Forex Glossary - 90+ Trading Terms Defined

The complete Orion RFX forex glossary — 95 terms covering everything from pip and lot through to genetic algorithms, smart-money concepts, and central bank policy. Each term gets a focused definition; many link out to longer-form explanations on our trading blog or calculator suite.

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3-bar reversal: A simple price pattern where three consecutive candles signal a potential reversal — typically a thrust, a hesitation, and a confirming reversal candle.
Algo trading → learn more: Trading via algorithms — predefined rules that execute automatically. Encompasses EAs in MetaTrader, custom scripts, and institutional trading desks.
Ask price: The price at which the broker will sell you a currency pair. Always higher than the bid. The difference between bid and ask is the spread.
ATR (Average True Range): A volatility indicator that averages a market's true range over a period (typically 14 bars). Used to size stops dynamically — a 1.5×ATR stop scales with volatility rather than being a fixed pip distance.
Backtesting → learn more: Running a trading strategy against historical market data to estimate how it would have performed. Honest backtesting includes realistic spread, slippage, and commission costs.
Base currency: The first currency in a pair (e.g. EUR in EUR/USD). The pair's price tells you how much of the quote currency one unit of the base currency is worth.
Bid price: The price at which the broker will buy a currency from you. Always lower than the ask. When you close a long position, it closes at the bid.
BoE / BoJ: Bank of England (GBP) and Bank of Japan (JPY) — their policy decisions are the primary fundamental drivers of their respective currencies.
Breakout: Price moving beyond a defined range, level, or pattern boundary. Breakout strategies enter when this occurs; the challenge is distinguishing real breakouts from false ones (fakeouts).
Broker → learn more: The intermediary that gives retail traders market access. Categorised as market maker, STP (straight-through processing), or ECN. See our broker selection guide.
Bullish / Bearish: Bullish = price is expected to rise. Bearish = price is expected to fall. Named after how bulls toss horns upward and bears swipe paws downward.
Bullish divergence: Price makes a lower low while an oscillator (RSI, MACD) makes a higher low. Suggests weakening downside momentum and potential reversal.
Bullish engulfing: A two-candle pattern where a green candle's body completely engulfs the previous red candle's body. Often signals reversal at support levels.
Candlestick: A chart bar showing open, high, low and close prices for a period. The body is the open-to-close range; the wicks show the highs and lows.
Carry trade: Buying a high-yielding currency while selling a low-yielding one, profiting from the interest rate differential (swap) regardless of price movement.
Commission: A per-trade fee charged by some brokers (especially ECN accounts) in addition to or instead of spread. Often $3-$7 per round-turn lot.
Compounding → learn more: Reinvesting profits to grow position size, accelerating returns geometrically. A 2% monthly return compounded is 26.8% annually, not 24%.
COT (Commitment of Traders) → learn more: Weekly CFTC report showing positioning by commercial, non-commercial and retail traders. Used by Orion's COT Display indicator to read smart-money sentiment.
CPI: Consumer Price Index — the headline inflation measure. Above-expected CPI is hawkish for the currency; below-expected is dovish.
Cross pair: A currency pair that doesn't include USD (e.g. EUR/GBP, AUD/NZD). Crosses typically have wider spreads and higher volatility than majors.
Day trading: Opening and closing positions within the same trading day to avoid overnight exposure and swap costs.
Demo account → learn more: A practice trading account that uses simulated funds but real-time market prices. Useful for testing strategies — but psychologically very different from live trading.
Doji: A candlestick where open and close are essentially equal, creating a 'cross' shape. Signals indecision; potentially significant at major support/resistance.
Drawdown → learn more: The peak-to-trough drop in account equity, expressed as a percentage. A 20% drawdown requires a 25% gain to recover; a 50% drawdown requires 100%.
ECB: European Central Bank — the central bank for the eurozone. Their rate decisions and Christine Lagarde's press conferences drive EUR volatility.
Equity: Account balance plus or minus floating PnL on open positions. Differs from balance which only reflects closed trades.
Expert Advisor (EA) → learn more: A program that runs inside MetaTrader and trades autonomously based on coded rules. Orion's Nebula generator builds EAs via genetic algorithms.
Fair value gap (FVG): A three-candle pattern where the middle candle's range leaves a 'gap' between the first candle's high and the third candle's low (or vice versa). Often revisited by price.
Fibonacci retracement: A drawing tool using ratios (38.2%, 50%, 61.8%) derived from the Fibonacci sequence to identify potential support and resistance levels within a trend.
FOMC: Federal Open Market Committee — the Federal Reserve's policy committee. Their interest rate decisions (8 times per year) cause major USD volatility.
Forex (FX): The global market for trading currencies. The largest financial market in the world, trading ~$7.5 trillion per day.
Free margin: Account equity minus margin currently locked into open positions. The buffer you have for new positions or to absorb floating losses.
Fundamental analysis: Evaluating currencies based on economic data (interest rates, inflation, GDP, employment). Contrasts with technical analysis which uses price patterns.
Gap: A price discontinuity where the market opens at a different level than it closed (typically on weekends or major news). Gaps often fill but not always.
Genetic algorithm → learn more: A class of evolutionary algorithms that 'breed' and mutate candidate solutions across generations, selecting the fittest. Used by Orion's Nebula to evolve trading strategies.
Hawkish / Dovish: Hawkish = central bank statements/policies suggesting higher interest rates (typically strengthens currency). Dovish = lower-rates outlook (typically weakens).
Hedging: Taking offsetting positions to reduce risk — e.g. long EUR/USD and short EUR/JPY to neutralise EUR exposure. US brokers cannot offer same-pair hedging due to FIFO rules.
ICT (Inner Circle Trader): A trading methodology popularised online that focuses on liquidity, fair value gaps, market structure, and smart-money concepts.
Indicator → learn more: A calculation derived from price/volume data plotted on a chart. Lagging indicators (MA, MACD) confirm what's already happened; leading indicators attempt to predict.
Interest rate: The cost of borrowing the base currency, set by central banks. Major driver of long-term currency movements through capital flows.
Leverage → learn more: Borrowed capital from the broker letting you control a larger position than your account size. 1:30 leverage means $1 controls $30. Amplifies both gains and losses.
Limit order: An order to buy below the current price (limit buy) or sell above it (limit sell). Used when you expect price to retrace before continuing in your direction.
Liquidity: How easily an asset can be bought or sold without affecting its price. Major pairs have deep liquidity; exotic pairs do not. Liquidity also describes pools of stop orders that institutional traders target.
Liquidity grab: A sharp price spike beyond a swing high/low designed to trigger stop orders before reversing. Central to ICT/Wyckoff-style trading methodologies.
Long: Buying with the expectation that price will rise. To 'go long EUR/USD' means buying EUR with USD.
Lot → learn more: The standard unit of forex trade size. Standard lot = 100,000 units, mini = 10,000, micro = 1,000, nano = 100.
MACD: Moving Average Convergence Divergence — a momentum indicator showing the relationship between two moving averages (typically 12 and 26 EMA). Crossovers and divergences are common signals.
Margin → learn more: The deposit required to open a leveraged position. Not a cost — it's released back when the position is closed, plus or minus profit/loss.
Margin call: A broker notification that your floating losses are approaching the threshold where remaining positions would be force-closed. Increase deposit or reduce position size to avoid.
Market maker: A broker that takes the other side of client trades rather than passing them to the interbank market. Creates a conflict of interest but often offers fixed spreads.
MetaTrader 4 / MT5 → learn more: MetaQuotes-built trading platforms widely used in retail forex. MT4 is older but more EA-rich; MT5 supports more asset classes and netting.
Momentum → learn more: The rate of change in price. High momentum means strong directional movement; low momentum suggests indecision or consolidation.
Money management: Rules governing position size, risk per trade, and exposure across positions. The discipline that separates surviving traders from blown accounts.
Moving average: Average of past closes over N periods. Simple MA weights all bars equally; Exponential MA (EMA) weights recent bars more. Used for trend detection and dynamic support/resistance.
Negative balance protection: A broker policy preventing your account from going below zero even on extreme gaps. Required by FCA/ASIC; often absent at offshore brokers.
News trading: Entering positions immediately before or after high-impact economic data releases (NFP, CPI, central bank decisions). High-risk, high-reward; spreads typically widen significantly.
NFP (Non-Farm Payrolls): US employment data released first Friday of each month. The most-watched single data point in forex — causes substantial volatility, especially in USD pairs and gold.
OHLC: Open, High, Low, Close — the four prices that define every candlestick or bar. Most charting and backtesting uses OHLC data; tick-level data is finer-grained.
Order block: A specific candle or zone where significant institutional buying or selling appears to have taken place, often acting as support/resistance on retests.
Order flow → learn more: The actual buying and selling activity hitting the market in real time. Used by Orion's Money In/Out indicator to identify smart-money entry points.
Overfitting → learn more: Tuning a strategy so precisely to historical data that it captures noise rather than real edge. Looks great in backtest, fails live.
Pin bar: A candle with a small body and a long wick rejecting one side. Bullish pin bars have long lower wicks (rejection of lower prices); bearish reverse.
Pip → learn more: The smallest standard price move in forex. 0.0001 for most pairs, 0.01 for JPY pairs. The unit used to measure profit, loss, and stop distance.
Pipette → learn more: One-tenth of a pip (the fifth decimal on most pairs, third on JPY pairs). Used by brokers offering tighter spreads, e.g. 0.7 pips instead of rounding to 1.
Position size → learn more: How many lots you trade on a given setup. Derived from your risk amount and stop loss distance, not chosen arbitrarily.
Position trading: Holding trades for weeks or months based on fundamental and macro analysis. Lower frequency than swing or day trading.
Prop firm → learn more: A company that provides traders with simulated or real capital to trade, splitting profits. Examples: FTMO, MyForexFunds (defunct), The5%ers.
Pullback: A temporary counter-trend move within a larger trend. Pullback strategies enter on these dips to ride the resumed trend.
Quote currency: The second currency in a pair (e.g. USD in EUR/USD). The pair's price tells you how much of the quote currency one unit of the base currency is worth.
Range trading: Buying near support and selling near resistance within a defined price range. Works in sideways markets; fails badly during breakouts.
Risk-to-reward (R:R) → learn more: The ratio of potential loss (risk) to potential gain (reward) on a trade. A 1:2 R:R means risking 1 unit to make 2; it needs only ~34% win rate to break even.
RSI (Relative Strength Index): A momentum oscillator from 0-100 measuring recent gains vs losses. Traditionally >70 = overbought, <30 = oversold — but these levels are weak signals in trending markets.
Scalping: Very short-term trading holding positions seconds to minutes for small gains. Demands tight spreads, fast execution, and excellent psychological control.
Sharpe ratio: Return divided by volatility, measuring risk-adjusted performance. Above 1.0 is good, above 2.0 excellent. Used to compare strategies of different risk profiles.
Short: Selling with the expectation that price will fall. In forex, going short means selling the base currency for the quote currency.
Slippage → learn more: The difference between the price you requested and the price you got filled at. Most common during fast moves and on stop orders.
Smart money concepts (SMC): An umbrella for ICT/Wyckoff-derived trading methods focused on identifying and following institutional order flow rather than retail patterns.
Spread → learn more: The difference between the bid and ask price, expressed in pips. The broker's primary revenue source. Tighter spreads = lower trading cost.
Stop hunting: Allegation that institutional traders intentionally push price to known retail stop clusters to trigger them and harvest liquidity. Real phenomenon in thin markets.
Stop loss → learn more: An order that closes a trade when price reaches a predetermined adverse level, capping your loss. The single most important risk management tool.
STP (Straight-Through Processing): A broker execution model that routes client orders directly to liquidity providers, removing the broker's conflict of interest.
Support and resistance: Price levels where buying (support) or selling (resistance) has historically been strong enough to halt or reverse price movement.
Swap: The interest rate differential paid or received for holding a position overnight. Rolls daily; can be positive or negative depending on the pair and direction.
Swing trading: Holding trades from a few days to a few weeks to capture larger market swings. Less time-intensive than day trading, more responsive than position trading.
Take profit (TP): An order that closes a winning trade at a predetermined favourable price. Used to lock in gains without manual intervention.
Technical analysis: Evaluating markets using historical price patterns, indicators and chart structure. Opposed to fundamental analysis which focuses on economic data.
Tick: The smallest possible price movement, or one update in the market. Tick data is more granular than OHLC and matters for scalping backtests.
Trailing stop → learn more: A stop loss that follows price in your favour, locking in profit as the trade moves your way. Triggers when price reverses by the trail distance.
Trend: A market's directional bias over a chosen timeframe. Higher highs and higher lows = uptrend; lower lows and lower highs = downtrend.
Volatility: How much price moves over a given period. Higher volatility = larger price swings, often with wider stops needed and bigger position size variation.
Volume: The number of contracts/lots traded in a period. In forex, true volume is hard to measure (decentralised market); tick volume is a common proxy.
Walk-forward analysis → learn more: A backtesting method where the strategy is optimised on one window of data and tested on the next, repeating across history. Reveals overfitting that single backtests hide.
Wyckoff method → learn more: An analytical framework developed by Richard Wyckoff in the 1900s, focused on smart-money accumulation, distribution and market cycles. Central to Orion's Protocol v7.
Yield: The income (interest or dividends) received from holding an asset. In forex, the relevant yield is the central bank policy rate of each currency.
Zero-spread account: A broker account offering near-zero raw spread (often <0.2 pips on majors) with a per-lot commission. Total cost can be lower than standard spread-only accounts.

Missing a term? Email rsupplystores@gmail.com with the suggestion and we'll add it to the next revision. See also: free forex calculators · trading blog · Orion indicators.

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