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Trading Terms

Trading Terms you need to know and understand when trading

Currency Pair:

A currency pair is a fundamental concept in forex trading, representing the relationship between two different currencies. It is the quotation of one currency in terms of another. In a currency pair, the first currency is the base currency, and the second is the quote currency. For instance, in the EUR/USD pair, the Euro (EUR) is the base currency, and the U.S. Dollar (USD) is the quote currency. The exchange rate of the currency pair shows how much of the quote currency is needed to purchase one unit of the base currency. Currency pairs are categorized into major, minor, and exotic pairs based on their liquidity and trading volume. Traders analyze currency pairs to make informed decisions on buying (going long) or selling (going short) in the forex market.

Pip:

A pip, short for “percentage in point,” is the smallest unit of price movement in the forex market. It is a standardized measurement used to quantify changes in exchange rates. Most currency pairs are quoted with four decimal places, so a pip is typically the last decimal place.

For example, if the EUR/USD currency pair moves from 1.1000 to 1.1001, it has increased by one pip. Pips are essential for measuring price changes, determining the spread (the difference between the bid and ask price), calculating profits and losses, and setting stop-loss and take-profit orders. Understanding pips is crucial for forex traders as they directly impact trading decisions and risk management strategies.

Lot:

A lot is a standardized unit of trading in the forex market, allowing traders to control the size of their positions. There are several types of lots in forex trading. The most common is the standard lot, which consists of 100,000 units of the base currency. Trading in standard lots requires a significant amount of capital. To accommodate traders with smaller accounts, brokers offer mini lots (10,000 units) and micro lots (1,000 units). Lot size is a crucial factor in determining the position’s value and the potential risk and reward. Traders select the appropriate lot size based on their risk tolerance, account size, and trading strategy. Lot size is a fundamental component of trade sizing and risk management.

Leverage:

Leverage is a key aspect of forex trading that enables traders to control a larger position with a relatively small amount of capital. It magnifies both potential profits and potential losses. Leverage is typically expressed as a ratio, such as 50:1 or 100:1. For example, with 100:1 leverage, a trader can control a position worth $100,000 with only $1,000 of their own capital. While leverage can amplify returns, it also increases the risk of significant losses. It’s essential for traders to use leverage cautiously and have a solid risk management strategy in place. Brokers provide leverage to traders, and the amount of leverage offered can vary, so it’s crucial for traders to choose a broker that aligns with their risk tolerance and trading style.

Margin:

Margin is the amount of money required to open and maintain a trading position in the forex market. It is essentially a good-faith deposit that traders must have in their trading accounts to cover potential losses. Margin requirements are set by brokers and are often expressed as a percentage of the full position size. For example, if a broker requires a 1% margin for a standard lot, and the trader wishes to open a position worth $100,000, they need $1,000 in their account as margin. Margin allows traders to access leverage, which can amplify their trading capacity, but it also exposes them to the risk of margin calls. Margin calls occur when a trader’s account balance falls below the required margin level, prompting the broker to request additional funds or close open positions to mitigate potential losses.

Spread:

The spread is a fundamental concept in forex trading and represents the difference between the bid price (the price at which you can sell a currency pair) and the ask price (the price at which you can buy the currency pair). It is essentially the cost of trading, and brokers typically make their profit from the spread.

The spread can vary from one currency pair to another and can fluctuate based on market conditions and broker policies. Major currency pairs typically have narrower spreads, while exotic currency pairs tend to have wider spreads. Traders pay attention to the spread as it affects the cost of executing trades and can impact their overall profitability. Understanding the spread is crucial for traders when determining entry and exit points and managing transaction costs effectively.

Long Position:

Going long in forex trading means buying a currency pair with the expectation that the base currency (the first currency in the pair) will appreciate in value relative to the quote currency (the second currency in the pair). A trader takes a long position when they believe that the base currency will strengthen, leading to potential profits. If the exchange rate moves in the anticipated direction, the trader can sell the currency pair at a higher price, thus realizing a profit. Going long is one of the two primary directions traders can take when opening a position, with the other being going short.

Short Position:

Going short in forex trading involves selling a currency pair with the expectation that the base currency will depreciate in value compared to the quote currency. Traders take short positions when they believe the base currency will weaken, allowing them to buy it back at a lower price and profit from the price difference.

Short selling is based on the belief that the currency pair’s value will decline over time. It is an essential strategy for traders who seek to profit from falling markets. When a trader initiates a short position, they borrow the base currency, sell it on the market, and later repurchase it to close the position. The difference in price between selling and buying back the currency represents the trader’s profit or loss.

Stop-Loss Order:

A stop-loss order is a crucial risk management tool used by forex traders to limit potential losses on a trade. It is an order placed with a broker to automatically close a position at a specific price level. When the market reaches the stop-loss price, the order is triggered, and the trade is executed at the current market rate.

The purpose of a stop-loss order is to prevent a trade from incurring further losses beyond a predetermined point. Traders typically set stop-loss orders at a level where they are comfortable absorbing a loss, and it is an integral part of responsible trading. Stop-loss orders are essential in volatile markets, where price movements can be sudden and significant, and they help traders protect their trading capital by capping potential losses.

Take-Profit Order:

A take-profit order is another essential risk management tool in forex trading. It is an order placed with a broker to automatically close a trading position at a specific price level that represents a desired profit target. Once the market reaches the take-profit price, the order is executed, securing the trader’s profits. Take-profit orders are used to lock in gains and prevent the price from reversing and erasing potential profits.

They are an integral part of a disciplined trading strategy and help traders adhere to their profit goals. By setting a take-profit order, traders can avoid the temptation to hold onto a winning position for too long, thus ensuring that profits are realized when the market reaches the target price. Take-profit orders provide traders with a structured approach to profit-taking and risk management.

Margin Call:

A margin call is a critical risk management mechanism in forex trading. It occurs when a trader’s account balance falls below the required margin level to maintain open positions. When a margin call is triggered, the broker typically requests the trader to deposit additional funds into their account to cover potential losses. If the trader fails to meet the margin requirements, the broker may close open positions to limit further losses. Margin calls serve as a safety net for brokers to ensure that traders have enough capital to cover their positions. They prevent traders from accumulating unsustainable losses and protect both the trader and the broker from significant financial harm. It’s crucial for traders to understand and manage their margin levels to avoid margin calls and maintain a healthy

Liquidity:

Liquidity is a fundamental concept in the forex market, representing the degree to which an asset, such as a currency pair, can be quickly and easily bought or sold without significantly affecting its price. Major currency pairs, like EUR/USD, typically exhibit high liquidity as they involve currencies from the world’s largest economies. Liquidity arises from the continuous flow of buyers and sellers in the market.

High liquidity means there is a robust market for a currency pair, resulting in narrow spreads (the difference between the bid and ask price) and minimal price slippage. In contrast, low liquidity can lead to wider spreads and more significant price swings. Traders often prefer highly liquid currency pairs for their ease of trading and the ability to enter and exit positions with minimal price impact.

Base Currency:

In forex trading, the base currency is the first currency in a currency pair and serves as the reference point for the exchange rate. It is the currency you are either buying or selling in the pair. For example, in the EUR/USD currency pair, the Euro (EUR) is the base currency.

The exchange rate tells you how much of the quote currency (in this case, the U.S. Dollar, USD) is needed to purchase one unit of the base currency (EUR). Base currencies are essential for establishing the direction of a trade—whether you are going long (buying the base currency) or going short (selling the base currency). Understanding the base currency’s strength or weakness is critical in forex trading, as it dictates the overall performance of the currency pair.

Quote Currency:

The quote currency, also known as the counter currency, is the second currency in a forex currency pair. It represents the currency you are exchanging your base currency for. In the EUR/USD pair, the U.S. Dollar (USD) is the quote currency.

The exchange rate specifies how much of the quote currency is needed to acquire one unit of the base currency. Quote currencies are vital for determining the cost and value of a currency pair. They play a significant role in calculating profit and loss, as well as in evaluating exchange rate changes. Traders consider the strength or weakness of the quote currency when making trading decisions, as it complements their analysis of the base currency.

Recommended Brokers

Take the guesswork out of choosing a Forex broker by selecting one of our recommended options. I have thoroughly vetted each broker to ensure they meet the highest standards of security, reliability, and user experience. Don’t miss out on the opportunity to trade with confidence and success.

Broker

Regulators

Max. Leverage

Spreads

Trading Acc.

Instruments

Connect

FP Markets 

ASIC, CySEC

Up to 1:500*

From 0.0 pips

Broker Type:
STP | ECN | DMA 2 Accounts

Forex, Indices,
Commodities, 
Metals, Energies,
Shares, ETFs Crypto, Bonds

Eightcap

ASIC, VFSC

 Up to 1:500 

From 0.0 pips

Broker Type:
STP | ECN
 2 Accounts

Forex, Indices,
Commodities, 
Shares, Crypto

IC Markets

AFSL, ASIC, CySEC, FSA

Up to 1:500

From 0 pips

Broker Type:
ECN
6 Accounts

Forex, Indices,
Commodities, 
Metals, Energies,
Shares, Crypto

Axi 


ASIC, FCA, DFSA, FSC

Up to 1:500

From 0 - 0.4 pips

Broker Type:
STP | ECN
 3 Accounts

Forex, Indices,
Commodities, 
Metals, Energies,
Shares, Crypto

InstaForex

BVI FSC

Up to 1:1000

From 0 pips

Broker Type:
MM | Binary
 6 Accounts

Forex, Indices,
Commodities,
Metals, Energies, Shares, Crypto

NordFX

VFSC

Up to 1:1000

Floating spread from 0.9 pips

Broker Type:
STP | ECN
4 Accounts

Forex, Indices,
Commodities, 
Shares, Crypto

FXOpen 

ASIC, FCA

Up to 1:500*

Floating spread from 0 pips

Broker Type:
STP | ECN
 6 Accounts

Forex, Indices,
Commodities, 

Metals, Energies,

Shares, Crypto

Vantagemarkets

CIMA, ASIC, FCA

Up to 1:500*

From 0.4 pips

Broker Type:
STP | ECN
4 Accounts

Forex, Indices,
Commodities, 

Metals, Energies,

Shares, Crypto

RoboForex

FSC

Up to 1:2000

From 0.0 pips

Broker Type:
MM | STP | ECN
5 Accounts

Forex, Indices,
Commodities, 
Metals, Energies,
ETFs, Shares, Crypto

Fxview

CySEC, FSCA  and FSC

Up to 1:500

From 0.0 pips

Broker Type:
Raw | Zero | Premium
3 Accounts

Forex, Indices,
Commodities, 
Metals, Energies,
Shares, Crypto

FBS

CySEC, FSC, FSCA, ASIC

Up to 1:3000 

From 1 pip

Broker Type:
STP | ECN
 6 Accounts

Forex, Indices,
Commodities, 
Metals, Energies,
Shares, Crypto

Blackbull
Markets

FMA, FSA

Up to 1:500

From 0.0 pips

Broker Type:
STP | ECN

6 Accounts

Forex, Indices,
Commodities, 
Metals, Energies,
Shares, Crypto

  Review  


Blueberry Markets

ASIC, SCB

Up to 1:500

From 0.0 pips

Broker Type:
ECN | MM
2 Accounts 

Forex, Indices,
Commodities,
Shares, Crypto

  Review  


VALUTRADES

FCA, VFSC
CIMA, ASIC

Up to 1:500

From 0.0 pips

Broker Type:
ECN | MM
4 Accounts 

Forex, Indices,
Commodities,
Shares, Crypto

  Review  


FXGT

SFSA, FSCA, CySec*

Up to 1:500

From 0.0 pips

Broker Type:
STP | ECN

6 Accounts

Forex, Indices,
Commodities,
Shares, Crypto

  Review  


SVGFSA, FSC, FSA

Up to 1:500

From 0.0 pips

Broker Type:

STP | ECN 

3 Accounts

Forex, Indices,
Commodities,
Shares, Crypto

Exness

FCA, CySEC, FSA, CBCS, FSC, FSCA

Up to 1:3000

From 0.4 pip

Broker Type:
STP | ECN
 6 Accounts

Forex, Indices,
Commodities, 
Metals, Energies,
Shares, Crypto

  Review  


FINMA 

Up to 1:100

From 0.1 pip

Broker Type:
STP | ECN
 7 Accounts

Forex, Indices,
Commodities, 
Metals, Energies,
Shares, Crypto

Market Order:

A market order is a straightforward and frequently used order type in forex trading. It instructs the broker to execute a trade at the current market price. Market orders are executed instantly because they do not specify a specific entry price. Instead, they prioritize immediacy of execution. Traders often use market orders when they want to enter a position quickly or when they believe the current market price is favorable. Market orders guarantee execution but may not guarantee a specific price due to market fluctuations. The executed price may slightly differ from the current quoted price, a phenomenon known as price slippage. Market orders are effective for traders who prioritize speed and are less concerned about exact entry prices.

Limit Order:

A limit order is an order type used in forex trading that specifies a particular price at which a trade should be executed. Unlike market orders, which are executed at the current market price, limit orders are pending until the market reaches the specified price. If the market never reaches the specified price, the limit order remains open and unexecuted. Traders use limit orders to precisely control their entry and exit points in the market. For instance, a trader might place a limit order to buy a currency pair at a lower price than the current market rate or to sell at a higher price. Limit orders are valuable for traders who have specific price levels in mind and want to automate the execution of trades when those levels are reached. They help traders avoid unexpected price fluctuations and exercise discipline in their trading approach.

Hedging:

Hedging is a risk management strategy used by forex traders to protect against potential losses. It involves opening one or more positions to offset the risk of another existing or planned position. Hedging allows traders to reduce exposure to adverse price movements while still maintaining open positions. For example, if a trader is holding a long position on a currency pair and believes the market may turn against them, they can hedge by opening a short position on the same currency pair. This way, they can limit potential losses in the event of a market reversal. Hedging strategies are essential for traders looking to safeguard their trading capital and manage risk effectively. However, hedging can be complex, and traders must carefully consider the costs and potential benefits when implementing hedging strategies.

Volatility:

Volatility is a measure of the degree of variation in the price of a currency pair over time. High volatility implies that prices are subject to rapid and significant fluctuations, while low volatility indicates relatively stable and gradual price movements. Volatility can result from various factors, including economic events, geopolitical developments, and market sentiment. Traders view volatility as a double-edged sword:

Technical Analysis:

Technical analysis is a method of evaluating and forecasting currency price movements based on historical price and volume data. Traders use technical analysis to identify patterns, trends, and potential entry and exit points in the market. It relies on various tools, such as charts, technical indicators, and oscillators.

The underlying premise of technical analysis is that historical price patterns often repeat themselves, and by recognizing these patterns, traders can make informed predictions about future price movements. Technical analysis does not consider fundamental factors like economic news or political events, but it provides valuable insights into market psychology and the behavior of market participants. Traders who employ technical analysis believe that past price patterns and trends can help guide their trading decisions and increase their chances of success.

Fundamental Analysis:

Fundamental analysis is a method of evaluating currency price movements by examining economic, political, and social factors that affect a country’s economic performance and currency value. Traders who use fundamental analysis analyze various indicators, such as gross domestic product (GDP), interest rates, inflation rates, and central bank policies.

They also consider geopolitical events and news that may influence exchange rates. Fundamental analysis aims to provide a comprehensive understanding of the broader economic and political environment in which currencies are traded.

It helps traders make informed predictions about the long-term direction of a currency pair. Fundamental analysis is particularly valuable for long-term investors and traders who seek to capitalize on significant, sustained trends in the market. It complements technical analysis, which focuses on short-term price movements and patterns.

Risk Management:

Risk management is a fundamental aspect of forex trading and other financial markets. It encompasses the strategies and techniques that traders use to assess and mitigate potential financial losses. Effective risk management aims to safeguard a trader’s capital and ensure the preservation of their account balance over time.

Key components of risk management include setting stop-loss and take-profit orders, managing position sizes, diversifying investments, and having a well-defined trading plan. Traders use risk management tools and methods to control their exposure to market volatility and unexpected events. By establishing sound risk management practices, traders can reduce the impact of losses on their trading capital, allowing them to trade confidently and with discipline.

Volatility:

Volatility is a measure of the degree of variation in the price of a currency pair over time. It quantifies the extent to which prices fluctuate, and it is a fundamental concept in forex trading. High volatility indicates that prices can change rapidly and significantly, while low volatility implies that price movements are relatively stable and gradual. Several factors contribute to volatility, including economic data releases, geopolitical events, and market sentiment.

Volatility can present opportunities for traders to profit from substantial price swings, but it also increases the risk of sudden and adverse price changes. Understanding and assessing volatility is critical for traders when devising trading strategies and implementing risk management measures tailored to market conditions.

Broker:

A forex broker is a financial institution or an online platform that facilitates the buying and selling of currencies in the foreign exchange market. Brokers act as intermediaries, connecting retail traders with the interbank forex market.

They provide traders with access to trading platforms, offer various currency pairs for trading, and execute trade orders on behalf of their clients. Brokers may also offer additional services, such as research, market analysis, educational resources, and customer support. Selecting the right broker is crucial for traders, as it can significantly impact their trading experience. Key factors to consider when choosing a broker include trading costs (spreads and commissions), available currency pairs, regulatory compliance, trading platform quality, and customer service.

Day Trading:

Day trading is a trading style in which traders open and close positions within the same trading day. Day traders seek to capitalize on short-term price movements and typically do not hold positions overnight. They rely on technical analysis, chart patterns, and intraday indicators to identify potential entry and exit points.

Day trading requires strong analytical skills, quick decision-making, and the ability to react to rapid market changes. Traders engaging in day trading aim to profit from intraday price fluctuations in currency pairs and other financial instruments. Day trading can be challenging and requires discipline, risk management, and a deep understanding of the market’s short-term dynamics.

Swing Trading:

Swing trading is a trading style that aims to capture medium-term price swings in the forex market. Unlike day traders, swing traders hold positions for several days or even weeks to capitalize on price movements that occur over a more extended time frame.

This approach is suitable for traders who have a preference for analyzing the market in a broader context, using technical and fundamental analysis to identify potential entry and exit points. Swing trading provides traders with more flexibility than day trading but still requires robust risk management strategies. Traders who adopt a swing trading approach often focus on trends and key support and resistance levels to make informed decisions.

Scalping:

Scalping is a short-term trading strategy in which traders aim to profit from small, quick price movements in the forex market. Scalpers typically hold positions for very short durations, often just a few seconds to a few minutes. The goal is to accumulate numerous small gains throughout the day by executing a large number of trades. Scalpers focus on high liquidity and narrow spreads, making it crucial for them to have access to a fast and reliable trading platform.

Scalping is an intense and high-frequency trading style that requires traders to have a deep understanding of technical analysis, precise timing, and efficient order execution. Traders who scalp the forex market must also have strong discipline and risk management practices to control the impact of potential losses.

Moving Average:

A moving average is a popular technical analysis indicator used by traders to smooth out price data and identify trends in the market. It calculates the average price of a currency pair over a specified period and plots it on a chart. Moving averages help traders visualize the direction of price trends by reducing noise caused by price fluctuations. Two common types of moving averages are the simple moving average (SMA) and the exponential moving average (EMA). Traders use moving averages to identify potential entry and exit points in the market. For example, a moving average crossover occurs when a short-term moving average crosses above or below a long-term moving average, signaling a potential trend reversal or continuation.

RSI (Relative Strength Index):

The Relative Strength Index (RSI) is a momentum oscillator used in technical analysis to measure the speed and change of price movements in a currency pair. RSI values range from 0 to 100, with levels above 70 indicating overbought conditions and levels below 30 suggesting oversold conditions.

Traders use the RSI to identify potential reversal points in the market. When the RSI crosses above 70, it may be a signal to sell (indicating potential overbought conditions), and when it crosses below 30, it may be a signal to buy (indicating potential oversold conditions). The RSI is a valuable tool for traders looking to identify overextended price movements and assess whether a currency pair is likely to reverse direction.

MACD (Moving Average Convergence Divergence):

MACD (Moving Average Convergence Divergence): The Moving Average Convergence Divergence (MACD) is a trend-following momentum indicator used in technical analysis to gauge the relationship between two moving averages of an asset’s price. The MACD indicator consists of three components: the MACD line, the signal line, and the histogram. Traders use the MACD to identify potential trend changes and assess the strength and direction of a trend. When the MACD line crosses above the signal line, it may be a signal to buy, indicating a potential uptrend. Conversely, when the MACD line crosses below the signal line, it may be a signal to sell, indicating a potential downtrend. Traders also use the MACD histogram to visualize the difference between the MACD line and the signal line, providing additional insights into potential trend strength and direction.

Fibonacci Retracement:

Fibonacci retracement is a technical analysis tool used by traders to identify potential support and resistance levels in a currency pair. It is based on the Fibonacci sequence, a series of numbers in which each number is the sum of the two preceding ones. In forex trading, traders use the Fibonacci retracement tool to draw horizontal lines on a price chart at key Fibonacci levels, such as 38.2%, 50%, and 61.8%. These levels are believed to represent potential areas where price retracements or reversals may occur. Traders often use Fibonacci retracement in conjunction with other technical indicators and tools to make informed trading decisions. It is particularly valuable for identifying price levels where the market may pause or change direction.

Candlestick:

Candlestick charts are a visual representation of price movements in the forex market. Each candlestick on a chart displays the opening, closing, high, and low prices for a specific time period. The body of the candlestick represents the price range between the opening and closing prices, while the wicks or shadows depict the high and low prices during that period.

Traders use candlestick patterns to analyze and predict future price movements. Various candlestick patterns, such as doji, hammer, and engulfing patterns, provide insights into market sentiment and potential trend reversals or continuations. Candlestick analysis is a fundamental tool for traders who use technical analysis to make informed decisions in the forex market.

Support and Resistance:

Support and resistance are critical concepts in technical analysis used by traders to identify key price levels in a currency pair. Support represents a price level at which a currency pair historically tends to find buying interest, preventing it from falling further. It is often seen as a price floor.

Resistance, on the other hand, is a price level at which the currency pair typically encounters selling pressure, preventing it from rising higher. It is viewed as a price ceiling.

Traders use support and resistance levels to make informed decisions about entry and exit points. Breakouts above resistance or below support can indicate potential trend changes, while bounces off these levels can signal trend continuation.

Economic Calendar:

An economic calendar is a tool used by traders to track and monitor significant economic events and data releases that can impact the forex market. It provides a schedule of announcements, such as central bank interest rate decisions, employment reports, GDP releases, and other economic indicators from various countries.

Traders rely on economic calendars to plan their trading strategies and risk management, as these events often lead to increased market volatility. By staying informed about scheduled economic releases, traders can anticipate potential market reactions and adjust their positions accordingly. Economic calendars are available on various financial websites and trading platforms and offer valuable insights into the timing of important market-moving events.

Interest Rate:

Interest rate is the cost of borrowing money or the return on investment for holding or lending capital. In the context of forex trading, interest rates play a crucial role in determining exchange rates.

Central banks set their interest rates, which affect the relative strength of their respective currencies. When a country’s central bank raises interest rates, it typically leads to an appreciation of its currency as higher rates attract foreign capital seeking better returns.

Conversely, lower interest rates can lead to a depreciation of the currency as they make it less attractive for investors. Traders closely monitor interest rate decisions and expectations as they have a direct impact on currency values and influence trading decisions.

Central Bank:

A central bank is a financial institution responsible for controlling a country’s monetary policy and managing its currency. Central banks have various functions, including regulating money supply, setting interest rates, and maintaining price stability.
In the forex market, central banks’ actions and policies have a significant influence on currency values. Decisions related to interest rates and monetary policy can result in substantial market movements. Traders pay close attention to central bank announcements, such as rate decisions and statements, as they provide insights into the economic health of a country and the potential direction of its currency.

Bid Price:

The bid price is the highest price at which a trader can sell a currency pair in the forex market. It represents the price that buyers in the market are willing to pay for a specific currency pair at a given moment.
The bid price is typically lower than the ask price (the price at which you can buy the currency pair), creating the spread, which is the difference between the two prices. The bid price is essential for traders to determine the value of their positions and assess the cost of entering or exiting a trade. It is often used to execute market orders to sell a currency pair, as it ensures immediate execution at the best available price for selling.

Ask Price:

The ask price, also known as the offer price, is the lowest price at which a trader can buy a currency pair in the forex market. It represents the price at which sellers in the market are willing to sell a specific currency pair at a given moment.
The ask price is typically higher than the bid price (the price at which you can sell the currency pair), creating the spread, which is the difference between the two prices. The ask price is crucial for traders to determine the value of their positions and assess the cost of entering or exiting a trade. It is often used to execute market orders to buy a currency pair, as it ensures immediate execution at the best available price for buying.

Candlestick Pattern:

Candlestick patterns are a form of technical analysis used by traders to assess market sentiment and predict potential price movements. Each candlestick on a chart displays the opening, closing, high, and low prices for a specific time period. Traders examine the shapes and combinations of candlesticks to identify patterns that can indicate trend reversals, continuations, or indecision in the market.
Common candlestick patterns include doji, hammer, engulfing patterns, and shooting stars. Traders use these patterns in conjunction with other technical tools and indicators to make informed trading decisions. Candlestick patterns provide valuable insights into market psychology and can help traders time their entries and exits effectively.

Divergence:

Divergence is a technical analysis concept that occurs when the price of a currency pair and a technical indicator move in opposite directions. Traders use divergence to identify potential trend reversals or changes in market momentum. There are two main types of divergence: bullish divergence and bearish divergence.

Bullish divergence occurs when the price makes lower lows while the indicator makes higher lows, suggesting that the downward momentum may be weakening, and a bullish reversal may be imminent. Bearish divergence, on the other hand, occurs when the price makes higher highs while the indicator makes lower highs, indicating that the upward momentum may be waning, and a bearish reversal may be on the horizon. Traders rely on divergence to make more informed trading decisions and identify potential trading opportunities.

Economic Indicator:

An economic indicator is a statistic or data point that provides information about the economic performance of a country. Economic indicators cover various aspects of an economy, such as GDP (Gross Domestic Product), employment figures, inflation rates, consumer sentiment, and manufacturing output.

These indicators are regularly released by government agencies and other organizations and are closely monitored by traders as they can significantly impact currency values. Positive or negative economic data can influence market sentiment and drive changes in exchange rates. Traders use economic indicators to gauge the health of an economy and make informed trading decisions based on their expectations for future market movements.

Currency Correlation:

Currency correlation is the measurement of how two currency pairs move in relation to each other. It reflects the degree to which the exchange rates of two currency pairs tend to move in the same or opposite directions.
Positive correlation means that the currency pairs move in the same direction, while negative correlation indicates that they move in opposite directions.
Traders consider currency correlation when building diversified portfolios or managing risk in their trading strategies.
A strong understanding of currency correlation helps traders avoid overexposure to similar assets and optimize their risk management by choosing currency pairs that are less likely to move together.

Liquidity Provider:

A liquidity provider is a financial institution or market maker that offers buy and sell quotes for currency pairs in the forex market.

These providers ensure that there is sufficient liquidity in the market, allowing traders to execute their trades promptly and at competitive prices. Liquidity providers play a vital role in maintaining efficient and orderly trading conditions.

They often include major banks, financial institutions, and electronic communication networks (ECNs).

Traders can choose to access liquidity from multiple providers, allowing them to find the best available prices and execute trades efficiently. Having access to reliable liquidity providers is essential for traders, as it ensures that they can execute trades at fair market prices and with minimal slippage.

Slippage:

Slippage is a phenomenon in forex trading that occurs when an order is executed at a different price than the one expected by the trader. It often happens during periods of high market volatility or when there is a delay in order execution.

Slippage can result in trades being filled at a less favorable price than initially anticipated. While slippage can work in a trader’s favor, it is more commonly seen as an undesirable outcome.

Traders often use risk management techniques, such as setting limit orders and stop-loss orders, to minimize the potential impact of slippage on their trading results. Understanding slippage and its causes is crucial for traders to prepare for and manage this aspect of forex trading effectively.

Volatility Index:

The volatility index, often referred to as the VIX, is a measure of market sentiment and expected price volatility in the financial markets.

It is commonly associated with the stock market, but it can also provide insights into volatility expectations in the forex market. The VIX quantifies market participants’ expectations for future market movements.

A high VIX level suggests that traders anticipate increased price volatility, while a low VIX level indicates expectations of relatively stable market conditions. Traders may use the VIX as a gauge of market sentiment and incorporate it into their trading strategies.

High VIX levels can lead to greater market uncertainty and potentially impact currency values, making it an essential tool for traders to track broader market dynamics.

Carry Trade:

A carry trade is a forex trading strategy in which traders borrow funds in a currency with a low-interest rate and invest those funds in a currency with a higher interest rate. The goal of a carry trade is to profit from the interest rate differential between the two currencies.

Traders earn interest on the currency they hold and pay interest on the currency they borrow.
The strategy works best in stable market conditions with low volatility, as sudden currency price movements can erode potential gains or lead to losses.

Carry trades are favored by traders seeking to generate income from interest differentials, but they also carry risks, as exchange rate fluctuations can affect the trade’s profitability.

Cross Currency:

A cross currency, also known as a minor currency or a currency pair, is one in which neither of the two currencies involved is the U.S. Dollar (USD). Cross currency pairs are formed by combining two major currency pairs that both exclude the USD.

For example, the EUR/JPY pair is a cross currency pair, as it involves the Euro (EUR) and the Japanese Yen (JPY) without any reference to the U.S. Dollar.

Traders use cross currency pairs to diversify their portfolios or to express their views on specific currency combinations. Cross currency pairs may have wider spreads and lower liquidity compared to major pairs, which can result in varying trading conditions.

Demo Account:

A demo account, also known as a practice or simulated account, is a virtual trading environment provided by forex brokers to allow traders to practice and learn the art of trading without risking real money. It simulates the real trading experience by offering access to live market data, trading platforms, and all the tools and features available in real trading accounts.

However, the key distinction is that demo accounts are funded with virtual money, so any profits or losses incurred do not have any real financial consequences. Demo accounts are invaluable for traders, especially beginners, as they provide an opportunity to build and refine trading skills, test strategies, and get comfortable with trading platforms.

Traders can experiment with different approaches and gain hands-on experience before transitioning to live trading, where real capital is at stake. Using a demo account is a recommended step for new traders to build confidence and competence.

Equity:

Equity, in the context of forex trading, refers to the current value of a trader’s account or position after accounting for all profits, losses, deposits, and withdrawals. It is a key metric for assessing the financial health of a trading account.

Equity is calculated by summing up the trader’s initial account balance, adding any realized profits, and subtracting any realized losses or fees. It also accounts for the impact of open positions in the market. Equity is essential for traders to determine their account’s current worth and assess the margin available for new trades.

It provides a clear picture of whether the trader’s account is in a profitable or losing position. Maintaining and growing equity is a primary goal for traders, and they often use risk management techniques like stop-loss orders and take-profit orders to protect their equity and limit losses.

Ichimoku Cloud:

The Ichimoku Cloud, also known as Ichimoku Kinko Hyo, is a comprehensive and multifaceted technical analysis tool used in forex trading. It was developed by Japanese journalist Goichi Hosoda and is designed to provide traders with a visual representation of key market information on a price chart.
The Ichimoku Cloud consists of several components, including the Kijun-sen (baseline), Tenkan-sen (conversion line), Senkou Span A (leading span A),
Senkou Span B (leading span B), and the cloud itself (known as the “Kumo”). These elements combine to offer insights into support and resistance levels, trend direction, and potential trend reversals.
Traders use the Ichimoku Cloud to identify entry and exit points, as well as to gauge overall market sentiment and trend strength. The cloud’s ability to provide a holistic view of the market makes it a popular tool among technical analysts.

Lot Size:

Lot size is a fundamental concept in forex trading and represents the volume or quantity of a currency pair that a trader buys or sells in a single trade. Lot sizes are typically standardized to facilitate trading. The most common lot sizes in forex are the standard lot, mini lot, and micro lot.

A standard lot represents 100,000 units of the base currency, a mini lot is 10,000 units, and a micro lot is 1,000 units. Lot size is crucial for risk management and determining the value of each pip movement in a trade.

Larger lot sizes involve greater exposure to price fluctuations and higher potential profit or loss. Smaller lot sizes are used by traders who want to manage their risk and allocate capital more conservatively. Traders should carefully select their lot size based on their risk tolerance, trading strategy, and account size to ensure they can manage their positions effectively.

Recommended Brokers

Take the guesswork out of choosing a Forex broker by selecting one of our recommended options. I have thoroughly vetted each broker to ensure they meet the highest standards of security, reliability, and user experience. Don’t miss out on the opportunity to trade with confidence and success.
Choose one of our recommended Forex brokers today!

FP Markets

Since 2005

Offices:

Australia, Cyprus, South Africa

FP Markets

Minimum Deposit:50 USD 
Account currency: USD, EUR, GBP
Leverage:1:500*
Accounts:Raw, Standard, Pro, IRESS account
Instruments Offered: Forex, Indices, Commodities, Metals, Energies, Shares, ETFs Crypto, Bonds
Trading Platform:MT4, MT5, cTrader, WebTrader, Mobile App,  Superior VPS solutions
Regulation:ASIC, CySEC, FSCA
Spreads:Raw:  from 0.0 pips,
Standard: from 1.0 pip   
Visit BrokerBroker Review

FXOpen

Since: 2005

Offices:

UK, Australia, Cyprus, Nevis 

  FXOpen

Minimum Deposit:$15
Account currency:GBP, USD, EUR
Leverage:Up to 1:500
Accounts:Micro, STP, ECN, Crypto, Demo
Instruments Offered:Forex, Indices, Commodities, Metals, Energies, Shares, Cryptocurrencies
Trading Platform: MT4,   MT5*, TickTrader*  Free Forex VPS Hosting
Regulation:ASIC, FCA
SpreadsMicro: Floating Spread
STP: Tight Spreads
ECN: Raw Spreads
Crypto: Tight Spreads
Visit BrokerBroker Review

InstaForex

Since: 2007

Offices:

 British Virgin Isles

InstaForex

Minimum Deposit:From $1
Account currency:EUR, USD
Leverage:From 1:1 up to 1:1000
Accounts:Demo, Insta.Standard, Insta.Eurica, Cent.Standard, Cent.Eurica, PAMM
Instruments Offered:
Forex, Indices, Futures, Options, Commodities, Metals, Energies, Shares, Cryptocurrencies
Trading Platform:МТ4, МТ5, InstaTrader, WebTrader, Multiterminal, Mobile Trading, VPS hosting
Regulation:BVI FSC 
Spreads:0 pips: Insta.Eurica and Cent.Eurica;
3–7 pips: Insta.Standard and Cent.Standard
Visit BrokerBroker Review

EightCap

Since: 2009

Offices:

Australia, Vanuatu

EIGHTCAP

Minimum Deposit:$100
Account currency:AUD, USD, GBP, NZD, SGD, EUR
Leverage:1:30 for Australian clients
1:500 for Non-AU clients
Accounts:Standard Account, Raw Account
Instruments Offered:
Forex, Indices, Commodities, Metals, Energies, Shares, Cryptocurrencies
Trading Platform:MT4, MT5, Mobile, VPS hosting
Regulation:ASIC, VFSC
Spreads:From 0.0 pips
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IC Markets

Since: 2007

Offices:

Australia, Cyprus, Seychelles

IC MARKETS

Minimum Deposit:200 US dollars
Account currency:USD, AUD, GBP, CHF, JPY, NZD, SGD, CAD, HKD, BTC
Leverage:From 1:1 to 1:500
Accounts:Demo, Raw Spread, cTrader, Standard, Islamic, PAMM
Instruments Offered:Forex, Indices, Commodities, Metals, Energies, Shares, Bonds Cryptocurrencies
Trading Platform:cTrader, MT4, MT5, WebTrader, VPS hosting
Regulation:AFSL, ASIC, CySEC, FSA
SpreadsFrom 0
Visit BrokerBroker Review

RoboForex

Since: 2009

Offices:

Belize

RoboForex

Minimum Deposit:$10
Account currency:USD, EUR, and GOLD
Leverage:1:2000 
Accounts:ECN, Pro, Prime, ProCent, R Stocks Trader
Instruments Offered:Forex, Indices, Commodities, Metals, Energies, Shares, Cryptocurrencies, Futures
Trading Platform:MT4, MT5, WebTrader, Free VPS-Server, R StocksTrader
Regulation:FSC 
Spreads:From 0.0 pips
Visit BrokerBroker Review
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Cory has been a professional trader since 2005, and holds a Chartered Market Technician (CMT) designation. He has been widely published, writing for Technical Analysis of Stock & Commodities magazine, Investopedia, Forbes, Benzinga, and others.