Reference · Forextity Academy
Forex Trading Glossary
Forextity AcademyUpdated August 2026
Every term you'll actually run into as a forex trader, defined in plain language — no circular definitions, no jargon explaining jargon. Where a term has its own full guide, we've linked it.
A
- Ask (Offer)
- The price at which a broker will sell you a currency pair — the price you pay when you go long (buy). Always slightly higher than the bid price; the gap between them is the spread.
- ATR (Average True Range)
- A volatility indicator measuring the average size of a pair's price movement over a set number of periods. Traders use it to set stop-losses that account for how much a pair typically moves, rather than an arbitrary fixed distance.
B
- Base Currency
- The first currency listed in a pair. In EUR/USD, EUR is the base currency — the price tells you how many USD it takes to buy 1 EUR.
- Bid
- The price at which a broker will buy a currency pair from you — the price you receive when you go short (sell).
C
- Currency Correlation
- The tendency of two currency pairs to move in the same direction (positive correlation) or opposite directions (negative correlation) over time. Holding correlated positions can mean your real risk exposure is larger than it appears. See our Correlation Risk Checker.
- Currency Strength
- A measure of how strong or weak a single currency is across all the pairs it trades in, rather than looking at just one pair in isolation. Useful for spotting which currency is actually driving a move.
D
- Drawdown
- The decline in an account's balance or equity from a previous high point, usually expressed as a percentage. See our full drawdown recovery guide for why recovering from a drawdown requires a disproportionately larger gain.
- Daily Drawdown Limit
- A rule (common in prop firm accounts) capping how much an account can lose within a single trading day before the account is disqualified or flagged. See our prop firm rules guide.
E
- Equity
- Your account balance adjusted for the current floating profit or loss of any open positions. Equity = Balance + Unrealized P&L.
- ECN (Electronic Communication Network)
- A broker execution model that routes orders directly to a network of liquidity providers rather than taking the other side of the trade itself, typically resulting in tighter raw spreads plus a separate commission.
F
- Fill
- The price and time at which an order actually executes. A market order's fill price can differ slightly from the price you saw when clicking, especially during fast-moving conditions — this difference is called slippage.
- FOMO (Fear of Missing Out)
- The urge to enter a trade because a move is already happening and it feels like the last chance to participate, often leading to poor entries chasing a price that has already moved significantly.
G
- Gap
- A price jump between the previous close and the next open with no trading in between, most common around weekends or major news events, when a stop-loss may not fill at the exact price requested.
H
- Hedging
- Opening a position specifically to offset the risk of an existing position, rather than to seek a new profit. Some brokers and account types restrict hedging on the same instrument.
L
- Leverage
- The ratio that determines how large a position you can control relative to the cash (margin) you put up. 1:100 leverage means $1,000 of margin can control a $100,000 position. See our full margin and leverage guide.
- Lot
- A standardized unit of trade size. A standard lot = 100,000 units of the base currency, a mini lot = 10,000, and a micro lot = 1,000.
- Long
- A position that profits if the price goes up — you've bought the base currency expecting it to strengthen against the quote currency.
M
- Margin
- The portion of your account balance set aside as collateral to open and hold a leveraged position. Not a fee — it's returned when the position closes. See our margin and leverage guide.
- Margin Call
- A warning (or automatic position closure, depending on the broker) triggered when your account's margin level falls too low, typically because open losses have eaten into your equity.
- Margin Level
- The ratio of your account equity to the margin currently in use, expressed as a percentage: (Equity ÷ Used Margin) × 100%. Brokers use this to determine when a margin call or stop-out occurs.
P
- Pip
- The standard unit of price movement in forex, usually the fourth decimal place (0.0001) — or the second decimal place (0.01) for yen pairs. See our full pip value guide.
- Pip Value
- How much a one-pip move is actually worth in your account currency, depending on the pair, your position size, and the current exchange rate. Not a fixed number across all pairs.
- Position Size
- The number of lots or units traded on a given position, ideally calculated from your account balance, risk tolerance, and stop-loss distance rather than chosen arbitrarily. See our position sizing guide.
- Prop Firm
- A proprietary trading firm that provides traders with capital to trade after passing an evaluation, in exchange for a share of the profits. See our prop firm rules guide.
R
- Revenge Trading
- Re-entering the market immediately after a loss, usually with an oversized position, specifically to try to win back the money just lost rather than because a genuine setup appeared. See our full guide on the psychology behind it.
- Risk/Reward Ratio
- The relationship between how much you stand to lose versus how much you stand to gain on a trade, based on your stop-loss and take-profit distances. See our risk/reward guide.
S
- Session Overlap
- The window when two major trading sessions (e.g., London and New York) are open simultaneously, typically producing the highest liquidity and volatility of the trading day.
- Short
- A position that profits if the price goes down — you've sold the base currency expecting it to weaken against the quote currency.
- Slippage
- The difference between the price you expected an order to fill at and the price it actually filled at, most common during high volatility or low liquidity.
- Spread
- The gap between the bid and ask price, representing part of the broker's compensation for executing the trade — effectively a built-in cost every position starts with.
- Stop-Loss
- A pre-set order that automatically closes a position at a specified price to limit further loss if the market moves against you.
T
- Take-Profit
- A pre-set order that automatically closes a position once it reaches a specified profit target.
- Trailing Drawdown
- A drawdown limit measured from an account's highest-ever balance rather than its starting balance, meaning the "floor" moves up as the account profits. A common source of confusion in prop firm rules — see our full explanation.
V
- Volatility
- How much and how quickly a price moves over a given period. Higher volatility means larger, faster price swings in both directions — measured in tools like the ATR Volatility Calculator.
W
- Win Rate
- The percentage of trades that close profitably. On its own it says very little about whether a strategy is profitable — it has to be evaluated alongside risk/reward ratio. See our full explanation.