Resources

Forex Trading Glossary

Plain-language definitions for the terms you'll encounter trading forex and using MT4/MT5 tools.

A
Ask
The price at which a broker is willing to sell a currency pair to you. When you buy, you pay the Ask price. The Ask is always slightly higher than the Bid, and the difference between them is the spread.
B
Backtesting
The process of running a trading strategy or expert advisor against historical price data to evaluate how it would have performed in the past. MT5's Strategy Tester handles backtesting natively. Strong backtest results are promising but do not guarantee future profitability.
Bid
The price at which a broker will buy a currency pair from you β€” i.e., the price you receive when you sell. The Bid is always lower than the Ask. Together, Bid and Ask define the spread you pay on every trade.
Breakout
A price movement where the market closes beyond a key level of support or resistance that previously held. Breakouts often signal the start of a new trend and are a core concept behind many trading strategies, including those using trendline analysis.
C
CFD (Contract for Difference)
A financial derivative that allows you to speculate on the price movement of an asset β€” such as forex pairs, indices, or commodities β€” without owning the underlying asset. Most retail forex brokers offer CFDs rather than delivering physical currency.
Confluence
The alignment of multiple independent signals or technical factors at the same price level β€” for example, a trendline, a Fibonacci level, and a moving average all converging near the same price. Confluence increases the probability weight of a trade idea.
D
Drawdown
The peak-to-trough decline in account equity over a given period. Expressed as a percentage of the peak balance. For example, if your account falls from $10,000 to $9,000, your drawdown is 10%. Prop firms impose strict drawdown limits β€” typically 5% daily and 10% total.
E
EA (Expert Advisor)
An automated trading program that runs inside MetaTrader and executes trades based on pre-defined rules. EAs can open, manage, and close positions without manual intervention. They are written in MQL4 (for MT4) or MQL5 (for MT5) and compiled to .ex4 or .ex5 files.
ECN (Electronic Communication Network)
A broker model that connects traders directly to the interbank market, offering tighter raw spreads plus a small per-trade commission. ECN accounts generally produce more realistic backtests and are preferred for algorithmic trading because there is no dealing desk manipulation.
Equity
Your account balance plus or minus any unrealised profit or loss from open positions. Equity fluctuates in real time as prices move. Drawdown calculations for prop firms are typically based on equity, not balance.
Expert Advisor
See EA. An automated trading script that operates within the MetaTrader platform. Expert Advisors handle everything from signal detection to order placement and risk management, allowing traders to automate their strategies entirely.
F
Fibonacci
A set of horizontal price levels derived from the Fibonacci mathematical sequence, used to identify potential support, resistance, and reversal zones. The most commonly used retracement levels in trading are 38.2%, 50%, and 61.8%.
Floating P&L
The unrealised profit or loss on your currently open positions, calculated in real time as prices move. Floating P&L adds to or subtracts from your equity but does not affect your balance until the position is closed.
Forex
Short for foreign exchange β€” the global decentralised market where currencies are bought and sold. It is the largest and most liquid financial market in the world, with average daily volume exceeding $7 trillion. Retail forex trading is conducted through brokers via platforms like MetaTrader.
H
Hedging
Opening a position in the opposite direction of an existing trade to reduce or neutralise risk exposure. For example, holding both a long and a short position on EUR/USD simultaneously. Some prop firms and brokers prohibit hedging β€” always check the rules of your account.
I
Indicator
A mathematical calculation applied to price data (and sometimes volume) that is displayed on a MetaTrader chart to help traders identify trends, momentum, volatility, or potential reversal points. Unlike EAs, indicators do not place trades β€” they provide visual signals for the trader to act on.
L
Leverage
A multiplier that allows you to control a position larger than your deposited capital. With 1:100 leverage, a $1,000 deposit controls a $100,000 position. Leverage amplifies both profits and losses and must be managed carefully, particularly under prop firm drawdown rules.
Lot
The standardised unit of trade size in forex. One standard lot equals 100,000 units of the base currency. A mini lot is 10,000 units and a micro lot is 1,000 units. Proper lot sizing is the foundation of sound risk management.
M
Margin
The amount of capital required by your broker to open and maintain a leveraged position. Margin is not a cost β€” it is a temporary deposit held as collateral. If your equity falls below the margin requirement (margin call), the broker may close your positions automatically.
MetaTrader
The industry-standard trading platform for retail forex traders. MetaTrader 4 (MT4) and MetaTrader 5 (MT5) are both developed by MetaQuotes. MT5 is the newer version with multi-asset support and an improved strategy tester. All FxTT tools are built for MT4 and/or MT5.
Moving Average
An indicator that calculates the average closing price of an asset over a defined number of periods, smoothing out short-term price noise to reveal the underlying trend. Common types include Simple (SMA), Exponential (EMA), and Weighted (WMA) moving averages.
P
Pip
The smallest standard price move in a forex pair β€” typically the fourth decimal place (0.0001) for most pairs, or the second decimal place (0.01) for JPY pairs. Pip value determines how much money you make or lose per unit movement, and drives all position sizing calculations.
Pivot Points
Price levels calculated from the previous period's high, low, and close that are used as potential support and resistance zones for the current session. Pivot point levels (PP, S1, S2, R1, R2, etc.) are widely used by day traders and are built into many MT5 indicators.
Position Sizing
The process of calculating the correct lot size for a trade given your account balance, risk percentage, and the distance to your stop loss. Proper position sizing ensures that a single losing trade never risks more than a predetermined percentage of your capital β€” typically 1–2%.
Prop Firm
Short for proprietary trading firm. A company that provides traders with capital to trade in exchange for a share of the profits. Traders typically pass a multi-phase evaluation challenge before receiving a funded account. Examples include FTMO, MyFundedFX, and E8 Funding.
R
Risk-Reward Ratio
The ratio between the potential loss (distance to stop loss) and potential gain (distance to take profit) of a trade. A 1:2 risk-reward ratio means you risk $1 to potentially make $2. A strategy can be profitable even with a win rate below 50% if the risk-reward ratio is favourable.
S
Scalping
A short-term trading style where traders open and close positions within seconds to minutes, targeting small price movements repeatedly throughout the session. Scalping requires tight spreads, fast execution, and high discipline. Some prop firms restrict or prohibit scalping β€” check the rules.
Spread
The difference between the Ask and Bid price, representing the broker's built-in fee on every trade. Measured in pips. Tighter spreads reduce trading costs, which is especially important for scalping and high-frequency strategies.
Stop Loss
A pending order placed below (for buys) or above (for sells) your entry price that automatically closes the trade if price moves against you. Stop losses are the primary tool for limiting risk on any single trade. Never trade without one.
Support & Resistance
Price zones where buying or selling pressure has historically caused the market to reverse or stall. Support sits below current price (buyers step in); resistance sits above (sellers step in). These levels are the foundation of most technical analysis approaches.
Swing Trading
A trading style that aims to capture price moves over days to weeks, holding positions through short-term fluctuations to reach a larger target. Swing traders typically use the H4 and Daily timeframes and focus on trend continuation patterns.
T
Take Profit
A pending order placed at a target price that automatically closes a profitable trade when reached. Setting a take profit locks in gains and removes the need to monitor the trade continuously. It also helps enforce the planned risk-reward ratio.
Trendline
A straight line drawn on a chart connecting two or more swing highs (downtrend) or swing lows (uptrend) to visualise the direction and slope of a trend. Trendline breaks and retests are among the most widely used trade entry triggers in technical analysis.
V
Volatility
A measure of how much price fluctuates over a given period. High volatility means larger, faster price swings β€” which can create trading opportunities but also increases risk. Volatility typically spikes around major news events and market opens. Indicators like ATR (Average True Range) quantify volatility numerically.