Forex & Gold Trading Glossary

Prices and costs

Pip — the standard smallest price increment for a currency pair, usually the fourth decimal place (0.0001), or the second for yen pairs. It is how moves and costs are measured. See what is a pip.

Point / pipette — a tenth of a pip, the fifth decimal place. Brokers quoting five decimals are quoting pipettes, which makes spreads look smaller than they are until you read carefully.

Spread — the gap between the bid and the ask. Your position starts at a loss equal to the spread, which is why it is a cost and not a detail. See the spread.

Bid — the price at which you can sell. Ask (or offer) — the price at which you can buy. The ask is always the higher of the two.

Commission — a separate per-trade charge some brokers apply instead of, or alongside, a wider spread. Neither model is automatically cheaper; compare total cost.

Swap / rollover — the financing credited or debited for holding a position overnight, reflecting the interest-rate difference between the two currencies. Small per night, significant over weeks — and the basis of the carry trade.

Slippage — the difference between the price you expected and the price you got. It widens around news and thin liquidity. See execution and slippage.

Liquidity — how easily an instrument can be traded without moving its price. High liquidity means tighter spreads and less slippage. See liquidity and market structure.

Volatility — how much price moves over a period. Not the same as risk: volatility is a property of the market, risk is a property of your position size.

Orders and execution

Market order — buy or sell immediately at the best available price. Certain to fill, uncertain on price.

Limit order — an instruction to trade only at a specified price or better. Certain on price, uncertain on fill. See order types.

Stop order — an order triggered once price reaches a level, then executed at market. Used both to enter on momentum and to exit losers.

Stop loss — a stop order placed to cap the loss on a position. The single most important order you will use. See how to set a stop loss.

Take profit — a limit order that closes a position at a target price.

Trailing stop — a stop that follows price as it moves in your favour, locking in gains while leaving room to run.

Gap — a jump between one price and the next with no trading in between, typically at the weekly open or after major news. Stops can fill well beyond their level in a gap.

Requote — a broker responding to your order with a different price rather than filling it. Frequent requotes are a red flag; see broker red flags.

Position and sizing

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

Leverage — using borrowed capital so a small deposit controls a larger position. It multiplies gains and losses identically, which is why it destroys more accounts than it builds. See what leverage really is.

Margin — the deposit your broker requires to hold a leveraged position. Not a fee; it is collateral set aside.

Free margin — the equity not currently tied up as margin, and therefore available for new positions or to absorb losses.

Margin call — a demand for more funds when equity falls too close to required margin. Stop out — the broker closing positions automatically when it falls further.

Position sizing — deciding how large a trade should be, given your account and stop distance. It matters more than entry technique. See how much money you need.

Base and quote currency — in EUR/USD, the euro is the base and the dollar the quote. The price is how much quote currency one unit of base costs. See currency pairs.

Long / short — long profits if price rises; short profits if it falls.

Risk

Risk-reward ratio — the size of your potential loss compared with your potential gain on a trade. Meaningless without a win rate attached. See risk-reward.

Win rate — the percentage of trades that finish profitable. A high win rate with poor risk-reward can still lose money.

Expectancy — the average amount you can expect to win or lose per trade, combining win rate and average win/loss. The number that actually tells you whether a strategy makes money. See expectancy.

Edge — a genuine, repeatable reason your expectancy is positive. Most traders assume they have one without testing. See do you have an edge.

Drawdown — the decline from an equity peak to a trough, usually as a percentage. Recovery is asymmetric: a 50% drawdown needs a 100% gain to get back. See drawdown.

Risk of ruin — the probability of losing so much capital you cannot continue. It is arithmetic driven by risk per trade, not bad luck. See risk of ruin.

Variance — the natural spread of outcomes around your expectancy. Long losing streaks occur in profitable strategies, which is why judging a system over ten trades tells you nothing.

Backtesting — testing a strategy against historical data. Useful, and easy to fool yourself with. See backtesting.

Overfitting / curve fitting — tuning a strategy so precisely to past data that it captures noise rather than signal, and fails live.

Analysis

Technical analysis — studying price and volume to inform decisions. See technical analysis.

Fundamental analysis — studying the economic drivers behind a price: rates, growth, inflation, policy.

Support and resistance — price areas where buying or selling has previously been strong enough to halt a move. Areas, not exact lines. See support and resistance.

Trend — a sustained directional bias, conventionally higher highs and higher lows, or the reverse. See trend following.

Range — price oscillating between boundaries without net direction. See range trading.

Breakout — price moving beyond a defined boundary, ideally with participation behind it. See breakout trading.

Candlestick — a chart element showing open, high, low and close for a period. See candlestick patterns.

Moving average — the average price over a lookback window, used to smooth noise. Always lagging by construction. See moving averages.

RSI — a momentum oscillator scaled 0–100. "Overbought" does not mean "about to fall". See RSI.

MACD — a momentum indicator built from the difference between two moving averages. See MACD.

Fibonacci retracement — horizontal levels drawn at set proportions of a prior move. See Fibonacci.

Divergence — price making a new extreme while an indicator does not, read as weakening momentum. Frequently premature.

Timeframe — the period each candle represents. Multi-timeframe analysis reads a higher timeframe for context and a lower one for timing.

Order block — in smart money concepts, a zone associated with significant institutional activity. See order blocks.

Fair value gap (FVG) — an imbalance where price moved so quickly it left a gap between candle wicks, which some traders expect price to revisit.

Liquidity sweep / stop hunt — a move through an obvious level where stops cluster, followed by reversal. See liquidity and structure.

Order flow — reading actual buying and selling activity rather than derived indicators. See order flow.

Wyckoff method — a framework describing accumulation and distribution by large participants. See Wyckoff.

Macro and central banks

Central bank — the institution setting monetary policy for a currency. See central banks explained.

Hawkish / dovish — hawkish leans toward tighter policy and higher rates; dovish toward easier policy. Currencies respond to the change in expectations, not the level.

Interest rate differential — the gap between two countries' rates, the dominant medium-term driver of a currency pair.

Bond yield — the return on a government bond. Yields drive currencies and gold. See bond yields.

Real yield — a bond yield minus expected inflation. The single most important macro variable for gold. See real yields and gold.

CPI — the Consumer Price Index, the headline inflation measure. See how CPI moves gold.

NFP — US Non-Farm Payrolls, the monthly employment report and one of the most volatile scheduled events. See how NFP moves gold.

FOMC — the Federal Open Market Committee, which sets US rates. See the Fed and gold.

QE / QT — quantitative easing expands the central bank balance sheet; tightening reverses it. See QE and QT.

DXY — the dollar index, the dollar against a basket of currencies, roughly 57% euro. See DXY and gold.

Risk-on / risk-off — market regimes where capital moves toward growth assets or toward perceived safety. See safe-haven flows.

Safe haven — an asset expected to hold value during stress. The label is conditional, not permanent. See is gold a safe haven.

Economic calendar — the schedule of data releases and policy decisions. See the economic calendar.

S$NEER — the trade-weighted Singapore dollar exchange rate, which MAS manages within a band instead of setting an interest rate. See USD/SGD.

Gold-specific

XAU/USD — the price of one troy ounce of gold in US dollars. XAU is the ISO code for gold. See XAUUSD explained.

Troy ounce — the standard unit for precious metals, about 31.1 grams — heavier than a regular ounce.

Spot price — the price for immediate delivery, as opposed to a futures price for a later date.

Gold futures — exchange-traded contracts to buy or sell gold at a future date. The main leveraged route for US traders. See futures vs ETFs.

Contango / backwardation — contango is when futures trade above spot (the normal state, reflecting storage and financing); backwardation is the reverse and usually signals immediate physical demand.

Rollover (futures) — closing an expiring contract and opening the next, repeatedly, with cost each time. The reason futures suit trading more than long holding.

Gold ETF — a fund holding or tracking gold, traded like a share. Unleveraged, with an annual expense ratio.

Allocated / unallocated — allocated means specific bars are assigned to you; unallocated means you hold a claim against the dealer, which carries counterparty risk.

XAG/USD — silver against the dollar. More volatile than gold and more industrially driven. See silver.

Gold/silver ratio — how many ounces of silver buy one ounce of gold, watched as a relative-value and risk-appetite gauge.

Central bank gold buying — official-sector purchases, a structural demand source often linked to reserve diversification. See de-dollarisation.

Brokers, platforms and regulation

Broker — the firm giving you market access. Choosing one is a due-diligence exercise. See how to choose a broker.

Market maker vs ECN — a market maker may take the other side of your trade; an ECN routes orders to external liquidity. Each has trade-offs; neither is automatically honest or dishonest.

Segregated funds — client money held separately from the firm's own capital, so it is not used for operations.

MetaTrader (MT4 / MT5) — the most widely used retail platforms. See what is MetaTrader.

Demo account — a simulated account with real prices. Teaches mechanics, not emotional discipline. See demo vs live.

Expert Advisor (EA) — an automated trading program for MetaTrader. EAs sold with profit promises are a common scam vector.

CFD — a contract for difference, settling the change in price without owning the asset. Not available to US retail customers for many products. See trading XAUUSD in the US.

MAS — the Monetary Authority of Singapore. Leveraged forex dealing requires a Capital Markets Services licence. See MAS-regulated brokers.

CFTC / NFA — the US commodity regulator and the self-regulatory body for futures and retail forex firms. See trading gold in the US.

Prop firm / funded account — a firm offering capital after an evaluation, usually paid for. See funded accounts.

Slippage tolerance, negative balance protection — account features worth checking before funding; the latter prevents your balance going below zero.

Psychology

FOMO — fear of missing out, entering late because a move is already running. See FOMO and overtrading.

Revenge trading — trading to recover a loss rather than because a setup exists. Reliably makes the loss larger. See coping with losses.

Overtrading — taking more positions than your plan justifies, usually from boredom or frustration.

Confirmation bias — seeking evidence that supports a position you already hold and dismissing the rest.

Loss aversion — feeling losses more intensely than equivalent gains, which pushes traders to cut winners early and hold losers. See trading psychology.

Trading plan — written rules for what you trade, how you size, and when you exit, decided before the market is open. See discipline.

Trading journal — a record of trades and reasoning, the only reliable way to find out what you actually do. See the journal.

Frequently Asked Questions

What does pip stand for in forex?

A pip is the standard smallest price increment for a currency pair — usually the fourth decimal place (0.0001), or the second decimal for yen pairs. Moves, spreads and risk are all measured in pips.

What is the difference between a lot and leverage?

A lot is the size of your position — a standard lot is 100,000 units of the base currency. Leverage is the borrowed capital that lets a small deposit control that position. Lot size is what you trade; leverage is how it is funded.

What is drawdown in trading?

The decline from a peak in account equity to a subsequent trough, usually expressed as a percentage. Recovery is asymmetric — a 50% drawdown requires a 100% gain to return to the starting point.

What does XAU/USD mean?

The price of one troy ounce of gold in US dollars. XAU is the ISO currency code for gold, so the pair is quoted like a currency pair even though gold is a commodity.

What is expectancy and why does it matter more than win rate?

Expectancy is the average profit or loss per trade, combining win rate with average win and average loss. A strategy can win 80% of the time and still lose money if the losses are large enough, which is why win rate alone tells you nothing.