Forex Glossary of Terms for Beginners

You can’t become a profitable trader without understanding forex trading terms such as bid/ask, base/quote currency, and leverage. Essentially, it’s a case of learning to talk the talk before you walk the walk.

That might sound cliche, but it’s true. If you don’t know what important terms in forex trading mean, you can’t use our guides. If you can’t use our guides, you won’t be able to learn the basics of forex trading.

If you can’t learn the basics, you won’t be a profitable forex trader. What we’re getting at is that every successful forex trading strategy starts with an understanding of FX terms. So, with this in mind, you should use this guide to forex trading terminology if you’re at the start of your trading journey.

Forex Terminology for Beginners

Now that you know that forex terms are important, let’s get into specifics. Below are the most important forex terms you need to know if you want to trade currency pairs online.

Ask Price – the amount a seller is willing to accept for a security is known as the ask price. It’s above the market rate because it includes the seller’s fees. The opposite of the ask price is the bid price.

Base Currency – the currency on the left of a pair is the base. Currency pairs compare the value between the base currency and its pair; e.g. USD/GBP compares the base currency (USD) to the quote currency (GBP).

Bear Market – a market in which prices are trending in a negative direction is known as a bear market i.e. it’s bearish.

Bid Price – the amount a buyer is willing to pay for a security is known as the bid price. The bid price will be lower than the ask price. The difference between the two prices is known as the spread e.g. the USD/GBP ask/bid could be 1.2005/1.2008.

Broker – a broker matches buyers and sellers within financial markets, including forex. They’re an independent third party.

Bull Market - a market in which prices are trending in a positive direction is known as a bull market i.e. it’s bullish.

Buy-Stop – the buy-stop meaning in forex refers to a type of order that instructs a broker (or brokerage platform’s software) to purchase a currency pair at a specified price. When the currency pair’s price hits the predetermined amount, the buy-stop becomes a limit or market order that gets filled at the next available opportunity.

Confluence – what is the meaning of confluence in forex? Confluence is the point at which different trading signals move towards or cross on a chart. Essentially, confluence is when your technical analysis provides the same signal, i.e. market prediction.

Cross Currency Pair -a forex trade that doesn’t involve USD is known as a cross-currency pair or a currency cross.

Currency Basket – a group of currencies is known as a basket of currencies or a currency basket. The currencies are weighted according to various factors and used as a comparison to a single base currency.

Currency Pair – a currency pair in forex compares the value of one currency (the base) to another (the quote), e.g. USD (base)/GBP (quote). Forex trading is the act of simultaneously buying one currency and selling another. Therefore, with a currency pair, you’re looking at how much of the quote currency you need to purchase one unit of the base currency.

Economic Calendar – events that can influence the forex market are listed on an economic calendar.

Equity – the total value of your trading account is known as your equity. It includes your account balance and the current value of your open positions.  

Exchange Rate – the amount required to purchase one unit of currency using another is the exchange rate. For example, if the USD/GBP exchange rate is 1.30, it means you need $1.30 to purchase £1.

Forex Market Hours – the forex market only closes on weekends, which means you can buy and sell currency pairs 24 hours a day, Monday-Friday.  

Forex Signals – a trading signal in forex is a recommendation to buy or sell a currency pair at a particular point in time based on market analysis. Traders can subscribe to services that send out forex signals based on their own analysis.  

Fundamental Analysis – fundamental analysis is a process by which traders attempt to determine the future value of a security (e.g. forex) based on external factors, such as economics and industry trends. The counter to fundamental analysis is technical analysis.

Hedging – taking a position in order to offset the potential risk of an existing position is known as hedging.

Leverage – forex traders can open positions larger than their balance allows using leverage. Put simply, leverage is borrowed money and expressed as a ratio between your commitment and the broker’s commitment, e.g. 100:1 means the broker is putting in 100 units to your 1 unit.

Liquidity – the amount of buying and selling activity within a financial market is described as its liquidity. Knowing how much liquidity a market has is important because it provides an indication of how easily or quickly you can buy or sell a security.

Lot - forex currency pairs are traded in standardised units known as lots. The three most commonly used lots in forex trading are standard (100,000 units of currency), mini (10,000 units of currency), and micro (1,000 units of currency).

Margin – the amount of money required to open and maintain a leverage position is known as the margin. The difference between the value of your position and the amount of money lent to you by the broker (i.e. the leverage) is the margin.

Margin Call – you’ll receive a margin call when your account balance falls below the minimum amount required to maintain a leveraged position.

NFP – the NFP meaning forex traders understand is Non-Farm Payrolls. A Non-Farm Payroll (NFP) is a monthly report released by the US Bureau of Labor Statistics that estimates the number of jobs gained/lost compared to the previous month. Forex traders use NFPs to estimate the direct USD currency pairs could move.

Order – a forex order is an instruction. That instruction can be a simple buy or sell order. To be more specific, forex orders can have certain conditions or parameters. The most common orders in forex are Market Order (buy/sell at the best current price), Limit Order (buy/sell at a specific price or better), Stop Order/Stop-Loss Order (buy/sell when a security hits a specific price).

Pip – forex price movements are measured in standardised units known as pips. For example, if the USD/GBP price goes from 1.3210 to 1.3211, it’s increased by one pip.  

Position Trading – taking a longer-term approach is known as position trading in forex. Most forex traders hold positions for short amounts of time, such as a day. Position traders will hold positions for weeks, months, and longer.

Quote Currency - the currency on the right of a pair is the quote. The difference in value between the quote currency and the base currency determines the value of a currency pair.

Scalping – scalping is a trading strategy that aims to enter and exit positions extremely quickly. The aim of scalping is to profit from short-term price fluctuations.  

Sell-Stop – what is the sell-stop meaning in forex? A sell-stop is an order to sell a currency pair at a predetermined price. The order is triggered once the market price hits the stop, but it could be filled at a different price due to slippage.

Slippage – the price difference between an order being placed and executed is known as slippage. For example, you could set a sell-stop at 1.2111, but the order could be completed at 1.2110. Slippage is typically the result of high volatility and prices changing quickly.  

Spread – the difference between the ask and bid prices is known as the spread. As a forex trader, you want this difference to be as small as possible i.e. you want tight spreads in order to maximise your potential profits.

Stop-Out – the point at which your position is automatically liquidated due to insufficient margin is known as stopping out. Put simply, when your account balance gets too low to maintain a leverage position, a stop-out happens.

Swing Trading – this trading strategy aims to capitalise on short and medium-term price fluctuations. Swing traders typically use technical analysis and will hold positions for a few days or weeks. 

Take-Profit Order – a take-profit order instructs a broker/brokerage platform to close a position once the price hits a predefined profit. This type of order is great for forex beginners because you can automatically take the amount of profit you want without watching the markets. It’s often a good idea to combine a take-profit limit with a stop-loss.

Technical Analysis - technical analysis is the counter to fundamental analysis. Technical analysis aims to determine a security’s price potential based on internal factors, e.g. historical data and price charts.

Trading Platform – a trading platform is a website that allows you to buy and sell currency pairs (forex). A trading platform can also be referred to as an online brokerage or brokerage platform. We review and rate the best online trading platforms so you can find the right site for your needs.

Volatility – the ups and downs (swings) within a financial market is referred to as volatility. High volatility is when a lot of price fluctuations happen in a short period of time. Low volatility is when very few price fluctuations happen in a short period of time. You can use different trading strategies depending on the market’s volatility. As a general rule, forex beginners should avoid highly volatile markets.

How STIC Cashback Supports Forex Beginners

In addition to giving you a rundown of important forex terms, we’re here to guide you through every part of your trading journey. From basic forex trading terminology, you can move on to guides that cover topics such as analysing charts and trading signals.

Then, when you’re ready to put your newfound knowledge into practice, our recommended forex trading platforms are the best places to start. We review regulated online forex trading platforms and negotiate exclusive deals and promotions.

These deals allow you to get something extra as a new customer. For example, you can get a $10 bonus and cashback when you create a STICPAY account and connect it to one of our partner brokers.

This forex glossary of terms is a starting point from which you can build a robust trading strategy using all the resources here at STIC Cashback.

Forex Terminology FAQs

What is forex trading?

Forex trading is the act of buying and selling currency pairs. The fundamental premise of forex trading is based on the value of one currency in relation to another. Anyone who wants to trade forex needs to know commonly used FX terminology, including bid/ask, leverage, and spread.

What is an example of basic forex terminology?

Some of the basic forex terms you need to know are bid/ask, spread, base currency, quote currency, and leverage. The STIC Cashback forex glossary provides a comprehensive overview of these terms and many more.

What is the most useful forex terminology for beginners?

Some of the most important forex terms you need to know are base currency and quote currency. A forex currency pair consists of a base currency and quote currency, e.g. USD/GBP. The value of the pair is based on how much of the quote currency you need to buy one unit of the base currency. Forex traders aim to predict whether this relative value will increase or decrease.

What is leverage in forex terms?

Leverage is a forex term used to describe borrowed money. A trader can use leverage to open a position with less money than it would otherwise cost. For example, 50:1 leverage means that the broker is giving you 50 units for every 1 unit you commit to a trade.