The words, without the textbook
Every trade has a vocabulary sitting behind it, and most of it is explained badly. Here are the 35 words that matter for the macro side of forex, each one in a sentence, with the part that actually trips people up underneath.
By Mike, founder of MacroSetup. Page updated .
Central banks and rates
The words that decide where a currency sits for months at a time.
- Dot plot
- The chart in the Federal Reserve's projections showing where each member expects rates to be in the coming years.
- Dovish
- The opposite lean: towards lower rates, usually because jobs or growth worry the bank more than prices do.
- Forward guidance
- What a central bank says about what it intends to do next, rather than what it did today.Often the part that moves the currency, because the decision itself was already priced.
- Hawkish
- A central bank leaning towards higher interest rates, usually because inflation worries it more than growth does.It describes a direction of travel, not the level of the rate. A bank can cut and still sound hawkish about the next move.Hawkish and dovish in full
- Interest rate differential
- The gap between the policy rates of two currencies, which decides who earns the swap in a pair and who pays it.What the gap pays
- Mandate
- The job a central bank is given by law, such as inflation at 2 percent, or inflation and employment together.What each bank targets
- Policy rate
- The interest rate a central bank sets, which every other rate in that economy is priced off.All eight rates
- Quantitative tightening
- A central bank shrinking its balance sheet by letting bonds mature without replacing them, which drains money from the system.
- Terminal rate
- The level the market expects a rate cycle to end at.
Data and the calendar
What a release is, and what has to happen for it to move anything.
- Consensus
- What economists expect a release to show. It is the number the market has already paid for.Reading a release
- Core inflation
- Inflation with food and energy stripped out, because those two move for reasons a central bank cannot do anything about.
- CPI
- The consumer price index, the main measure of inflation, and for most banks the number they are steering by.
- High impact
- A release big enough to move a currency on its own: a rate decision, inflation, the labour market, growth.This week's high-impact events
- Non-farm payrolls
- The American jobs report, published monthly, and the single most watched release in the calendar.
- PMI
- A survey of purchasing managers. Above 50 means the sector is growing, below 50 means it is shrinking.
- Red folder
- Calendar slang for a high-impact event, after the red icon Forex Factory uses.
- Revision
- A change to a figure that was published earlier. A strong number with a large downward revision to the month before is not a strong number.
- Surprise
- The distance between the figure that arrives and the consensus, and the thing that actually moves a currency.
Market behaviour
How money moves between currencies when the mood changes.
- Carry trade
- Holding a high-yielding currency against a low-yielding one to earn the rate difference for as long as you hold it.Carry in full
- Correlation
- How much two pairs move together. Two positions that share a currency are usually one position wearing two names.
- Currency strength meter
- A ranking of currencies against each other, so you can see which one is carrying a pair and which is dragging it.How ours works
- Fundamental bias
- A direction for a currency that comes from the economy behind it rather than from the chart in front of you.What a bias is built from
- Funding currency
- The low-yielding currency people borrow to pay for a carry trade, which is why it sits near the bottom of most strength rankings.
- Intervention
- A government or central bank buying or selling its own currency to move it. Japan and Switzerland have both done it in living memory.Every yen intervention since 2010
- Liquidity
- How easily a market absorbs an order. It thins out around releases and at the end of the week, which is when spreads widen.
- Risk on and risk off
- Whether the market wants to own growth or own safety. It is the one force that moves all eight majors at once.Risk on and risk off
- Safe haven
- A currency money runs to when markets get nervous: the yen, the franc and often the dollar.
- Swap
- What your broker credits or debits each night for holding a position overnight, based on the rate difference plus its own spread.
Prop firms and risk
The terms a funded account is judged on.
- Breach
- Breaking one of those rules. A hard breach usually ends the account; a soft breach usually costs the profit rather than the account.
- Challenge
- The evaluation a prop firm sets before it funds you: a profit target with a loss limit and a drawdown rule.
- Daily loss limit
- The most you may lose in one day. It caps the day, not the trade, so correlated positions can hit it together.
- Drawdown
- How far your account is allowed to fall, either from its starting balance or from its highest point.
- News window
- The minutes around a high-impact release in which your firm restricts trading, from two to ten minutes depending on the firm.The rule per firm
- Payout
- The share of profit a funded trader is paid, and the moment any deduction for a broken rule usually shows up.
- Slippage
- The difference between the price you asked for and the price you got. Around a release it can be large, and no firm compensates for it.
Sources
What each central bank is told to aim at, and the rate it sets, from the bank itself: Federal Reserve, Monetary policy: what are its goals?; European Central Bank, Monetary policy strategy; Bank of England, Monetary policy; Bank of Japan, Outline of Monetary Policy; Swiss National Bank, Monetary policy strategy; Reserve Bank of Australia, About monetary policy; Reserve Bank of New Zealand, About monetary policy; Bank of Canada, Inflation-control target.
The dot plot: Federal Reserve, Summary of Economic Projections, September 2026. CPI, core inflation, the jobs report and its revisions: U.S. Bureau of Labor Statistics, Consumer Price Index, September 2026; U.S. Bureau of Labor Statistics, The Employment Situation, September 2026. Intervention: Ministry of Finance Japan, Foreign exchange intervention operations; Swiss National Bank, Implementation of monetary policy.
The red folder: Forex Factory, Calendar. News windows, from the firms' own rules: FTMO, Can I trade news?; FundingPips, News trading and weekend holding.
A word missing?
Tell us and it goes in. The list grows with the questions members ask, not with a dictionary. Contact.