The world of currency exchange is rife with a whole dictionary of terminology that assists in communication when discussing the intricacy of foreign exchange rates. Most of the terms are acronyms that are a series of words tied together to form a single meaning or action. Other items are the unique slang terms for different types of currencies. Beyond that, there is a universe of other language that is specific to investing in general, and also happens to apply to the currency exchange marketplace.
Having a working knowledge of various forex vocabulary will make you a better and more well-rounded investor. Do not shy away from a term that doesn’t immediately make sense to you, especially if it represents an important concept in the world of forex trading that could be essential to your success.
Understanding Foreign Exchange Rates Terminology
Many terms will be relatively self-explanatory, while some forex vocabulary will require greater research. Never be ashamed to google a definition or look up what an acronym may be referring to. You do not want to move through forex trades ambivalent to what these terms mean, as it could come back to bite you later in the form of losses.
Technical, Fundamental and Chart Analysis In Foreign Exchange Rates
There a number of different types of analysis in the world of forex trading and its important that you understand what is available and how they differ in terms of approach. Technical analysis is the analysis based solely on the technical market data (historical valuations and quotes) with the help of a variety of technical indicators. Fundamental analysis is the analysis available based only on global and local news, economic indicators and global events that may be of unpredictable and extreme nature. Chart analysis is the dedicated viewing of chart data in an evaluation of trends, and also baselines for support or resistance, which can be triggers for potential trades.
Liquidity, Leverage and Volatility In Foreign Exchange Rates Trading
When it comes to forex, there are a variety of terms that may not necessarily have unique terms, but might have alternate meanings when compared to their more traditional investment counterparts. Liquidity is fairly similar across the board and is the calculation of various markets and helps to describe the relationship between the trading volume and the price fluctuations. Leverage in forex refers to the magnification of working capital. Because currency valuations won’t generally fluctuate more than about one percent against one another in a given trading day, brokers can capitalize on this by allowing investors to use more money than they have to make trades. That way, even if one percent of capital is lost, there should be more than enough actual capital to cover losses. Of course, the major upside to this is far more returns without needing extra capital upfront. And of course, volatility is the statistical measure of the amount of price changes for a specific currency pair over a select amount of time.
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