Forex Glossary of Trading Terms and Definitions

A rally in trading refers to a significant and sustained increase in the price of a security or market, often characterized by optimism, buying interest, and favorable economic news. This upward movement can occur over days, weeks, or even months, and is typically driven by factors such as strong corporate earnings, positive market sentiment, or macroeconomic indicators. Traders and investors often capitalize on rallies to realize profits or add to their positions, though they should also be cautious of potential corrections that can follow such price surges.

A reserve currency is a foreign currency that is held in significant quantities by governments and institutions as part of their foreign exchange reserves. It is used in international transactions, trade, and investment, and is typically seen as stable and reliable. The U.S. dollar is the most widely used reserve currency, but the euro, Japanese yen, and British pound are also prominent. Reserve currencies facilitate global trade and financial stability, allowing countries to manage their exchange rates and mitigate economic risks.

A resistance level in trading refers to a price point at which an asset tends to face selling pressure, making it difficult for the price to rise above that level. It is often identified through historical price charts and technical analysis, where traders observe that the asset has previously struggled to break through this price point. When prices approach the resistance level, market participants may anticipate a reversal or slowdown in price increases, leading to increased selling. Conversely, if the asset breaks through the resistance level, it could indicate a bullish trend and attract more buyers.

Rollover in forex refers to the process of extending the settlement date of an open position by closing the existing position and simultaneously opening a new one for the next settlement date. This often involves interest calculations based on the differences in interest rates between the two currencies in the pair being traded. Traders can earn or pay rollover fees, known as "swap" rates, depending on whether they are holding a long or short position and the associated interest rate differential. Rollover typically occurs at 5 PM EST, and it's essential for traders to understand how it impacts their trading costs and strategies.

The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements, typically used in technical analysis to identify overbought or oversold conditions in a market. The RSI ranges from 0 to 100 and is generally considered overbought when above 70 and oversold when below 30. Traders often use it to help make decisions on buying or selling securities, as it can signal potential reversals or continuation of trends.