Forex & Commodity Trading Glossary: 40 Terms Explained

Trading has its own vocabulary, and not knowing it makes everything harder to follow. This glossary defines the terms you'll meet most often, in plain English. Bookmark it and refer back as you read our other guides.

Core price terms

Pip — the standard smallest price move in a currency pair. For most pairs it's the fourth decimal place (0.0001); for JPY pairs it's the second decimal (0.01). Pips are how forex moves are measured.

Spread — the difference between the buy (ask) and sell (bid) price. It's the main cost of entering a trade. Highly liquid pairs like EURUSD have tight spreads; exotic or volatile instruments have wider ones.

Bid / Ask — the bid is the price you can sell at; the ask is the price you can buy at. The ask is always slightly higher; the gap is the spread.

Quote / base currency — in EURUSD, EUR is the base currency and USD is the quote. The price is how much quote currency one unit of base currency buys.

Lot — the unit of trade size. A standard lot is 100,000 units of the base currency; a mini lot is 10,000; a micro lot is 1,000.

Order types

Market order — buy or sell immediately at the current price.

Limit order — an order to buy below, or sell above, the current price — i.e. at a better price than now.

Stop order — an order that triggers once price reaches a level, used to enter on breakouts or to exit (a stop-loss).

Stop-loss (SL) — an order that closes a losing trade at a predefined level to cap the loss. Non-negotiable for disciplined trading.

Take-profit (TP) — an order that closes a winning trade at a predefined target.

Risk and leverage

Leverage — borrowing from your broker to control a larger position than your capital alone would allow, expressed as a ratio (e.g. 30:1). Leverage magnifies both gains and losses — it is the single most common reason new traders blow up.

Margin — the deposit required to open a leveraged position. Use our margin calculator to work out the requirement for any trade.

Margin call — a broker demand to add funds (or a forced closure of positions) when losses erode your margin below the required level.

Reward-to-risk (R:R) — the ratio of a trade's potential profit to its potential loss. A 2:1 trade risks one unit to make two. See our risk-reward calculator.

Position sizing — choosing how large a trade to place so that the loss, if stopped out, equals a fixed chosen amount. Covered fully in our risk management guide.

Drawdown — the decline from a peak in your account equity to a subsequent trough, usually expressed as a percentage. Measures the pain of a losing run.

Market direction & structure

Long — a position that profits if price rises (you bought).

Short — a position that profits if price falls (you sold first).

Bullish / bearish — expecting price to rise (bullish) or fall (bearish).

Support — a price area where buying has historically emerged, tending to halt declines.

Resistance — a price area where selling has historically emerged, tending to halt advances.

Breakout — price moving decisively beyond a support or resistance level.

Trend — the prevailing direction of price over time (uptrend, downtrend, or range/sideways).

Consolidation / range — a period where price moves sideways between support and resistance.

Volatility — how much price moves over a given period. High volatility means larger swings and requires wider stops and smaller positions.

Indicators & analysis

Technical analysis — studying price charts and indicators to inform decisions.

Fundamental analysis — studying economic data, news and policy to inform decisions.

Moving average (MA) — the average price over the last N periods, used to gauge trend.

RSI — a 0–100 momentum oscillator; readings above 70 are "overbought", below 30 "oversold" (with caveats — see our indicators guide).

MACD — a momentum indicator based on the relationship between two moving averages.

ATR (Average True Range) — a measure of volatility, useful for sizing stops.

Divergence — when price and an indicator move in opposite directions, often warning that momentum is fading.

Pip value — the monetary worth of a one-pip move for your position size. Use our pip value calculator.

Instruments

Forex pair — two currencies quoted against each other (e.g. GBPUSD).

Major — the most-traded pairs, all involving the US dollar (EURUSD, USDJPY, GBPUSD, etc.).

Cross — a pair that doesn't involve the US dollar (e.g. EURJPY).

Commodity — a physical good traded on markets — for our purposes precious metals (Gold/XAUUSD, Silver/XAGUSD), industrial metals (Copper), and energy (Crude Oil, Natural Gas).

Safe haven — an asset investors buy in times of fear, such as gold or the US dollar.

Performance metrics

Win rate — the percentage of trades that are profitable. On its own it's misleading — it must be read alongside reward-to-risk.

Profit factor — gross profit divided by gross loss. Above 1.0 is profitable; higher is better.

Sharpe ratio — a measure of return relative to volatility (risk-adjusted return).

Expectancy — the average amount you can expect to win or lose per trade over the long run.

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Understanding these terms is the foundation everything else builds on. When you read a TradeVisor prediction with its entry, stop-loss, take-profit and confidence — or any of our trading guides — this vocabulary is all you need to follow along.