Glossary of Key Terms
- Forex (FX): The foreign exchange market, where currencies from different countries are bought and sold.
- Exchange Rate: The value of one currency expressed in terms of another currency.
- Liquidity: The ease with which an asset can be bought or sold in the market without significantly affecting its price.
- Decentralized Market: A market without a central physical location or exchange; Forex operates over-the-counter (OTC).
- Currency Pair: The quotation and trading of two different currencies, with the value of one quoted against the other (e.g., EUR/USD).
- Major Currencies: The most heavily traded currencies globally, typically including USD, EUR, JPY, GBP, and CHF.
- Spot Market: The market where currencies are traded for immediate delivery (typically within two business days).
- Speculation: The act of trading an asset with the expectation of profiting from future price movements.
- Volatility: The degree of fluctuation in the price of a currency or asset over a period of time.
- Leverage: The use of borrowed funds to increase the potential return of an investment; it can also magnify potential losses.
- Spread: The difference between the buying price (ask) and the selling price (bid) of a currency pair; it represents the broker’s profit.
- Central Bank: A national institution responsible for overseeing a country’s monetary policy and currency.
- Inflation: A general increase in prices and fall in the purchasing value of money.
- Interest Rate: The cost of borrowing money or the return on lending money, often set by central banks.
- Geopolitical Events: Events related to international politics and relations that can influence financial markets.
- Futures Contract: A standardized contract to buy or sell a specific asset at a predetermined price on a future date.
- Options Contract: A financial instrument that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date.
- ETF (Exchange-Traded Fund): A type of investment fund that holds a basket of assets (in this case, currencies) and trades on a stock exchange.
- Retail Trader: An individual investor who trades securities or currencies for their own account.