Forex and macro trading glossary

216 trading terms, from central banks to order execution: what each concept means, how to read it, and why it matters for a currency. Plus, where there is one, the site tool where you can see it at work.

Central banks and monetary policy

The institutions that set the price of money, and the vocabulary of their decisions.

Policy ratepolicy rate: The rate at which a central bank lends to banks or pays interest on their reserves. By raising or lowering it, it makes credit more or less expensive throughout the economy. It is the variable that weighs most on a currency's value over the medium term. Today's policy rates →See also: Rate differential, Monetary policy
Monetary policy: All of a central bank's decisions to fulfil its mandate, most often inflation close to 2%: policy rate, purchases or sales of securities, communication.
Central bank mandatedual mandate: The mission the law gives the central bank. The ECB has a single mandate of price stability; the Fed a dual mandate, price stability and maximum employment. The mandate explains why the same data point doesn't carry the same weight from one bank to another: employment matters more to the Fed than to the ECB.
Inflation target: The inflation level the central bank aims for, 2% for most major banks. Some target an average over time (the Fed since 2020), others a range (the RBA, 2 to 3%). The gap between observed inflation and the target guides decisions.
Hawkish and dovishfaucon · colombe: A hawkish tone leans towards higher rates to fight inflation, which generally supports the currency. A dovish tone leans towards lower rates to support activity, which weighs on it.
Forward guidanceforward guidance: The indications a central bank gives about its future decisions. The market often reacts more to a change in wording than to the decision itself, which is already expected. The official statement, inside the terminal. →
Data dependencedata dependent: The stance of a central bank that refuses to commit in advance and decides meeting by meeting based on published figures. It makes every inflation or employment release more decisive, and volatility around the data stronger.
Dot plot: The chart the Fed publishes four times a year, where each FOMC participant places a dot for the rate they judge appropriate at the end of each year. The median of the dots serves as the reference path. The Fed's page →
Economic projections (SEP)Summary of Economic Projections · staff projections: The growth, unemployment and inflation forecasts published with some decisions: the SEP at the Fed, Eurosystem staff projections at the ECB, the Monetary Policy Report at the Bank of England. Their revision from one quarter to the next often says more than the level.
FOMC: Federal Open Market Committee: the Federal Reserve committee that sets the fed funds range. Twelve members vote, eight meetings a year. The meeting calendar →
ECB Governing Council: The ECB's decision-making body: the six members of the Executive Board and the governors of the euro area's national central banks. It meets every six weeks for monetary policy, with voting rights rotating between countries.
MPCMonetary Policy Committee: The Bank of England's monetary policy committee, nine members including four external ones. It publishes the vote split: a close vote, for example 5 to 4, often signals the next move.
Minutes and accountsFOMC minutes · accounts: The summary of a meeting's discussions, published about three weeks after the decision for the Fed, four for the ECB. They reveal the degree of consensus and the minority's arguments, which the statement doesn't say.
Beige Book: The report the Fed publishes eight times a year, gathering testimony from businesses in the twelve regional districts. Qualitative, it gives a ground-level reading of activity, prices and employment two weeks before each meeting.
Quiet periodblackout period · quiet period: The days before a meeting during which committee members refrain from any statement on monetary policy. For the Fed, it starts on the second Saturday before the meeting. A “sourced” press article then carries more weight.
Quantitative easing and tightening (QE, QT): QE means a central bank buys securities on a massive scale to push long-term rates down. QT is the reverse: it lets its balance sheet shrink, which withdraws liquidity.
Central bank balance sheet: All of its assets (securities bought, loans to banks, foreign exchange reserves) and liabilities (banknotes, bank reserves, the Treasury account). Its size and composition measure the amount of liquidity injected into the system.
Bank reserves: Banks' deposits at the central bank. When abundant, they keep money market rates at the floor set by the bank; when scarce, they cause strains, as in the US repo market in September 2019.
Rate corridorplancher · deposit rate: The band within which the central bank keeps the overnight rate: a deposit rate at the bottom, a marginal lending rate at the top. The ECB now steers through its deposit facility rate, the floor of the corridor.
Fed fundsfederal funds · EFFR: The rate at which US banks lend each other their reserves overnight. The Fed sets a 25 basis point range, and the effective rate (EFFR) settles within it; it is the benchmark for all US monetary policy.
IORBinterest on reserves: The rate the Fed pays on banks' reserves. Together with the overnight reverse repo (RRP) rate, it keeps fed funds within the target range.
Overnight reverse repo (RRP)reverse repo · ON RRP: The facility through which the Fed borrows money market funds' cash overnight against securities. Its outstanding amount measures the system's excess liquidity: a decline signals that liquidity is becoming scarcer.
Pivot: The moment a central bank changes direction, for example from hiking to a pause or to cuts. The market tries to anticipate it, and currencies often move more on the announcement of the pivot than on the first rate move.
Soft landingsoft landing · hard landing: The scenario where a central bank brings inflation back to target without causing a recession. Its opposite, the hard landing, combines a marked slowdown and rising unemployment.
Neutral rater* · r-star: The interest rate that neither stimulates nor slows the economy. Unobservable, it is estimated with models. A policy rate above the neutral rate is restrictive, below it is accommodative.
Taylor rule: A formula that suggests a policy rate from the neutral rate, the gap between inflation and target, and the output gap. No bank applies it mechanically, but the gap between the actual rate and the rule measures how restrictive policy is.
Monetary policy transmission: The path by which a rate decision reaches the economy: market rates, credit, the exchange rate, asset prices, then demand and inflation. It generally takes twelve to eighteen months, hence the importance of expectations.
FX intervention: The purchase or sale of currencies by an authority to influence its currency's exchange rate. Japan uses it to support the yen, the SNB used it to curb the franc. A “sterilised” intervention is offset so as not to change liquidity.
Verbal interventionjawboning: Public warnings from a minister or central banker against an exchange rate move deemed excessive. They often precede an actual intervention and are sometimes enough to slow a trend.
Central bank swap lines: Agreements that let a central bank obtain dollars from the Fed to lend to its banks. Activated in 2008 and 2020, they ease dollar shortages in times of crisis.
Yield curve control (YCC)Yield Curve Control: A policy in which the central bank sets a cap on the yield at a specific maturity (e.g. 10-year bonds) and buys as many securities as needed to hold that cap. Used notably by the Bank of Japan.
Operation Twist: An operation in which the central bank sells short-term bonds to buy long-term bonds. It lowers long-term rates without increasing the overall size of the balance sheet.
Basel III: The set of global banking regulations introduced after the 2008 crisis. They require banks to hold more capital and liquidity to withstand financial shocks.
Lender of last resortLender of last resort: A central bank's vital role during a financial panic: providing emergency liquidity to solvent but illiquid banks to prevent the system from collapsing.
TLTROTargeted longer-term refinancing operations: Long-term loans (up to 3 years) granted by the ECB to European banks at very favourable rates, on condition that they lend this money to the real economy.
Standing Repo Facility (SRF): A permanent Fed facility allowing banks and primary dealers to exchange Treasury securities for cash overnight. It acts as a safety valve in case of a liquidity shortage.
Financial repression: Policies (keeping rates low, tolerating inflation, regulation) that channel funds to the state and let it gradually erode its debt at savers' expense.
Macroprudential policy: The set of rules aimed at limiting systemic risk across the financial sector, such as loan-to-value (LTV) limits to curb a housing bubble.
De-dollarisation: The political drive of some emerging countries to reduce their dependence on the US dollar in international trade and their foreign exchange reserves, often by using gold or local currencies.

Rates, bonds and the money market

The debt market, where the price of time is set.

Bond yieldyield: The rate of return on a bond bought at the market price and held to maturity. Price and yield move in opposite directions: when investors sell a bond, its price falls and its yield rises.
Yield curve: The yields of the same issuer arranged by maturity. When inverted, with short-term rates above long-term rates, it has preceded most US recessions.
Yield curve inversion2s10s · 3m10y: The situation where short-term rates exceed long-term rates, often measured by the 10-year minus 2-year spread (2s10s) or 10-year minus 3-month. The market is then expecting future rate cuts, and so a slowdown.
Steepening and flatteningbull steepening · bear flattening: The curve steepens when the gap between long and short rates widens, and flattens when it narrows. The driver is specified: “bull” if rates are falling, “bear” if they are rising. A bear steepening, with long rates rising, often reflects fiscal or inflation worries.
Real rate: The nominal rate minus expected inflation. In the United States, it is read from inflation-linked bonds (TIPS). A rising real rate makes holding gold more costly and generally supports the dollar.
Breakeven inflationbreakeven: The gap between the yield on a conventional bond and that on an inflation-linked bond of the same maturity. It measures the average inflation the market expects over the period.
TIPSinflation-linked bonds · OATi: US Treasury bonds whose principal is indexed to inflation. Their yield is a real rate; in France, the equivalent is the OATi or OAT€i.
Duration: The sensitivity of a bond's price to a change in rates. A duration of 8 means a 1 point rise in rates costs about 8% of value. The longer the maturity, the higher the duration.
Basis pointpb · bp · bps: One hundredth of a percentage point: 0.01%. A 25 basis point rate rise takes a rate from 4.00% to 4.25%.
Term premiumterm premium: The extra yield demanded for holding a long bond rather than rolling over short securities. It rises when uncertainty about inflation or public debt increases, and explains part of the rises in long-term rates with no change in monetary policy.
Sovereign spreadOAT-Bund spread · BTP-Bund: The yield gap between two governments' debt, for example Italy and Germany. It measures perceived risk; a sudden widening weighs on the euro, as it revives fears of the euro area fragmenting.
Credit spreadhigh yield · investment grade: The yield gap between a corporate bond and a government bond of the same maturity. It compensates for default risk; a widening is a stress signal, often associated with risk-off.
SOFR: Secured Overnight Financing Rate: the overnight rate on loans secured by US Treasury securities. It replaced dollar Libor as the benchmark for loans and derivatives.
€STRester: The euro overnight rate published by the ECB, reflecting banks' unsecured borrowing. It replaced Eonia and is the basis for euro OIS swaps.
SONIA: Sterling Overnight Index Average: the benchmark overnight rate in sterling, administered by the Bank of England. The basis for UK OIS swaps.
Libor: The former benchmark rate for interbank lending, based on banks' submissions. Manipulated in the 2000s, it was phased out between 2021 and 2023 in favour of transaction-based overnight rates (SOFR, SONIA, €STR).
Reporepurchase agreement: A secured loan: you sell a security while committing to buy it back later at a set price. The repo market finances bondholders; strains in it spread quickly through the whole system.
T-billsTreasury bills: The US Treasury's short-term debt securities, from a few days to a year. Heavy issuance absorbs liquidity, which is closely watched after each debt ceiling increase.
Treasury account (TGA)Treasury General Account: The US Treasury's account at the Fed. When it fills up (taxes, debt issuance), it drains liquidity from the system; when it empties, it injects it. Its changes affect liquidity just like the Fed's balance sheet.
Net liquidity: A measure of dollar liquidity: the Fed's balance sheet, minus the Treasury account, minus the overnight reverse repo. It often tracks the major phases of risk assets.
Debt ceilingdebt ceiling: The maximum amount of debt the US Treasury can issue, set by Congress. Negotiations to raise it periodically create risks of technical default and distort the Treasury account's movements.
Auctionauction · bid-to-cover: A government's sale of new debt. Demand is read from the bid-to-cover ratio (bids received over amount issued) and the gap to the expected yield (the “tail”). A failed auction can push long-term rates higher.

Rate expectations and derivatives

How to read, in prices, what the market expects from central banks.

OIS swapovernight index swap: A contract in which a fixed rate is exchanged for the average overnight rate (SOFR, €STR, SONIA…) over a period. The negotiated fixed rate reveals the average level the market expects for the policy rate. Decision probabilities, market-implied, real OIS curve (8 currencies) →
Implied probabilities: The odds of a hike, a hold or a cut at the next meeting, derived from OIS swap prices. They aren't forecasts but prices: the market commits real money to them. What the market expects →
Fed funds futures: Futures contracts on the monthly average of fed funds, listed on the CME. Their price (100 minus the expected rate) underpins the FedWatch tool and Fed decision probabilities.
STIRshort-term interest rate futures · SOFR futures · Euribor futures: Short-term interest rate futures (SOFR, Euribor, SONIA). The STIR market concentrates bets on central banks' paths over two to three years.
Priced inpriced in: A piece of information is “priced in” when the market has already built it into prices. A rate cut that is 100% expected doesn't move the currency on the day of the announcement: only the gap with what was expected counts.
Repricing: The rapid readjustment of expectations after a data release or a speech, for example a rate cut whose probability goes from 30% to 80%. Repricing of short-term rates is one of the most direct drivers of currencies.
Terminal rateterminal rate: The highest (or lowest) level a rate cycle is expected to reach according to the market or the central bank. Revising it shifts the whole short end of the curve.
Rate differential: The gap between two countries' rates. It draws capital towards the better-paying currency: changes in it are a central driver of currency pairs.
Interest rate swapIRS · swap rate: A contract exchanging a fixed rate for a floating rate over a given period. 2, 5 or 10-year swap rates serve as benchmarks for loans and for banks' hedging.
Consensus: The median of economists' forecasts for a release. It is the benchmark for the surprise: the market reacts to the gap between the published figure and the consensus.
Whisper number: Traders' unofficial expectation, sometimes different from the published consensus. A figure “in line with consensus” can disappoint if it is below the whisper.

Economic indicators

The releases that move currencies, and what they really measure.

CPI and inflationCPI · IPCH · HICP: The consumer price index measures the change in the price of a basket of goods and services. Its change over a year is inflation, central banks' primary target. Core inflation excludes energy and food, which are more volatile. In the euro area, the harmonised measure is the HICP.
Inflation sous-jacentecore inflation · core inflation: Inflation excluding energy and food (and tobacco and alcohol in the euro area). Less volatile, it better reflects the trend the central bank can influence, and it is often what moves the market.
Supercore: US services inflation excluding housing, closely tied to wages. The Fed watches it as an indicator of the most persistent inflation.
PCEcore PCE: The personal consumption expenditures price index, published monthly in the United States. It is the measure the Fed officially targets, not the CPI. It comes out after the CPI, which makes it partly predictable.
IPPPPI · producer prices: The producer price index measures the prices received by producers. It sometimes foreshadows consumer inflation, as cost increases are passed on with a lag.
Trimmed meantrimmed mean: A measure of inflation that strips out the most extreme price rises and falls each month. The Reserve Bank of Australia uses it as its benchmark measure.
Base effect: The mechanical effect on annual inflation of a price move that happened a year earlier. A sharp rise in energy twelve months ago lowers today's inflation, without any real easing in prices.
Inflation expectationsMichigan · inflation expectations: The inflation households, businesses or markets expect. A rise in long-term expectations worries central banks, as it can sustain inflation through wages and prices.
NFP (non-farm payrolls)non-farm payrolls · employment report: Job creation outside agriculture in the United States, published on the first Friday of the month with the unemployment rate and wages. One of the releases that moves the dollar most; revisions to previous months matter as much as the month's figure.
Unemployment rateU-3 · U-6: The share of the labour force without a job and looking for one. In the United States, U-3 is the official measure; U-6 adds involuntary part-time work and discouraged workers.
Average hourly earningsaverage hourly earnings: The growth of average hourly earnings, published with the employment report. A rapid rise feeds services inflation; it is the part of the report the market reads for inflation.
JOLTS: The US survey of job openings and labour turnover. The ratio of openings per unemployed person and the quits rate measure labour market tightness.
ADP: The estimate of US private job creation by payroll company ADP, published two days before the official report. Its correlation with NFP is imperfect.
Jobless claimsjobless claims · initial claims: New applications for unemployment benefits in the United States, published every Thursday. Being weekly, they detect a turn in the labour market before the monthly figures.
PMIpurchasing managers' index: Purchasing managers' indices, drawn from business surveys. Above 50, activity is growing; below, it is contracting. They come out before the official figures, hence their value.
ISM: The Institute for Supply Management indices for US manufacturing and services, equivalent to the PMIs. Their prices-paid and employment sub-indices are watched as leading indicators of inflation and the labour market.
PIBGDP: Gross domestic product measures a country's output over a period. Two consecutive quarters of decline are the common definition of a recession. In the United States, it is published at an annualised rate, which magnifies the changes compared with Europe.
GDPNownowcast: The Atlanta Fed's real-time estimate of US quarterly GDP, updated after each release. It isn't an economist's forecast but a model, which can swing widely early in the quarter.
Retail salesretail sales · control group: The value of retail sales, published monthly. The “control group”, excluding autos, fuel, building materials and restaurants, feeds directly into the consumption component of GDP.
Industrial production: The volume of output from factories, mines and utilities. Less watched than it used to be in the United States, it remains important for Germany and Japan, which are heavily industrial.
Current accountcurrent account: The balance of trade in goods, services and income with the rest of the world. A country with a current account deficit depends on foreign capital; its currency is more vulnerable when risk appetite fades.
Trade balance: The balance of exports and imports of goods. A trade surplus creates structural demand for the currency, as exporters convert their receipts.
Consumer confidenceConference Board · Michigan: Surveys of household sentiment, such as those of the Conference Board and the University of Michigan. They anticipate consumption, with sometimes large gaps between mood and actual spending.
Ifo and ZEW: The two major German surveys: the Ifo asks businesses about the business climate, the ZEW asks financial analysts about their expectations. They weigh on the euro, Germany being the euro area's largest economy.
Tankan: The Bank of Japan's quarterly business survey. The large manufacturers' sentiment index is watched as a barometer of the Japanese economy and of BoJ decisions.
Economic surpriseCiti surprise index: The gap between the published figure and the economists' consensus. The market reacts to the surprise, not the level: a high but expected figure moves nothing. Surprise indices aggregate these gaps over several weeks.
Revision: The correction of a figure already published. US job creation is revised over two months; a large downward revision can cancel the effect of a solid monthly figure.
Flash estimateadvance · preliminary: The first estimate of an indicator, published quickly from partial data: flash PMI, euro area flash inflation, US “advance” GDP. It is the one that moves the market, the final version usually confirming it.
Economic calendar: The dated list of upcoming releases and events, with their importance, the consensus and the previous figure. It is the basic tool for knowing when volatility may strike. The central bank calendar →
RecessionNBER: A lasting, broad-based decline in activity. In the United States, the NBER dates it officially, after the fact, using a range of indicators; the two-quarters-of-negative-GDP rule is only a shortcut.
Sahm rule: A recession signal: when the three-month average of US unemployment rises at least 0.5 point above its low of the previous twelve months. Historically reliable, it has given false signals linked to labour supply.
Stagflation: The combination of weak growth and high inflation, a central bank's nightmare: raising rates worsens the slowdown, cutting them feeds inflation.

The foreign exchange market

How Forex works, from quotes to the currencies that make it up.

ForexFX · foreign exchange market: The global currency market, the most liquid in the world, with more than $7 trillion traded per day according to the BIS. Decentralised, it runs 24 hours a day from Monday morning in Asia to Friday evening in New York.
Currency pairbase currency · quote currency: The price of one currency expressed in another. In EUR/USD at 1.10, the euro is the base currency and the dollar the quote currency: one euro is worth 1.10 dollars. Buying the pair means buying the euro and selling the dollar.
Major pairsmajors: The pairs that combine the dollar with the most traded currencies: EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD, USD/CAD and NZD/USD. They offer the tightest spreads.
Cross pairscrosses · EUR/GBP · EUR/JPY: Pairs without the dollar, such as EUR/GBP or AUD/JPY. They isolate the relationship between two economies, without the dollar's own noise.
Exotic pairs: Pairs combining a major currency with an emerging market's (USD/TRY, USD/ZAR, USD/MXN). Wider spreads, higher volatility and political risk, and often significant carry.
Pip: The smallest usual change in a quote: 0.0001 for most pairs, 0.01 for those quoted in yen. A rise in EUR/USD from 1.1000 to 1.1050 is 50 pips.
Pipette: A tenth of a pip, the fifth decimal shown by most brokers. It refines the price but doesn't change the usual unit of measurement.
Lotmini-lot · micro-lot: The 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. On EUR/USD, one pip is worth 10 dollars for a standard lot.
Pip value: The gain or loss, in the account currency, of a one-pip move for a given size. It depends on the quote currency: it is what links the stop distance to the risk in euros.
Spreadbid · ask · offre · demande: The gap between the buy price (ask) and the sell price (bid). It is the immediate cost of every trade; it widens outside the main sessions, at the Sunday evening open and around major releases.
Market sessionsTokyo · London · New York · chevauchement: The main Forex time slots: Asia (Tokyo, Sydney), Europe (London) and America (New York). The London–New York overlap, in the European afternoon, concentrates the most liquidity.
FixingWM/Reuters · London fix: The reference rate calculated at a fixed time, the most followed being the WM/Refinitiv 4 pm London fix. Managers execute their month-end orders there, hence sharp moves around that time.
Dollar index (DXY)DXY · USDX: An index that measures the dollar against six currencies, dominated by the euro (57.6%). Convenient but unbalanced: it mostly reflects EUR/USD. The Fed's trade-weighted indices give a broader picture.
Effective exchange rateTCE · trade-weighted: The value of a currency against a basket of trading partners, weighted by their share of trade. The real version adjusts for inflation differences and measures competitiveness.
Safe-haven currency: A currency sought in times of stress: historically the dollar, the yen and the Swiss franc, thanks to the depth of their markets or their countries' foreign assets.
Commodity currenciescommodity currencies · AUD · CAD · NZD · NOK: The currencies of commodity-exporting countries: the Australian dollar (metals), the Canadian dollar and Norwegian krone (oil), the New Zealand dollar (dairy). They partly follow the price of their exports.
Funding currencyfunding currency: A low-yielding currency borrowed to fund positions elsewhere, for a long time the yen and the Swiss franc. When stress rises, repaying these loans makes it rebound sharply.
Currency pegpeg · fixed parity · currency board: A regime in which a country fixes its currency's rate against another, like the Hong Kong dollar or the Danish krone against the euro. The central bank defends the peg with its reserves and its rates.
CNY and CNHyuan · renminbi · PBoC fixing: The Chinese yuan comes in two versions: the CNY, traded in mainland China around a daily central bank fixing, and the CNH, traded offshore more freely. The gap between the two reflects pressure on the currency.
Spot: The cash market, with delivery in two business days. Retail trading platforms quote spot, but roll positions over each evening instead of delivering the currencies.
Forward exchangeforward · forward points: A contract to buy or sell currencies at a future date, at a rate set today. The gap with spot, the forward points, reflects the rate differential between the two currencies.
NDFnon-deliverable forward: A forward contract settled in dollars without exchanging the currencies, used for non-convertible currencies such as the Korean won or the Indian rupee.
Basis cross-currencycross-currency basis swap: The gap between the actual cost of borrowing dollars through a currency swap and what interest rates suggest. When negative, it measures demand for dollars exceeding supply, a sign of strain.
Interest rate parity: The principle that the rate gap between two currencies shows up in the gap between forward and spot rates, with no arbitrage gain. Covered, it holds; uncovered, it often fails, hence the carry trade.
Purchasing power parityPPA · Big Mac index: The theory that exchange rates adjust over the long run to equalise the price of the same basket across countries. Useless in the short term, it anchors estimates of currencies' fair value.
Fair value of a currencyfair value · BEER · FEER: The level a currency “should” reach according to its fundamentals (rates, productivity, current account, terms of trade). A large gap with the price tends to narrow, but over years.
Terms of trade: The ratio of a country's export prices to its import prices. An improvement, for example a rise in metals for Australia, supports the currency.

Options and volatility

The measure of the risk the market expects, and the products that price it.

Volatility: The size of a price's fluctuations, usually measured by the annualised standard deviation of returns. A volatility of 8% on EUR/USD means that about two thirds of annual changes stay within a range of plus or minus 8%.
Implied volatility: The volatility the market expects, derived from option prices. It rises ahead of risk events and in times of stress; it is compared with realised volatility to judge whether options are expensive.
Realised volatilityhistorique: The volatility actually observed over a past period, calculated from returns. It is the benchmark for judging implied volatility and for sizing positions.
VIXfear index: The 30-day implied volatility index of S&P 500 options, calculated by Cboe. Above 30, it signals marked stress; it generally rises when stocks fall, hence its link with risk-off.
Optioncall · put: A contract that gives the right, but not the obligation, to buy (call) or sell (put) an asset at a set price (strike) until a given date. The buyer pays a premium, their maximum loss.
Strike pricestrike: The price at which the holder of an option can buy or sell the asset. An option is “in the money” if exercising it pays, “at the money” if the strike is close to the price.
Risk reversal: The implied volatility gap between calls and puts of the same delta (often 25) on a currency pair. It shows which side the market pays most to protect, and so the direction it fears.
Volatility smileskew: The curve of implied volatilities by strike price. Its distortion (skew) shows that the market values a move in one direction more than in the other.
Greeksdelta · gamma · vega · theta: The sensitivities of an option's price: delta to the underlying's price, gamma to the change in delta, vega to volatility, theta to the passage of time. Market makers' delta hedging flows can amplify or dampen moves.
Option expiriesoption expiries · NY cut: Large amounts of options expiring at a given price, usually at 10 am New York time. Through hedging, they can “pull” the price towards the strike late in the session.
Gamma exposurepositive gamma · negative gamma: The effect of option market makers' hedging. In positive gamma, they buy dips and sell rallies, which calms the market; in negative gamma, they move with the market and amplify the moves.
MOVE index: The VIX equivalent for the US bond market: the implied volatility of options on Treasury yields. A rise in it often precedes a rise in currency volatility.

Positioning and flows

Who holds what, and the flows that move prices.

COT reportCommitments of Traders · CFTC: The Commitments of Traders report, published every Friday by the US CFTC, details the positions of large players in futures contracts, including currencies, as of the previous Tuesday. Extreme positioning signals a market exposed to a reversal. Fund positioning →
Non-commercials and commercialsspeculators · asset managers · leveraged funds: The categories of the COT report. Non-commercials, or speculators, seek to profit from price moves; commercials hedge a real business. The TFF report breaks out asset managers and leveraged funds.
Net position: The difference between a category of players' long and short positions. Its week-on-week change and its position relative to its history matter more than its level.
Extreme positioningcrowded trade: A bet shared by most players, close to its historical records. It is rarely lasting: at the slightest contrary surprise, simultaneous exits trigger a violent move.
Short squeeze: A sharp rise in price caused by short sellers being forced to buy back, cutting their losses by buying and fuelling the very rise that hurts them.
Retail sentimentretail sentiment: The buyer-seller split of a broker's retail clients. Often read contrarian: retail traders tend to buy dips and sell rallies.
Month-end flowsrebalancing · rebalancing: Managers' orders that bring their portfolios back to target weights at month or quarter end. After a strong rise in US stocks, they often sell dollars at the 4 pm fix.
Capital repatriation: The return home of capital invested abroad, for example by Japanese investors at the end of the fiscal year, in March. It creates demand for the domestic currency.
TIC data: The US Treasury's monthly statistics on foreign purchases and sales of US securities. They show, with a two-month lag, who is financing the US deficit.
FX reservesCOFER: Central banks' foreign currency holdings. The IMF's COFER statistics show their breakdown: the dollar still accounts for nearly 60%, a share that is slowly declining.

Market mood and intermarket links

Market regimes and the links between asset classes.

Risk-on et risk-off: The market's two moods. In risk-on, investors buy risky assets and growth-linked currencies (AUD, NZD). In risk-off, they retreat to safe havens: the dollar, the yen, the Swiss franc.
Safe havensafe haven: An asset sought in times of stress: the dollar, the yen, the Swiss franc or gold. Rising while markets fall is its signature.
Carry tradeportage: Borrowing in a low-yielding currency (for a long time the yen or the Swiss franc) to invest in a high-yielding one. Profitable while the market is calm, it unwinds brutally when fear returns.
Unwindunwind: The massive, rapid closing of similar positions, for example the collective exit from yen carry trades in August 2024. The move then goes far beyond what fundamentals justify.
Correlation: The measure, from –1 to +1, of two assets' tendency to move together. Correlations change with market regimes: the one between stocks and bonds reversed in 2022 with the return of inflation. Today's markets →
Market regime: The dominant environment that sets what moves prices: growth, inflation, liquidity, stress. The same news can have opposite effects depending on the regime.
Dollar smile: The idea that the dollar rises in two opposite situations: when the US economy outperforms, and when the world is in crisis and seeks a safe haven. It falls in between, during synchronised global growth.
American exceptionalism: The prolonged outperformance of US growth and markets, which attracts capital and supports the dollar. Its questioning has been one of the big currency themes of recent years.
Fear & Greedfear and greed index: A composite index of investor mood (volatility, stock momentum, demand for safe havens, credit spreads…), from 0 for extreme fear to 100 for extreme greed.
Brent and WTI: The two crude oil benchmarks: Brent for the North Sea, the global benchmark, and WTI for the United States. Oil weighs on inflation, on the currencies of producing countries and on those of large importers such as the yen.
Gold: An asset with no yield, sought as a store of value. It often moves inversely to US real rates and the dollar, but central bank purchases have weighed more in recent years.
Geopolitical risk: The risk linked to conflicts, sanctions and tensions between states. It works through energy, trade routes and demand for safe havens; its effect on currencies depends on each country's exposure.
Tariffstarifs · trade war: Taxes on imports. They raise prices, weigh on the targeted exporters and often push down the currency of the country subject to them, offsetting part of the shock.

Technical analysis and price reading

Chart-reading tools, useful for timing a macro analysis.

Japanese candlestickbougie · OHLC: The representation of a price over a period by its open, high, low and close. The body connects open and close, the wicks show the extremes.
Support and resistance: Levels where price has already stalled on the way down (support) or up (resistance), because orders cluster there. A broken support often becomes resistance.
Trendhigher highs: A lasting direction of price. Bullish, it strings together ever higher highs and lows; bearish, the reverse. Fundamentals often explain long trends.
Rangeconsolidation · trading range: A phase where price moves between support and resistance without a trend. Common before a central bank decision, when the market is waiting.
Breakoutbreakout · false breakout: The crossing of a support or resistance level. A false breakout quickly returns into the range and traps those who followed it.
Retracementpullback · Fibonacci: A partial move of price against its trend before the trend resumes. Fibonacci levels (38.2%, 50%, 61.8%) are often used to estimate its depth.
Moving averageMA · EMA · SMA · 200-day: The average price over a rolling period, simple or exponential. The 200-day average serves as a long-term trend marker followed by many managers.
RSIrelative strength index · surachat · survente: An oscillator from 0 to 100 comparing the size of recent rises and falls. Above 70, the market is said to be overbought, below 30 oversold, which isn't enough to signal a reversal.
ATRaverage true range: A price's average range over a period, including opening gaps. It is used to place a stop outside the usual noise and to adapt position size to volatility.
Volume profilevolume profile · POC: The distribution of traded volume by price level. The point of control (POC) marks the most traded price; thinly traded zones are often crossed quickly.
VWAP: The volume-weighted average price since the start of the session. An execution benchmark for institutions, it serves as an intraday equilibrium marker.
Market liquidityprofondeur · order book: The ease of trading a large quantity without moving the price. It shows in the depth of the order book and drops as releases approach, which amplifies moves.
Gap: A jump in price between two quotes, with no trading in between. In Forex, it mainly appears at the Sunday evening reopening after a weekend event; a stop may then be executed well beyond its level.
Seasonality: An asset's tendency to behave in a certain way at certain times of the year, measured on its history. A statistical clue, never a certainty: it complements analysis, it doesn't replace it.
Multi-timeframe analysismulti-timeframe · top-down: Reading the same asset on several timeframes, from monthly to hourly, to align the underlying context with the entry point. The macro context gives the direction, the short-term chart the timing.

Orders, execution and costs

What happens between the decision and the open position.

Market ordermarket order: An order executed immediately at the best available price. Certain to be filled, but not at a guaranteed price, especially when liquidity is thin.
Limit orderlimit order: An order to buy below the price or sell above it, executed only if the price reaches the set level. Guaranteed price, execution not guaranteed.
Stop lossstop order: An order that automatically closes a position when price reaches a loss level decided in advance. It turns a potentially unlimited loss into a defined one, gaps aside.
Take profit: An order that closes the position when price reaches the set profit target. With the stop, it defines the trade's risk-reward ratio.
Trailing stoptrailing stop: A stop that moves automatically in the direction of profit, at a set distance from the price. It protects part of the gain while letting the trend run.
Slippageglissement: The gap between the price requested and the price actually obtained. It mainly occurs around releases and gaps, and can also work in the trader's favour.
Rollover swapswap fees · rollover · triple swap: The amount credited or debited each evening to keep a position open, based on the rate differential between the two currencies, minus the broker's margin. On Wednesday, it is often tripled to cover the weekend.
Leverage: The ratio between a position's size and the margin committed. Leverage of 30 controls 30,000 euros with 1,000 euros: gains and losses are multiplied accordingly. In Europe, ESMA caps it at 30 for retail clients on the majors.
Marginmargin call · margin call · stop out: The deposit required to open and maintain a leveraged position. If losses eat it below a threshold, the broker issues a margin call, then closes positions automatically (stop out).
CFDcontract for difference: A contract that replicates an asset's price change without owning it. It is the most common retail Forex trading product in Europe, regulated by ESMA (capped leverage, negative balance protection).
Brokerbroker · ECN · STP · market maker: The intermediary that provides access to the market. A market maker takes the other side of orders, an ECN or STP broker passes them to liquidity providers. Authorisation by a regulator (AMF, FCA, CySEC) is an essential criterion.
Execution quality: A broker's ability to execute quickly, at the displayed price, without requotes or excessive slippage. It matters as much as the displayed spread in the real cost of trading.

Risk management and performance

What decides whether an account survives, more than the choice of trades.

Ratio risque-rendement (R)risk reward · RR: The target gain divided by the loss accepted on a trade. Measuring results in R rather than in euros lets you compare trades of different sizes. The trading journal →
Position sizeposition sizing: The volume committed, calculated from the risk accepted and the stop distance: risk in euros divided by (distance in pips × pip value). It is the main lever for controlling risk.
Risk per trade: The share of capital lost if the stop is hit, generally between 0.25% and 1% for a cautious trader. It determines the ability to get through a losing streak.
Drawdownmaximum loss · max drawdown: The fall in capital from its peak. The maximum drawdown measures the worst decline suffered; recovering from a 50% loss requires a 100% gain.
Mathematical expectancyexpectancy: The average gain expected per trade: win rate × average gain, minus loss rate × average loss. When positive, the method wins in the long run; a high win rate isn't enough.
Win ratewin rate: The share of winning trades. On its own it says nothing: a 30% win rate is enough with gains three times larger than losses, 70% isn't enough if losses are much larger.
Profit factor: Total gains divided by total losses. Above 1, the method is profitable; most robust strategies sit between 1.3 and 2.
Sharpe ratio: A strategy's excess return divided by its volatility. It measures the return obtained per unit of risk and lets you compare strategies of different scale.
Risk of ruin: The probability of losing enough capital to be unable to continue, a function of expectancy, risk per trade and loss tolerance. It falls very fast when risk per trade is reduced. The simulator →
Monte Carlo simulation: Repeating thousands of randomly drawn trade sequences based on real statistics. It shows the spread of possible outcomes, notably the probability of a given drawdown.
Losing streaklosing streak: A run of consecutive losing trades. Even a method winning 50% of the time statistically sees streaks of seven or eight losses over a few hundred trades: the risk per trade must withstand them.
Correlated exposure: The combined risk of several positions that depend on the same factor, for example buying EUR/USD and GBP/USD, two bets against the dollar. They behave like a single, larger position.
Trading journal: The record of each trade: reason, entry, stop, exit, result, emotions. It is the basis of any improvement, because it replaces impressions with statistics. The online journal →
Cognitive biasesconfirmation bias · loss aversion: Systematic errors of judgement that distort decisions: confirmation bias, loss aversion, overconfidence, anchoring. Knowing them doesn't remove them; written rules limit them.
Revenge trading: Re-entering a position immediately after a loss to “win it back”, often with a bigger size. One of the most frequent causes of blowing up an account.
Trading plan: The document that sets in advance the markets traded, entry and exit conditions, risk per trade and daily loss limits. It acts as the judge between two trades.

Prop firms and funded accounts

The vocabulary of trading evaluations.

Prop firmproprietary trading firm · funded account: A company that entrusts capital to a trader after a paid evaluation, in exchange for a share of the profits. The maximum loss rule matters more there than performance. The prop firm simulator →
Challengeevaluation · phase 1 · phase 2: The paid test to obtain a funded account: reach a profit target without breaching the loss limits, in one or two phases. The vast majority of candidates fail.
Maximum daily lossdaily drawdown: The maximum loss allowed in a day, often 4 or 5% of initial capital or of the day's starting balance. Breaching it, even briefly, loses the account.
Trailing drawdowntrailing drawdown · static drawdown: A loss limit that rises with the account's high, unlike a static drawdown fixed on the starting capital. More demanding, it reduces your room to manoeuvre as you gain.
Profit targetprofit target: The gain required to pass an evaluation phase, often 8 to 10% in phase 1. Reaching it by taking too much risk is the most common cause of failure.
Consistency ruleconsistency rule: The rule limiting the share of total profit made on a single day, to rule out results due to a lucky break.
Profit splitprofit split · payout: The share of profits paid to the trader on the funded account, often 80 to 90%, paid out at regular intervals.

These definitions explain concepts; they are not investment advice. Leveraged currency trading carries a high risk of losing capital.