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Common Terms Used in Forex Trading

  • July 2015
  • Posted By Ninoslav
  • 1 Comments

Forex trading is becoming more common for the individual investor. In years past, only governments and institutional investors traded currencies, with minor amounts of currency changing hands between individuals. As the Internet and powerful computers increased the ability of individuals to gain access to real-time information in any financial market, it’s attracted more investors to the forex trading market.

Many investors rely on a forex signals provider for guidance on emerging trends or specific trading opportunities. While a forex signals provider can give their clients tips, forex analysis, and other information, that information will be more useful if the investor understands the terms used in the industry. Here is a short list of the most common terms used in discussing currency trading:

  • Inflation – An increase in the cost of goods or services in the economy over time. Many commentators describe inflation as too much money chasing too little goods
  • Deflation – A sustained decrease in the cost of goods or services over time. Technically, deflation is defined as an inflation rate below zero percent. Deflation can be dangerous because it increases the value of debt and often is linked to recessions and depressions
  • Deflationary Spiral – When money becomes more valuable, the decrease in prices spurs manufacturers to lessen production, which puts downward pressure on wages, with leads to further decreases in prices and increases in the value of money, a self-perpetuating spiral of undesirable outcomes and reactions
  • Interest Rate Differentials – When money can be borrowed in one currency to purchase an asset in another currency, and there’s a difference between the yields, that difference is called the interest rate differential. Using IRD to make money is called the Carry Trade
  • Yield Curve – Yield curves are graphs that show the relationship between interest rates or yields when plotted over different contract lengths
  • Central Bank Reserves – The amount of currency and deposits on hand in a central bank
  • Forex Reserves – Foreign currencies held by central banks and other government monetary agencies that are held to back up liabilities, usually the currency of the country
  • GDP – An acronym that stands for Gross Domestic Product. GDP is the total value of all the economic production of a country or region
  • CPI – An acronym for the Consumer Price Index. This is a measurement of the change in prices of a pre-selected range of consumer goods, intended to show whether the cost of living is rising or falling for the average citizen

 

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