Glossary of Forex Terminology

There are hundreds of terms in the forex terminology, but it is hard to understand most of them if you are a novice forex trader. For now, only learn the following terms:


Ask Rate - The rate at which a financial instrument if offered for sale (as in bid/ask spread).

Bear Market - A market distinguished by declining prices.

Bid Rate - The rate at which a trader is willing to buy a currency.

Bid/Ask Spread - The difference between the bid and offer price, and the most widely used measure of market liquidity.

Bull Market - A market distinguished by rising prices.

Contract (Unit or Lot) - The standard unit of trading on certain exchanges.

Fundamental Analysis - focuses on the economic forces of supply and demand that causes price movement. The Fundamentalist studies the causes of market movement, whereas the Technician studies the effects.

Limit order - An order with restrictions on the maximum price to be paid or the minimum price to be received.

Long position - A position that appreciates in value if market prices increase. When one buys a currency, their position is long.

Offer - The rate at which a dealer is willing to sell a currency.

Pips - Digits added to or subtracted from the fourth decimal place, i.e. 0.0001. Also called Points.

Rate - The price of one currency in terms of another, typically used for dealing purposes.

Resistance - A term used in technical analysis indicating a specific price level at which analysis concludes people will sell.

Short Position - An investment position that benefits from a decline in market price. When one sells a currency their position is short.

Spread - The difference between the bid (buy) and offer (ask, sell) prices; in other words the spread is the commission that the brokerage house makes on each trade. This can vary widely between currencies and between brokerage firms.

Stop Loss Order - Order type whereby an open position is automatically liquidated at a specific price. Often used to minimize exposure to losses if the market moves against an investor’s position.

Support Levels - A term used in technical analysis indicating a specific price level at which a currency will have the inability to cross below.

Technical Analysis - An effort to forecast prices by analyzing market action through chart study, volume, trends, moving averages, patterns, formations and many other technical indicators.