In trading and investment, deficit refers to the negative balance in an account or portfolio. Deficit occurs when the outgoing sum of money is greater than the incoming sum. For example, an investor opens a trading account and deposits $10,000. They experience a loss of $4,000 after executing a few trades and gains $2,500. This results in a deficit of $1,500.
Governments can also run a fiscal deficit. That is when the difference between a government’s total spending exceeds its total revenue, causing a budget shortfall or a budget deficit. When governments have a large fiscal deficit, there can be negative implications for the country’s economy, potentially causing a decrease in the value of its currency in the forex market.
Conversely, if a government runs a small or no fiscal deficit, it may be interpreted as a sign of economic stability, which can lead to an increase in the value of its issuing currency.
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