The learning curve for Forex trading can be rather steep especially for those who have no prior experience to trading in any financial market. Even though there are only 30 currency pairs in the currency exchange market, compared to the thousands of stock offerings in the equity market, the numerous methodologies and theories inherent to it can pose a real challenge. Below are some terms which you will probably come across as you learn more about this very interesting and exciting financial market. Currency Pairs
Currencies are always quoted in pairs in Forex trading. For example, to juxtapose the value of the American dollar to Canadian Dollar, it should be written as USD/CAD. The first currency in the pair (USD) is called the quote currency while the second one (JPY) is called the base currency. If the quote is written as USD/JPY = 100.00, it is read as 1 US Dollar is worth one hundred Japanese Yen.
Going Short, Going Long
These terms are used when placing a trade order. “Going short” means placing a sell order on a currency pair. Short positions are taken when the price for a particular currency is expected to fall in value. If investors go long, they are simply buying a security. Therefore long positions mean buying a particular currency with the expectation that its value will rise.
Economic Indicator Analysis Versus Market Activity Statistics
No other market that facilitates the trading of securities shows the same degree of volatility as the currency market. The reason for this volatility stems from the fact that the exchange rates existing between currencies are influenced by a host of variables. Among market determinants, the existing economic climate is considered pre-eminent. Having said such, speculating on the Forex market requires evaluating important economic factors. This method is called fundamental analysis.
Forex Investors may also take market activity and price shifts into account to make sound trading decisions. This strategy is called technical analysis and a good number of traders prefer this approach.
To put it simply, using leverage in Forex trading allows you to control large positions for a relatively small cash outlay. Leverage is often considered a double-edged sword because it can magnify your profits when price movements go in your favor. But if it’s the opposite, it can also amplify your losses.