicator which reflects precise changes in the market driving force which helps to identify the strength of a trend including the points of its formation and reversal.

Automated Trading

Automated trading gives an opportunity to make the trading process absolutely automated.

AUDUSD

The Australian dollar and the US dollar currency pair. In this pair the Australian dollar is the base currency, and the US dollar is the quoted one.

B
Base currency

The first currency in a currency pair in the Forex market.

Bid Price

The bid price is the price at which one sells any financial instrument.

Bid/Ask Spread

The difference between the Bid and Ask prices.

Bear Market

A market, which is characterized by falling prices (quotes).

Broker

A company or an individual which acts as an intermediary in giving access to markets and organizing trading financial instruments for its clients.

Bull Market

A market which is characterized by an increase in prices (quotes).

Bollinger Bands Indicator

The Bollinger Bands indicator reflects the current market volatility changes, confirms direction, warns about the opportunities of trend continuation or trend end, consolidation periods, increasing volatility for breakouts, as well as indicates the local highs and lows.

Bearish Rectangle

The rectangle graphical pattern serves to confirm the direction of the existing trend. The bearish rectangle is formed in a downtrend and indicates high probability for the further decrease in the asset price.

Bullish Rectangle

The rectangle graphical pattern serves to confirm the direction of an existing trend. The bullish rectangle is formed in an uptrend and indicates high probability of continuation of the asset price growth.

Bill Williams Chaos Theory

Bill Williams developed his unique theory combining trading psychology with the Chaos theory and their impact on markets.

Bar chart

This type of chart contains four values of an asset price for each time interval: high, low, opening, and closing prices. High and low prices are reflected by a vertical line, while the opening and closing prices - by horizontal lines. The line on the left of the bar is the opening price, while the line on the right of the bar is the closing price.

C
Chart Patterns

Charts are graphical reflections of price changes of a financial instrument over time.

Commodity Channel Index (CCI)

The Commodity Channel Index is an indicator developed by Donald Lambert. Despite the original purpose of the indicator to identify new trends, nowadays it is widely used to measure the current price level in relation to its average value.

Currency Pair

A financial instrument representing an operation of buying/selling of one currency for another.

Currency Cross Pairs

Those currency pairs that do not include the US dollar in foreign exchange market trade are referred to as cross currency pairs or crosses

D
Daily chart

A chart of the market movement, where one day is the time unit.

Day trading

Trading operations which are performed within one day.

Dealer

A company or an individual which acts as a leading executor or a counterparty to the transaction.

DeMarker (DeM) Indicator

This indicator was developed as a tool to identify emerging buying and selling opportunities. It demonstrates the phases of the growing probability of price changes which usually correspond to the highs and lows of a price.

Descending Triangle

The Descending triangle graphical price pattern is a chart pattern of an existing trend continuation, which is usually formed in a downtrend and confirms its further direction.

Diamond

The graphical price pattern “Diamond” is a sign of a subsequent reversal of an existing trend. Traditionally, the pattern is formed in an uptrend.

Double Top

The double top graphical price pattern is a sign of a reversal of an existing uptrend. It is considered that the longer the formation of the pattern, the more reliably it indicates a reversal.

Double Bottom

The double bottom graphical price pattern is a sign of a reversal of an existing downtrend. It is considered that the longer the formation of the pattern, the more reliably it indicates a reversal.

E
Euro

A monetary unit used in 19 countries of the European Union: Austria, Belgium, Germany, Greece, Ireland, Spain, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Estonia.

Economic calendar

An economic calendar is a calendar of events provided by brokers and other financial companies through which traders track the events affecting the price movements of assets.

EURUSD

The most popular currency pair where Euro, is the base currency traded against the US dollar- the quoted currency.

Envelopes Indicator

The Envelopes indicator reflects the overbought or the oversold state of the price, thus allowing to determine the entry and exit points from the market, as well as the moments of the possible trend break-down.

F
Foreign Exchange (Forex)

The market where participants have the opportunity to buy, sell, exchange and speculate on currencies. The Forex market is comprised of commercial banks, central banks, investment management companies, hedge- funds, retail forex brokers and investors (traders).

Fundamental analysis

The analysis of economic and political events, which may affect the future direction of prices in financial markets. In the currency market, fundamental analysis is based primarily on macroeconomic events.

Flag

The Flag refers to short-term graphical price patterns of trend continuation which show that its direction will remain unchanged in the near future. For example, on the daily chart, this pattern is often formed within a week or two.

Forex Resistance

Price level which acts as a ceiling and caps the rise of the current currency price.

Fractals Indicator

Fractal is an indicator, which displays the local highs and lows where the price movement has stopped and reversed. These reversal points are respectively called Peaks and Troughs.

Force Index

The Force Index is an indicator developed by Alexander Elder to measure the power of price movements interpreting the changes of its components: direction, magnitude and volume. This oscillator fluctuates around the zero level, which is the point of relative balance of forces that move the price.

G
GBPUSD

GBP stands for British Pound which in this currency pair is traded against US dollar. The currency pair shows how many US dollars are needed to purchase one British Pound.

Gator Oscillator

The Gator Oscillator (GO) is a supplement to the Alligator indicator and is used alongside with it, showing the degree of convergence/divergence of its three SMAs and pointing at the Alligator's hunger or sleep periods (i.e. trending or non-trending periods of price movement).

H
Head and Shoulders

The head and shoulders graphical price pattern indicates the end of an existing trend and the further change in the direction of the price movement. It is typically formed in a developed uptrend.

I
Inverse Head and Shoulders

The inverse head and shoulders graphical price pattern is a sign of a trend reversal. This pattern is usually formed in a developed downtrend.

Ichimoku Indicator

The Ichimoku indicator is a comprehensive technical analysis tool introduced in 1968 by Tokyo columnist Goichi Hosoda. The concept of the system was the opportunity to quickly understand the direction of the trend, its dynamics and strength by interpreting all the five components of the system combined with the price dynamics in terms of cyclical character of their interaction caused by the group dynamics of human behavior.

L
Liquidity

The feature of the market (its volume) to provide the execution of large deals with no significant influence on prices.

Leverage

A credit provided by the broker to his client for making large volume deals with a relatively small amount of capital.

M
Margin

A certain amount of money required from a client to maintain opened positions.

Market order

The order of the purchase or sale of a financial instrument (e.g. currency) at the current market price.

Moving-Average Convergence/Divergence Indicator

MACD indicator shows the convergence/divergence of moving averages and is designed to assess the strength and direction of a trend, as well as to identify the possible reversal points by receiving signals from the combination of three time series of moving averages (fast, slow and signal).

Market Facilitation Index

The Market Facilitation Index is created to evaluate the market willingness to move the price. The absolute values of the indicator have no practical use therefore the dynamics of their changes is considered relative to the dynamics of the volume change.

Momentum Indicator

The Momentum is a technical analysis indicator which reflects the direction of a trend and measures the speed of the price change based on the comparison of the current and previous values.

Moving Average Indicator

Moving Average is a technical analysis tool which shows the average price of an asset price over a certain period of time, smoothens price fluctuations and thus, reflects the direction and strength of a trend.

Moving Average of Oscillator

Moving Average of Oscillator (OsMA) is a technical analysis tool which reflects the difference between the oscillator (like MACD) and its moving average (the signal line).

Money Flow Index (MFI)

Money Flow Index (MFI) is a technical indicator developed to evaluate money inflow intensity into an asset by comparing price increases and decreases over a certain period, considering trading volumes.

O
Offer

The suggested price at which a currency can be bought (“Ask” price).

On-Balance Volume (OBV)

On-Balance Volume is a cumulative indicator, based on the index of trade volumes, and reflecting the relation between the volume of deals and asset price movements.

P
Point or pip

The smallest possible change of quotation. As a rule, pip is equal to 0.0001 or 0.00001 for the majority of currency pairs, which are quoted to the fourth or fifth decimal point after the comma, but for JPY pairs it is 0.01 or 0.001 and is quoted to the second or third decimal point. For other financial instruments, the pip is usually equal from 0.1 to 0.001.

Parabolic Indicator

Parabolic indicator was developed to confirm or reject trend direction, to determine the emergence of the correction phase or sideways movement, as well as to determine possible closing points for positions. The underlying principle of the indicator can be described by the phrase “stop and reverse” (SAR).

Pennant

Pennant refers to short-term graphical price patterns of trend continuation, indicating that its direction will be unchanged in the near future. For example, on the daily chart the pattern is usually formed within a week or two.

Portfolio Trading

The simultaneous purchase or sale of a basket of securities, combined in a portfolio based on some criteria.

R
Relative Strength Index (RSI)

Relative Strength Index was developed to assess the strength or, on the contrary, the weakness of a trend, measure the speed of the price change by comparing its increases and decreases on the basis of closing prices.

Relative Vigor Index

Relative Vigor Index was developed to determine the direction of the prevailing trend. The behavior of the indicator is based on a simple idea that closing prices are significantly higher than opening prices in the bullish market and lower in the bearish market.

Resistance Level

Resistance is one of the key concepts of technical analysis. Resistance is defined as a price level at which the activity of asset sellers is quite significant to prevent the further purchase and increase in asset price.

S
Spread

The difference between the Bid and Ask prices. In the quotes flow, received by the client in the trading terminal, both prices are presented. The current spread for a currency pair or an asset is an important part of liquidity of that financial instrument.

Sterling

Slang term for the British pound (GBP).

Stochastic Oscillator

The Stochastic indicator determines the position of the current closing price in the price range of the last few periods, based on the idea that the price tends to the upper bound of fluctuations in an uptrend and to the lower bound- in a downtrend.

Symmetric Triangle

The Symmetric triangle graphical price pattern is a chart pattern of an existing trend continuation, which may be formed both in an uptrend and in a downtrend, and serves to confirm its further directions.

Support Level

Support is one of the key concepts of technical analysis. Support is defined as a price level at which the activity of asset buyers is quite significant to prevent the further sale and decrease in its price.

T
Technical analysis

Technical analysis is used to forecast future changes in financial and commodity markets based on the history of price changes, i.e. past price movements.

Transaction costs

The costs, incurred by a trader when buying or selling currencies or commodities, which include the commission fee of a broker.

Trend line

The lines connecting a series of extreme upper or extreme lower points on a price chart.

Trend Continuation Patterns

Trend continuation patterns (graphical models, patterns) are formed during the pause in the current market trends, and mark the movement continuation rather than its reversal.

Trend Reversal Patterns

The Trend Reversal patterns are graphical models (patterns), which are formed after the price level reaches its high in the current trend and indicate high probability of trend reversal.

Triple Top

The Triple top graphical price pattern is usually formed in an uptrend anticipating its further reversal and decrease in prices. This pattern is considered to be more significant than the “double top”.

Triple Bottom

The Triple bottom graphical price pattern is usually formed in a downtrend and serves as a sign of its further reversal. This pattern is considered to be more significant than the “double bottom”.

Technical Indicators

Technical indicators are the inseparable part of technical analysis. Their aim is to predict the direction of the market to help a trader. There is a great number of indicators used by traders for determining the market movement. Some traders prefer to use those indicators which have proved to be efficient in trading in the past, while others try using new indicators. Bill Williams' indicators, Oscillators, Trend and Volume indicators may serve as examples.

U
USDCHF

The US dollar and the Swiss franc currency pair, where the US dollar is the base currency and the Swiss franc is the quoted currency.

USDJPY

The US dollar and the Japanese yen currency pair. In this currency pair the US dollar is the base currency while the Japanese yen is the quoted one.

USDCAD

The currency pair, formed from the US dollar and the Canadian dollar, indicates how many Canadian dollars are needed to purchase one US dollar.

V
Volume Indicators

The Volume of deals characterizes the activity of market participants involved in asset trading, its strength and intensity.

Volume Indicator

Volume is a technical analysis indicator, which reflects investors’ trading activity for a certain period of time.

Value date

Date on which counterparties must deliver funds, that is when the currency bought is received and the currency sold is paid.

W
Wedge

The wedge refers to short-term graphical price patterns of trend continuation indicating that its direction will remain unchanged in the near future. For example, on the daily chart the pattern is often formed within a week or two.

Williams Percent Range Indicator

The objective of the indicator is to determine the overbought or oversold conditions of the asset and the possible reversal points.

Y
Yen

The monetary unit of Japan.

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