Top 10 Economic terms to help you trade
Many new traders seem to have a good grasp of a few technical analysis methods. Perhaps a slight understanding of some trading strategies and some knowledge of trading jargon.
But where we see the largest lack of knowledge is in the Fundamental economic terms, theories and events that take place in the market every week.
Fundamental analysis is so important. Yet too many new traders seem to completely bypass it and start drawing a million different trend-lines on charts, thinking support and resistance is going to help them succeed… it won’t!
You need to have at very least, a basic understanding of how the markets work and why the markets move from a fundamental and economic standpoint. So, we’ve created a quick checklist of top 10 economic terms to help you trade.
This is by no means the be all and end all blog post that will be the key to your success… However, it’s a great starting point. Read through the terms. Make sure they are engrained in your memory, and we promise this will help you trade better in the long run!
Ready to bolster your economics knowledge with our top 10 economic terms to help you trade? Let’s go…
Supply and Demand
Supply (The amount of something offered for sale at each given price point)
Demand (The amount that a consumer is willing to fork out to purchase at each given price point)
This is one of the most commonly known economic theories and it is one that is easily applied to your everyday life. Look at football players prices or the price of Jordan Jerseys after ‘The Last Dance’ was released…
Monetary Policy is when the macro-economy is controlled via changes in monetary variables such as interest rate changes and money supply by a Central Bank. These central banks will have objectives to meet, and this is how they are met, via inflation, liquidity and also – consumption
Gross Domestic Product – The total value of goods and services produced in the economy. This is one of the main data releases that traders like to focus on. It usually has a fairly large impact on the FX rates of the Country in question, especially if you see a large beat or large miss
The Policy of the government regarding tax and government spending. This can be when the government decides what it wants to spend its money on in relation to goods and services, the taxes they collect and also the payments it makes out
Goods and Services
Goods are tangible products that we can touch and see such as Golf Clubs or Bikes. These are different from services which are non-tangible (touchable) such us a holiday or a flight on a plane. You don’t actually buy the aeroplane, but you do benefit from the intangible benefits from being able to travel on that plane or enjoy yourself on that holiday!
A persistent increase in the increase in levels of prices. This effectively means that the currency that you have in your hand, or your bank account is worth less than it was, for example, a week ago. i.e. – The ‘purchasing power’ of your money has decreased. And what is the opposite of inflation… Deflation, of course!
Consumer Price Index – A measure of inflation – and the price level of product changes over time (similar to the Euro-Zone’s HICP (Harmonised Index of Consumer Prices) Another of the most important figures for many traders to follow and trade
The financial institution in a country or group of countries usually responsible for issuing notes, coins and setting short-term interest rates. In the UK we have the Bank of England. In the US we have the FED and in Canada we have the Bank of Canada.
Micro Vs Macro-Economics
Micro-Economics – Looks at individuals/firms. Drilled down into studies of consumption, production and exchange.
Macro-Economics – Deals with the economy. Specifically, how different economies are performing in terms of economic output, exchange rates, interest rates and also, inflation.
Costs or benefits that spill over to third parties that happen to be external to a market transaction. These are unrelated parties to the transaction. Negative and Positive externalities can influence the transaction in question.
Thanks for taking the time to read through our top 10 economic terms to help you trade. We hope that these points will help you succeed in you trading journey.
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Good Luck and Happy Trading!