Related Posts Plugin for WordPress, Blogger...
Search

 

Tweet with Legend
Join Legend on Facebook

Legend Securities Daily

Curated finance and investing news from our community of thought leaders

Tuesday
Nov132012

Legend Glossary: Understanding Currency Trading

Our regular Investor Glossary series seeks to give you the low down on the most common, frequently confusing words and phrases in the finance industry.

We're always happy to take suggestions for the next edition and you can let us know what terms you need help with here in the comments, or over on our Facebook page.

This week we look at various aspects of currency trading, a vast 24 hour market with a terminology all of its own.


Decentralized Market

The make up of a decentralized market allows its investors to deal directly with one another, rather than coming to a central exchange to trade. Facilitated by technology, networks of investors can gather information, compare prices, and agree direct deals worldwide, around the clock. As such, foreign exchange markets are a prime example of this form of market structure. 

Forex

Simply, this is an abbreviation of foreign exchange, the decentralized market place on which currencies are traded. Also referred to as FX or currency market, many types of buyer and seller operate within the market, from individuals to global companies and countries. The currency markets operate 24 hours a day through the working week, breaking for weekends (based on Greenwich Mean Time cut offs). The currency conversion afforded by these markets is an important factor in the facilitation of international trade.

Floating Exchange Rate

A floating currency rate is one that calculates value by supply of, and demand for, the currency. This is as opposed to fixed rates, which are set between countries by tying a currency to the value of another (or a selection of others). Under a floating rate system, central financial institutions like the U.S. Federal Reserve can still involve themselves in the buying and selling of their currency in order to avoid dangerous fluctuations in value. This tends to be a last resort, however. 

Carry Trade

Carry trading refers to investors selling currencies with low interest rates and utilizing the funds brought in to buy an alternative, higher yielding currency. The strategy relies on the contrasting rates holding true, otherwise the investor may be left with a negative position if the low-high currency rates reverse before all transactions are completed. Exchange rates can fluctuate significantly, making this a strategy not without risk, but the gains can also be substantial if the difference in currency rates are wide. 

 

Is anything still a bit unclear? We're listening and watching for your comments!

 

PrintView Printer Friendly Version

EmailEmail Article to Friend

References (5)

References allow you to track sources for this article, as well as articles that were written in response to this article.
  • Response
    THX for sharing.
  • Response
    Interesting site.
  • Response
    Response: home business
    Legend Securities Blog - Blog - Legend Glossary: Understanding Currency Trading
  • Response
    Response: forex
    Legend Securities Blog - Blog - Legend Glossary: Understanding Currency Trading
  • Response
    Legend Securities Blog - Blog - Legend Glossary: Understanding Currency Trading

Reader Comments

There are no comments for this journal entry. To create a new comment, use the form below.

PostPost a New Comment

Enter your information below to add a new comment.

My response is on my own website »
Author Email (optional):
Author URL (optional):
Post:
 
Some HTML allowed: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <code> <em> <i> <strike> <strong>
« Legend Analysis: Weekly Recap November 15th | Main | Operations Update »