Forex Terms You Should Know Before Investing
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When you are first getting started with Forex trading, you will be faced with quite a few terms that are likely unfamiliar to you. Having a working knowledge of some of the most commonly used Forex terms can help you to get a grasp of Forex and other forms of investing far more quickly. The following are some of the terms that you are likely to run across.
Aggregate Demand – Refers to the overall demand in an economy including business investment, consumer investment, and government spending.
American Option – This type of option can be exercised at any point during its life.
Asian Option – With this option, the payoff will vary based on the underlying asset’s average price over a certain timeframe. Many traders are interested in these types of options, as they are usually more affordable than American options are.
Ask Rate/Ask Size – The Ask Rate is the lowest sale price for the shares. The Ask Size is the number of shares the seller will sell at the Ask Rate.
Bear – Market in decline.
Bull – Market on the upswing.
Cable – When describing the exchange rage between the dollar and the British pound, this term is used.
Convertible – This refers to a currency that you can exchange for another currency or for gold.
Day Trading – This is a term used for entering and closing a trade on the same day.
Economic Exposure – This term refers to a country’s cash flow being in danger because of changes in the exchange rate.
Foreign Currency Effect – The term is used to describe the effect that changes in the exchange rate can have on foreign investment returns.
Fundamental Analysis – Includes current events and political factors that could cause the direction of the markets to change.
Hedging – This is a strategy that will help to reduce the risk of price movements on an investor’s portfolio in an effort to stave off market volatility.
Inflation – An increase in prices and wages that lowers overall purchasing power.
Leading Indicators – These are stats on various factors including unemployment, retail sales, discount rate, and the prime rate that help to predict the movement of the economy.
Limit Order – A type of order that restricts the max price paid or the minimum price received.
Liquid Assets – Types of assets that can be turned into cash quickly.
Long Position – When someone owns assets such as commodities and currencies that they do not intend to sell, as they believe the price will rise in the future.
Market Order – This is an order to buy or sell when an asset reaches the best price.
Maturity – This refers to the date when a security needs to be redeemed.
Open Order – This is an order that remains open until cancelled or executed.
These are just some of the most important Forex terms that you will hear and see when dealing with Forex and with other types of trading. Learning these terms is essential to understanding what your broker and others are talking about before you start investing.
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