Forex Terminology & Dictionary
When you begin forex trading, you’ll come across plenty of specific terms and expressions that you may never have heard of before.
As a beginner trader, it’s important that you get to grips this terminology as quickly as possible. This is because having a firm understanding of forex jargon can actually make a difference between making and losing money.
Not only are there terms related to choosing a broker, and the fees you may incur, but there’s also economic vocabulary to be learned. This vocabulary can help you to make better informed, and therefore more profitable, trades.
Is your head already hurting? Don’t worry, you’re in safe hands. On this page, our expert team has given you complete and concise definitions for all the most important forex terms. Our forex glossary includes:
- Basic trading terms
- Currency pair nicknames
- Terms which are used to describe market movements
- Economic concepts which impact how and why the market changes
The Meaning of Forex
Before we start learning key forex definitions and terminology, we need to address one key question: what is forex?
Forex is a portmanteau of ‘foreign currency’ and ‘exchange’. It refers to the foreign currency exchange market, in which currencies are traded with each other. These trades are carried out for a number of reasons, including by retail traders looking to make money
10 Key Forex Terms for Beginner Traders
Before you dive into selecting a forex broker and registering for an account, you need to familiarize yourself with several basic trading terms.
These will not only help you when it comes to understanding how to trade, but they will all also help you to recognize whether you have chosen a high-quality broker and whether the broker suits your needs and budget.
- Currency pairs – A currency pair is, as the name suggests, a pair of currencies that represent the value of one currency against another. In forex trading, the changing value of a currency pair provides traders with the opportunity to make a profit. Currency pairs are expressed in a XXX/YYY format, such as EUR/USD.
- Majors/minors – Currency pairs are generally split into two different categories. Major currency pairs all involve the US dollar and are more frequently traded. Minor currency pairs are those which don’t include the dollar.
- Base and quote currencies – In a currency pair, the first currency is known as the base currency and the second is referred to as the quote currency. So, in the EUR/USD pair, the euro would be the base currency and the US dollar would be the quote currency.
- Bid and ask – Every currency pair has two price quotes. The bid price represents how much of the quote currency the broker is willing to pay to buy the base currency from you. The ask price represents the amount of quote currency the broker is willing to accept to sell you the base currency.
- Pip – The change in value between two currencies is expressed through a unit of measurement known as a pip. If the EUR/USD pair was to rise from $1.1001 to $1.1002, that increase of $0.0001 is equal to one pip. In major currency pairs, pips are the fourth decimal place in a quote.
- Spread – The difference between the bid and ask price is known as the spread. This is expressed in pips.
- Lots – Lots are the unit of measurement used to express trade size. There are three common lot sizes; a standard lot which is equal to $100,000 of a currency, a mini-lot which is equal to $10,000 of a currency, and a micro-lot which is equal to $1,000 of currency.
- Leverage – When you make a trade with a forex broker, the broker offers you credit to hold a much larger trading position than you could afford with your own capital. Leverage rates are usually expressed as ratios, for example, 50:1. This means you can hold a position fifty times larger than your account balance.
- Margin – This refers to the initial deposit you need to make in a trade, in order to utilize leverage. Margin requirements are expressed as a percentage of the whole trading position.
- Slippage – Slippage refers to situations in which you receive a different trade execution price than intended. This can happen for a number of reasons, including slow software and large order sizes. Slippage is neither positive or negative, the same term is used whether the execution price has fallen or risen.
Different Terms for Currency Pairs
Different currencies and currency pairs have informal names, or nicknames, which are often used by traders and brokers. Below we’ve highlighted some of the most important ones:
- GBP/USD = Cable
- USD/CAD = Loonie
- NZD/USD = Kiwi
- AUD/USD = Aussie
- EUR/USD = Fiber
FX Terminology Regarding Financial Market Movementt
The following are special expressions or words both market participants and central bankers use when they refer to things that within the foreign exchange market, and financial markets in general.
Long and Short
When a trader buys a currency pair, it is said that he/she is taking a long position, as the expectations are that the pair will move to the upside. If this does indeed happen, the trader makes a profit.
If a trader sells a currency pair, it is said that he/she is going short, as the expectations are that the pair will move to the downside.
Bullish/Bearish and Hawkish/Dovish
A trader who takes a long position, or is thinking of taking a long position, has a bullish view of that currency pair; or he/she is bullish about that currency. For example, one can be bullish about the Euro and, in particular, bullish on the EUR/USD pair.
The opposite of bullish is bearish, either about a certain currency or on a currency pair.
A central banker can be neither bullish nor bearish, as it is not possible for them to have a position on the market. Therefore, a central banker’s position can be either hawkish or dovish (this being the equivalent of bullish or bearish respectively for the regular trader).
Glossary of Economic Terms
Central bankers are forced to use specific language and expressions due to the fact that the financial market is so globally interconnected and sensitive. One reckless speech in the United States, for example, could actually make the global equity markets tumble. As such, they need to be very careful about the phrases they use.
When trading forex, it’s equally important to get to grips with economic vocabulary, especially if you want to conduct fundamental analysis. Learning these definitions will also help you to:
- Understand whether a specific economic release or speech is going to affect a currency pair
- Navigate the economic calendars offered by high-quality forex brokers
In this section of our fx glossary, we’ve listed some of the most important economic terms that you need to know as a forex trader.
Inflation is mentioned in every central banker’s speech, as controlling inflation is part of the job of all central banks. If you watch the president of the European Central Bank (ECB) or any other central bank head giving a speech, you will notice how often inflation is mentioned.
Inflation refers to the increase in price of goods and services, over time. You can see inflation happening in real life. For example, the price of your coffee may have increased from $2, last year, to $2.10 this year.
Although inflation a key economic concept, you’ll find that it isn’t listed on your economic calendar. This is because the figure you’re looking for is actually called the Consumer Price Index (CPI). This is the economic indicator that reflects changes in prices at the consumer level.
Special Terminology Regarding Employment
As a forex trader, you will also come across several terms on your economic calendar which refer to sets of data about employment. The names of these change, depending on which country the data is focused on.
In the United States, there are four different sets of data on employment released on a monthly and weekly basis:
- ADP Non-Farm Employment Change – This data is released on a monthly basis and it tracks the levels of private employment in the US, excluding farm jobs. It is sometimes also referred to as ‘the private payrolls report’. This data is collected by Automatic Data Processing Inc, an American HR management company.
- The Non-Farm Payrolls – This data also tracks the monthly change in the number of jobs created by the US economy, excluding the agricultural ones.
- Initial Jobless Claims and Continuing Claims – Both of these data sets are released weekly, refer to the unemployment rate in the US. The initial jobless claims figure reflects the number of people who are applying for the first time for unemployment benefits, while the continuing claims figure shows the number of people who failed to find a new job while they were unemployed and are now applying for continued unemployment benefits.
In the United Kingdom, the jobs number is called the Claimant Count Change and it reflects the same thing: a change in the overall employment figures in an economy during a specific period of time.
Even though all those terms reflect the same thing, they are presented using different terminology, so that the trader can tell which economy they are referring to and which currency will be affected when they are announced.
Other Terms Used in FX Trading
The above terms are the most important and most common, yet the financial jargon glossary is constantly having new things added to it. After the 2008 financial crisis, new terms like the following became the norm for central bankers and economists discussing monetary policy:
- QE – Quantitative Easing. This generally refers to a central bank buying its own government’s bonds and can take various forms. Bonds are basically debt and in some regions of the world central banks even bought the debt of private companies in various forms of quantitative easing programs. The United States ran no less than four QE packages, while Japan, Europe, and the United Kingdom are still involved in one way or another in various QE programs.
- LTROs and TLTROs – Long-Term Refinancing Operations, and Targeted Long-Term Refinancing Operations. These are special conditions offered by central banks to commercial banks under their jurisdictions in order to stimulate them to lend money to the economy.
- Easing – a central bank cutting interest rates.
- Tightening – a central bank hiking interest rates.
Needless to say, the list can go on and on, and what a trader needs to do is to understand that new terms are going to be added on a constant basis – most of them acronyms – as central banks have to adapt to an ever-changing and challenging market environment.
Being constantly involved in trading forex markets will make it virtually avoid with these terms, and the many others that exist or are about to be created. Luckily for you, our forex experts update this glossary regularly, to ensure that your trading vocabulary can continue growing.
Other educational materials
- Profit from Forex Trading Using Different Trading Styles
- How to Set Up an Expert Advisor
- HFT (High-Frequency Trading) in Forex Markets
- Trading Sessions and Their Importance
- What is Forex Trading?
- What is a Currency Pair?
Recommended further readings
- Forex Analysis and Money Management Maciejczyk, K., 2012. (Doctoral dissertation, WORCESTER POLYTECHNIC INSTITUTE).
- FIBONACCI NUMBERS AS A TOOL FOR TECHNICAL ANALYSIS IN THE FOREX MARKET–THE ATTEMPT OF APPLICATION. GIRYN, C. and KOZUBSKI, A., 2012. Proceedings Polish Association for Knowledge Management, (61).