Forex Trading – Basic Terms

To understand forex trading, just like any other discipline you need an in-depth understanding of the basic terms used in the field. Here are some of the terms you should acquaint yourself with as you venture into forex trading:

(a)Forex exchange market:
This is a market where one currency is exchanged for another. For instance one trader can be having the Kenyan shilling and the other has the US dollar; the platform where they meet to exchange their currencies is what is referred to as the foreign exchange market. Also known as the FX or Foreign exchange market.

(b)Exchange rate:
This refers to the price at which one currency is exchanged for another. For instance, $1 could be exchanged for ksh. 87.41; then the ksh.87.41 becomes the exchange rate between the Kenyan shilling and the dollar.

(c)Foreign exchange reserves:
The holdings by a given government of other countries` currencies. In the Kenyan context, foreign exchange reserves include all other currencies that are held by the Central Bank of Kenya apart from the Kenyan shilling.

(d)Foreign Exchange Controls:
These are controls imposed by the government on the purchase or sale of foreign currencies. These regulatory controls are introduced by the government in order to protect the local currency from appreciating or depreciating so much to an extent detrimental to the national economy.

(e)Retail foreign exchange platform:
This is the speculative trading of foreign exchange by individuals using electronic trading platforms. To participate in the retail FX trading platform, you need to have a personal computer, fast internet access and a forex account opened with one of the numerous forex brokers online.

(f)Foreign exchange risk:
The risk that arises from the change in price of one currency against another. The price may change due to changing economic factors in either of the countries whose currencies are being traded or on other international economic changes.

(g)Foreign exchange company:
This refers to a broker that offers currency exchange and international payments.

(h)Bureau de change:
This refers to a business whose customers exchange one currency for another.

The above form just a fraction of the terms you need to know when trading in the FX market, and as stated, they are but the basic ones only.


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