When looking into the world of Forex, there are a number of terms that you should know. These include interest rates, spreads, pips and stop-loss orders. If you don’t understand these terms, you may have a lot of trouble making your trades.
The exchange rate between a country’s currency and a global currency is one of the most important economic indicators. It is impacted by several factors.
One of the main factors affecting currency value is interest rates. A high rate of interest makes it more attractive to investors to invest in a country. This encourages investment and growth.
On the other hand, a lower interest rate discourages foreign investment and decreases the value of the currency. In order to stimulate the economy, a central bank may raise or cut its interest rate.
A higher interest rate increases the value of the currency, making it more appealing to foreign investors. At the same time, higher interest rates tend to reduce inflation. Increasing interest rates also reduce the amount of money people can spend, thus decreasing the demand for goods and services.
Interest rates are also affected by a country’s trading relationship with other countries. Countries with a trade surplus will typically have a stronger currency. However, if a country suffers from a trade deficit, its currency will depreciate.
Pips in the Forex glossary are the smallest increments in the value of a currency pair. They are used in currency trading to manage risk and measure profits.
The first pip, a fractional pip, is equal to one tenth of a regular pip. It’s also referred to as a pipette. A lot is a unit of a certain amount, typically 10,000 units.
When it comes to calculating how much a currency changes in price, it’s more convenient to use pips than other types of calculations. For example, if a stock rises from $25 to $30, it’s considered a “five point” movement. But if it goes up a full 21 points, it’s a “twenty point” movement.