The Forex market, as the largest financial market in the world, has always attracted the attention of investors and traders; therefore, mastering Forex market terminology plays a very key role in traders’ success. Keep in mind that many traders do not have a complete understanding of this market’s terminology; this very issue leads to unfortunate events such as significant financial losses.
Familiarity with important concepts enables you to make correct and timely decisions under various conditions. For example, understanding the concept of “Slippage,” which we will explain in the Forex trading terminology section, refers to the difference between the requested price and the executed price, which can prevent considerable losses in your trades.
The large number of terms may seem discouraging; however, mastering them will guarantee your success in this market. We recommend that instead of rushing to gain large profits, you take the time to carefully learn the key terminology.
Forex Key Terms and Concepts
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Currency Pairs
The Forex market (Forex), which stands for Foreign Exchange, meaning the exchange of foreign currencies, is a decentralized and global market where the currencies of different countries are traded in pairs. Traders can profit by predicting fluctuations in exchange rates; in addition, by analyzing currency pair charts, they can decide whether to buy or sell one currency against another.
The most well-known currency pair in Forex is EURUSD, which represents the exchange of the Euro and the US Dollar.
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Major Currency Pairs
In the Forex market, currency pairs that include the US Dollar are called major pairs. Their importance is due to the position of the US Dollar as the largest fiat currency in the world with the highest trading volume. The similarity of the Dollar’s function in Forex to Bitcoin in the cryptocurrency market is the main reason for this naming.
Examples of major currency pairs:
EUR/USD (Euro/US Dollar)
GBP/USD (British Pound/US Dollar)
USD/JPY (US Dollar/Japanese Yen)
USD/CAD (US Dollar/Canadian Dollar)
AUD/USD (Australian Dollar/US Dollar)
USD/CHF (US Dollar/Swiss Franc)
NZD/USD (New Zealand Dollar/US Dollar)
It should be noted that in some of these pairs, the US Dollar is the base currency, and in others, it is the quote (counter) currency.
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Minor or Cross Currency Pairs – Cross Pairs
Minor or cross currency pairs are defined in contrast to major pairs that include the US Dollar. These pairs consist of two major currencies other than the US Dollar.
Examples of popular minor currency pairs include:
(EUR/GBP) Euro/Pound
(GBP/JPY) Pound/Yen
(EUR/CHF) Euro/Swiss Franc
In total, there are 29 major and minor currency pairs along with gold that are suitable for trading in Forex.
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Buy
Buy in the Forex market means purchasing. This term refers to opening a trade in which the trader expects the price of a currency pair to increase. There are different types of Buy orders in Forex, which you will also become familiar with in this article.
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Sell
Sell in the Forex market means selling a currency pair. Alongside buy orders, this concept also provides traders with various types of sell orders. Unlike the stock market or cryptocurrency market, transactions in Forex are conducted as CFDs; therefore, traders can instantly take action to buy and sell currency pairs.
A full understanding of this subject requires familiarity with the concept of a two-way market, which we will discuss below.
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Close
“Close” means the closing of the market at specific times and is also used to determine the last price in different chart timeframes. This price is the last price at which a trade was executed within that specific time period; additionally, in candlestick charts, the Close price is shown at the lowest point of the candle.
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Broker
Brokers act as intermediaries that make it possible for retail traders to execute trades in this market. To connect to the Forex trading core, opening a trading account with a broker and depositing funds to start trading is mandatory. You can contact our consultants at Delta FX Broker for more information in this field.
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Demo
A demo account is a virtual account that allows traders to trade in the Forex market on a trial basis without the need for real investment. This account is an ideal tool for testing trading strategies, practicing and improving skills, and becoming familiar with trading platforms.
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Trend
A trend refers to the direction or tendency of the price movement of a currency pair within a specific time period. There are three types of trends in this market: uptrend, downtrend, and range or sideways.
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Trend Line
A trend line is a tool that shows the direction and slope of a currency pair’s movement over time. This line is drawn by connecting pivot highs and lows on the price chart. Types of trend lines include ascending and descending trend lines.
Forex Trading Terms
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Pip
A pip is the smallest unit of price change in currency pairs. Uses of pips include calculating profit and loss, determining take profit and stop loss levels, converting exchange rate changes into profit and loss, calculating trade value, and calculating spread.
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Pipet
A pipet is a smaller unit than a pip that is used to measure price changes in currency pairs.
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Swap
Swap is one of the costs of trading in Forex, also known as the overnight interest rate. This cost arises due to differences in interest rates between two countries’ currencies. In currency pair trading, you are effectively borrowing one currency, and the swap compensates for this borrowing and the interest rate difference between the two relevant currencies.
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Lot
A lot is known as the unit for measuring trade volume. Each lot equals 100,000 units of a specific currency. Due to the high trading volume of each lot, smaller lot sizes such as mini lot, micro lot, and nano lot are offered for traders with less capital.
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Leverage
Leverage means the ability to use multiple times your capital to enter trades. This ratio is determined by brokers and ranges from 10 to 1000. Keep in mind that using leverage involves very high risk.
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Ask Price
The ask price is the price a trader must pay to buy one unit of the base currency in a currency pair. This price is set by the broker and is slightly higher than the bid price.
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Bid Price
The bid price is the price at which a trader is willing to buy one unit of the base currency in a currency pair. In other words, it represents the highest price a buyer is willing to pay for that specific currency at a given moment. An important point is that the bid price is always lower than the ask price.
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Spread
Spread shows the difference between the buying and selling price of a currency pair. This difference acts as a commission in trades and is one of the brokers’ sources of income. The spread varies for each currency pair and is deducted from the trader’s account at the beginning of each trade.
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Order
An order refers to a request to buy or sell an asset. This instruction remains in the form of an order until it is fully executed and converted into a trade. When the order is successfully executed in the market, it automatically turns into a trade or position.
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Order Price
Order price is the price that a trader specifies in the financial market when submitting a buy or sell order for an asset.
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Position
A position refers to a buy or sell order of a currency pair; in other words, when you trade a currency pair, a position in that pair is opened for you.
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Volume
Trading volume, measured in lots in Forex, is considered one of the key indicators in this market. Determining the optimal trade volume using capital management techniques plays a fundamental role in traders’ success.
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Instant Execution
In instant execution, the trader opens a position at the current market price by determining volume, take profit, and stop loss. The broker executes the trade immediately at the closest possible price to the trader’s request. Instant execution is suitable for quick market entry under specific conditions. It is important to know that due to market volatility, the risk of instant execution trades is higher.
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Pending Order
Pending orders in Forex refer to a type of trading order that is automatically executed when the price reaches a specified level set by the trader. By using pending orders, traders can enter the market according to their trading strategy and under ideal conditions.
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Buy Stop
A Buy Stop order is a type of buy order that is automatically activated at a price higher than the current market price. This order is useful for traders who believe the price is increasing and will soon break through a resistance level.
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Sell Stop
A Sell Stop is a type of trading order used in technical analysis to enter sell trades when support levels are broken. In this method, the trader identifies a support level on the price chart of an asset based on their analysis; then places a Sell Stop order below that support level. The purpose of this order is to enter a sell trade at the moment the support level is broken and the downtrend is confirmed.
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Buy Limit
A Buy Limit order is a type of pending order used to purchase securities at a price lower than the current market price. This order is applied when the trader expects a reversal of a downtrend at a specific support level. The advantage of a Buy Limit order is that it allows the trader to control the purchase price and reduce the likelihood of buying at higher prices.
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Sell Limit
In the Forex market, a Sell Limit is a type of pending order used to open a sell position at a price higher than the current market price. This order is used when the analyst predicts that the uptrend has ended and the price is reversing downward.
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Stop Loss
Stop Loss is a tool in technical analysis used to limit trading losses in the digital currency market. By setting a specific price level, this tool automatically issues an order to exit the trade if the price reaches that level. In fact, choosing an appropriate stop loss in Forex trading is crucial for risk management and capital preservation.
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Take Profit
Take Profit is a predetermined price level at which a trade is automatically closed to secure the profit. This target price, also known as a target, is determined based on the trader’s or analyst’s analysis to achieve a specific profit.
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Balance
Balance refers to the funds in your trading account. This amount represents the money you have in your account at any given moment and can use for trading. Your initial balance equals the deposit amount used to open the account, and the profit or loss of open trades is not reflected in your balance.
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Equity
Equity represents the value of your assets in your trading account with the broker at any given moment. In calculating equity, in addition to the initial balance, the profit and loss from open trades are also considered.
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Margin
Margin refers to the money deposited by the trader as collateral with the broker to execute trades larger than their account balance. This amount is actually part of the trader’s capital that is blocked by the broker to cover potential trading risks.
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Free Margin
Free Margin is the money remaining in your trading account that can be used for new trades or to cover losses in open trades. This amount is calculated after deducting the required margin for open trades from your account balance. Keep in mind that free margin is also affected by the profit and loss of your open trades.
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Margin Level
Margin Level indicates your account’s strength to enter new trades. By considering parameters such as equity and margin, it shows to what extent you are allowed to open new positions.
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Margin Call
Margin Call refers to a situation in which a trader faces insufficient margin to maintain open trades due to losses. This shortage serves as a warning to increase account balance or adjust trading positions to prevent further losses or forced liquidation by the broker.
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Margin Call Level
Margin Call Level refers to a specific level of a user’s account equity at which the broker issues a warning to increase the account balance or adjust open trades.
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Stop Out Level
Stop Out Level is a critical level in your trading account at which the broker automatically liquidates open trades due to a severe shortage of funds. This occurs when the value of your assets drops below the minimum required margin to maintain your open trades.
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Timeframe
A timeframe refers to specific time intervals in which currency pair prices are calculated and displayed on charts. Timeframes range from one minute to one month and even one year. Using multiple timeframes simultaneously is one of the common strategies among Forex traders.
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Candlestick
A candlestick is one of the most effective chart types for analyzing currency pairs in the Forex market. This chart consists of a series of candles, each representing a specific time period. The color and shape of each candle provide valuable information about the price trend of the currency pair.
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High Price
High Price refers to the highest price of a currency pair within a specific time period. It should be noted that to determine the high price, the relevant timeframe must be specified. Forex analysts also use the high price as a technical indicator to examine the price trend of currency pairs.
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Low Price
Low Price refers to the lowest price of a currency pair within a specific time period. This concept is clearly visible in candlestick charts. In other words, it represents the lowest price the currency pair has reached during a specific timeframe. In Forex technical analysis, Low Price can be considered a support point for the currency pair.
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Technical Analysis
Technical Analysis is a method for predicting the price movement trend of currency pairs by examining price charts and their past behavioral patterns. This method is based on the idea that past price changes tend to repeat in the future. Traders use technical analysis to identify price patterns on charts. These patterns may indicate price turning points, trade entry and exit points, or future market trends.
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Fundamental Analysis
Fundamental Analysis is a method for predicting currency pair prices in Forex by examining macroeconomic factors related to that pair. In this analysis, traders evaluate the intrinsic value of a currency using economic data and news. This data includes interest rates, inflation, gross domestic product, unemployment rate, and political stability. By analyzing this information, traders can conclude whether their chosen currency will strengthen or weaken in the future.
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Support
Support refers to a price level that has previously prevented further decline in a currency pair’s price. In other words, when the price is decreasing and reaches a level from which it has previously rebounded on the chart, there is a probability that the price will increase from that level; therefore, this price level is called support.
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Resistance
Resistance refers to price levels above the current market price where the probability of a trend reversal from bullish to bearish is very high. These price levels act like a barrier against price increases and increase the likelihood of a downward reversal. Resistance levels can be identified using various technical analysis tools such as horizontal levels, trend lines, price patterns, and indicators.
Forex Trading Terms
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Trade
Trade in the Forex market refers to buying and selling currency pairs with the aim of making a profit. This term is mostly used for retail transactions, while in large-scale transactions other terms such as investment or dealing are used. Usually, experienced and professional individuals in this market use the term trade.
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Trader
A person who buys and sells currency pairs is called a trader. The goal of these individuals is to profit from fluctuations in exchange rates.
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Meta Trader
Meta Trader is a trading platform used to view currency pair price charts in Forex. This software is offered for various operating systems and is provided by brokerages with dedicated login credentials.
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Reward
Reward refers to the expected profit in a trade. Understanding this concept both conceptually and calculating it using technical methods is essential for capital management and measuring trade volume in the Forex market.
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Risk to Reward
Risk to reward ratio is a metric used to measure the proportion between take profit and stop loss in a trade. This ratio is obtained by dividing the take profit by the stop loss.
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Technical Analyst or Chartist
A technical analyst is a person who uses technical analysis to examine and predict fluctuations in currency pairs in the Forex market. These individuals study charts and price patterns to identify trends and determine the best time to buy and sell currencies.
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Trigger
Trigger refers to a point that a trader, based on their technical analysis, considers suitable for entering a trade. A trigger may include situations such as a resistance breakout, crossing trend lines, or signals generated by indicators.
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Pullback
A pullback refers to a temporary movement against the main price trend in financial markets. This movement occurs after a support or resistance level is broken and is usually short-term. A pullback does not always mean the beginning of a downtrend, and the price may return to its main trend afterward. It is noteworthy that some traders also call a pullback the “last kiss.”
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Bear Market
A bear market refers to a condition in financial markets where most currency pairs and symbols experience price declines and a dominant negative sentiment prevails. This term is derived from the behavior of a bear, which looks downward when moving.
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Bear Trap
A bear trap is a situation in a bear market where traders, upon observing false signals, mistakenly assume the downtrend will continue and start selling. However, over time, prices increase instead of continuing to decline, and traders become trapped.
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Bull Market
A bull market refers to a period in the stock market during which prices continuously rise. In a bull market, investors are optimistic about the future of the market, and demand for buying stocks or currencies increases.
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Bull Trap
A bull trap in Forex is a situation where traders buy under the assumption that the uptrend will continue; however, the market trend is actually changing and will soon turn downward.
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Risk Free
Risk Free refers to a trading method in which the trader moves the stop loss to secure profit or at least avoid loss on a trade that is currently in profit.
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Hedging
Hedging means opening two opposite trading positions simultaneously on a currency pair. In other words, the trader opens both a buy and a sell position with equal volume on a specific currency pair. The purpose of hedging is to neutralize the risk of price fluctuations and thus preserve capital and earned profit.
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Target
Target price refers to the price that a trader expects a currency pair to reach in Forex.
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Long
In the Forex market, the term “Long” refers to buy trades and positions. In other words, when a trader predicts that the price of a currency pair will increase, they buy that pair and open a long position. This term is equivalent to BUY in Forex trading.
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Short
Short refers to sell positions in the market. In this strategy, the trader expects the price of the underlying asset to decrease. The trader borrows the asset from the brokerage and sells it in the market to create a short position; then when the price decreases, they buy it back at a lower price and return it to the brokerage.
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Slippage
Slippage refers to the difference between the price you requested for a trade and the price at which the trade is actually executed.
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CFD Trading
CFD stands for Contract For Differences, a contract between two parties—the trader and the broker—that allows the trader to profit from price fluctuations without owning the underlying asset.
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Risk Management
Risk Management in Forex refers to a set of actions taken by traders to reduce losses and increase profits in this market. These actions include various methods such as setting stop loss, controlling trade size, diversifying the trading portfolio, and using technical and fundamental analysis tools.
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Capital Management
Capital Management is a set of methods used to organize trades in the most financially optimal way possible. These methods help you precisely control the number of open trades, the volume of each trade, and the total capital risk in each trade.
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Long Term
Long-term trades in Forex refer to a type of trading strategy in which traders, relying on technical and fundamental analysis, buy various currency pairs for periods of several weeks to several months and wait for their prices to increase.
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Short Term
The goal of short-term trading is to profit from short-term price fluctuations of currency pairs. There are various strategies for short-term trading, including scalping, day trading, and swing trading.
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Scalp
Scalp refers to very short-term trades in Forex that are executed within timeframes of a few minutes to at most a few hours. The goal of this type of trading is to gain small profits in a short period of time.
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Scalper
A scalper is someone who invests in the Forex market through scalping trades. Scalping is a type of trading in which trades are executed with small profits over short time periods.
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Commission
Commission is a fee paid by traders to the broker for executing trades. Along with spread, it is one of the broker’s sources of income.
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Draw Down
Drawdown is the maximum loss a trader experiences within a specific time period. This loss is calculated based on their initial capital in the trading account.
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Fill or Kill
A “Fill or Kill” (FOK) order is a type of Forex trading order that allows the user to send an immediate buy or sell order for an asset to the broker. In this type of order, either execution or cancellation occurs. The purpose of using a Fill or Kill order is to reduce the likelihood of slippage, ensure execution at the requested price, and precisely control trade volume.
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Platform
A Forex platform refers to software or a website that connects the trader to the core of the Forex market.
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Session
A session in the Forex market refers to a time period during which a specific currency market is open and active. The Forex market consists of multiple trading sessions, with the four main sessions being Australia, Japan, London, and New York. The highest trading volume in Forex occurs between 16:30 and 20:30 Iran time.
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Swing Trader
A swing trader refers to traders who operate in the Forex market with the goal of short-term swing trading.
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Trailing Stop
A trailing stop is a type of trading order in financial markets designed for risk management and profit protection. This method allows you to automatically adjust your stop loss as the price of the asset moves in your favor.
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Correction
A correction in Forex refers to small price movements that form against the main market trend. These movements create zigzag waves within the trend. Corrections are identified using wave counting rules and major and minor pivots. In a downtrend, the correction is upward, and in an uptrend, the correction is downward.
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Impulse
An impulse in the Forex market refers to strong and rapid movements in the direction of the trend. These movements, called impulsive waves, indicate a sudden increase in energy and trend strength.
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Correlation
Correlation in Forex refers to the statistical relationship between two currency pairs and shows how similar or opposite their price movements are. This concept is measured by the correlation coefficient, which ranges from -1 to +1. Correlation is used in risk reduction and portfolio diversification.
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Back Test
Back testing refers to evaluating the performance of a trading strategy in past market conditions. This is done using a demo account and simulating trades based on historical data. The purpose of back testing is to assess the profitability and risk of a strategy before using it in real trading.
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Two-Way Market
The two-way Forex market means that you can simultaneously take action to buy or sell a currency pair. You can directly open a sell position and, if you wish to close the trade, buy it.
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Candlestick Chart
A candlestick chart is a graphical tool for displaying price fluctuations of currency pairs in Forex. Each candle includes information such as opening price, closing price, highest price, and lowest price; moreover, the visual appearance of candles on the chart can indicate price trends and the strength of buyers and sellers.
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Asset
An asset in the market refers to the balance in your account in an exchange or a digital wallet, which is less common in the Forex market.
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Requote
Requote means the inability to execute a trade at your requested price by the broker due to severe volatility or lack of liquidity.
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Overbought and Oversold
Overbought is a condition in the currency market where buyers of a specific currency pair become so numerous that its price rises abnormally. This price increase is not sustainable, and a decline will soon follow. In such conditions, many traders wait for an opportunity to sell the desired currency pair; therefore, buying in this situation carries high risk and may lead to losses.
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Pivot
Pivots are important reference points on charts that indicate price reversal points. Based on importance, pivots are divided into two main categories: major and minor.
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Caterpillar
Caterpillar is a tool for multi-timeframe analysis of currency pairs. This method provides better trading opportunities by comprehensively examining market conditions.
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Currency Code
Each currency in this market is identified by a three-letter word called a currency code. The structure of this code includes the first two letters representing the country of the currency and the third letter representing the currency name.
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Divergence
Divergence in technical analysis indicates a mismatch between price movement and trading volume.
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Elliott Wave
Elliott Wave theory is a method for analyzing financial markets, including Forex, invented by Ralph Nelson Elliott. Elliott believed that price fluctuations in markets move in specific wave patterns. These patterns consist of two types of waves: impulsive and corrective. According to his theory, after every 5 impulsive waves, 3 corrective waves occur.
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GAP
A gap in Forex refers to a price gap on currency pair charts that occurs due to the absence of trading during a specific time period.
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Hard Currency
Hard currencies are currencies that, due to high liquidity, ease of trading, and relative stability, are considered the most suitable options for trading in the Forex market.
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Ichimoku
Ichimoku is an indicator and analytical method in financial markets. This tool, also known as “equilibrium at a glance,” combines multiple indicators into a single chart to provide traders with a comprehensive view of the market.
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Supply & Demand
Supply: Refers to an increase in the supply of a specific currency in the market. In this case, the willingness to sell that currency is greater than the willingness to buy it.
Demand: Refers to an increase in demand for a specific currency in the market. In this case, the willingness to buy that currency is greater than the willingness to sell it.
Points where supply and demand significantly increase are called critical zones.
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PAMM Account
A PAMM account is a type of account offered by brokers that allows investors to deposit their capital and benefit from the profits generated by experienced traders.
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Wall Street
The largest stock market in the world in terms of trading volume is located on Wall Street in New York. Due to the presence of powerful financial institutions, investment banks, and insurance companies, this street is recognized as the center of gravity of the global economy. Decisions and developments on this street can have profound impacts on financial markets worldwide.
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Bill Williams
Williams, by combining market psychology and chaos theory, presented a unique trading style for price analysis and trend prediction. He invented several indicators such as Alligator, Fractal, Accelerator, and Awesome Oscillator, which have become popular tools among traders.
Learning the principles and indicators of Bill Williams can help traders at any level improve decision-making and increase their chances of success in the Forex market.
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Trading Strategy
A trading strategy is a set of methods and techniques that a trader uses to analyze currency pairs and execute trades. This strategy provides a roadmap for trading decisions based on market conditions and investment goals.
Conclusion
Understanding Forex terminology opens a gateway to a deeper comprehension of this complex and dynamic market. The purpose of publishing this article was to familiarize you with Forex market terminology, especially fundamental concepts, trading terms, and Forex trading terminology; so that by mastering these concepts, you can take a significant step toward improving your trading skills and move toward success in this field. At Delta FX Broker, with a commitment to providing high-quality and practical education, we will always stand by you, enthusiasts of the Forex market.
