Connect with us

Investments

5 Factors That Affects Forex Market

5 Factors That Affects Forex Market

The forex market sees trillions of dollars over millions of transactions taking place between traders, both buyers and sellers from all over the world every day, 24 hours a day.

Given that it is such a globalised platform, macroeconomic factors are playing an ever-increasing role.

5 Factors That Affects Forex Market

A value of a nation’s currency is largely determined by the health of the nation’s economy. This economic health is impacted by a multitude of ever changing factors.
Let us take a look at 5 factors that affect the forex market:

• Capital Markets

Largely due to improved technology and communication, traders and analysts have accurate, instant access to information on the dealings of corporations, institutions and government entities. This makes global capital markets highly transparent indicators of an economy’s health. The stock and bond markets are the most visible markets in the world.

Any sudden or large transaction or sell-off with in a country will be noticed immediately and will indicate changes in investor perceptions, setting off alarm bells.

Alternatively, a number of economies are highly sector driven, some being mainly commodity-based for example. In these cases, major changes in commodity prices will have an immediate and dramatic impact on that economies currency. A sharp increase in commodity prices for such an economy will see their currency immediately improve relative to economies less commodity based. It could even have a negative impact on the non-commodity based currency so the data can work both ways.

The bond markets will also be impacted by the forex market as fixed income securities and currencies rely largely on interest rates.

• International Trade

The balance of trade levels and changes between nations is another crucial factor.
Levels of trade provide great insight into demand of goods from a nation.
Currencies will appreciate when demand for their goods and services increase.

A large deal or order from one nation will cause them to have to convert their currency into that of the nation selling the goods or services. This will cause greater demand for the selling nation’s currency and cause their currency to be stronger.

Trade deficit, where nations buy or import more than they sell or are net buyers/importers, will cause a currency to depreciate. They are using more of their own currency to pay other nations than they receive from other nations for their own goods and services sold. So, the state of the nation’s trade surplus or deficit, or imminent changes based on large deals will have an immediate effect on the value of their currency.

• Political Conditions

The state of a nation’s political environment has an impact on their economic prospects and therefore affects the value of their currency. Often these affects are based on perception in cases of political instability other times the facts are more solid such as fiscal measures put in place by a nation or policy changes.

Again, current technology and communication allows forex traders to constantly follow the political activities all around the world and make decisions based on the perceived impact of the information.

If you intend to trade yourself, ensure you use fca regulated forex brokers.

We have had some very good examples of extreme cases of this recently. Brexit is the first one that comes to mind. The major uncertainty caused by the UKs decision to leave the EU had a profound effect on the British Pound, causing it to reach its lowest levels since 1985. The move also had a ripple effect on other nations within the EU. Election prospects and results also have a dramatic influence on currencies based on perceived future political stability as well as the fiscal and government spending policies of the candidates involved and their performance in the election.

• Economic Releases

Economic reports form the foundation of a forex trader’s information and are a major influence on their trade decisions thus impacting currency value. GDP is the main report forex traders look at. Although it provides only historical information, it gives a very clear indication of trends and the health of a country’s economy.

• Inflation

Another very important indicator used by forex countries is inflation. It can be slightly more difficult to gauge as there are many variables involved but it gives some insight into future trends within an economy.

Those are 5 factors and they are among the main ones but there is a myriad of other aspects to consider, all changing constantly. A forex trader needs rapid, accurate information at all times to understand and predict potential in forex.

Continue Reading

Recent Posts

Autos3 days ago

In a Car Accident? Here’s How to Find a Great Lawyer

If you’ve recently been in a car accident, you know that it can be an overwhelming experience. Not only do...

Education4 days ago

Considering Therapy? Here’s a Few Common Therapy Techniques Explained

If you’re considering therapy as a means to improve your mental health, you may be curious about the type of...

home repairs home repairs
Home Improvement5 days ago

Top 5 Home Repairs You Should Never DIY

DIY home repairs are all the rage these days. But before you jump on the bandwagon, there are some things...

Health2 weeks ago

The Power of CBD Oil for Relaxation: How to Use it for Sleep and Stress Relief

If you’re struggling to get a good night’s sleep or feeling stressed, try CBD oil. CBD oil has a moment...

General2 weeks ago

Benefits of Getting your Mobile Phone Repair

Mobile phone repair is a task that needs high skills and experience. That is why we always recommend users trust...

Home Improvement2 weeks ago

Great Ways To Clean To Get Your Security Deposit Back In Full

Moving is almost always stressful as there are tons of things to plan and do. Getting your security deposit back...

Home Improvement3 weeks ago

DIY Garage Door Repair: Tips and Tricks for Fixing Common Problems and Maintaining Your System

If your garage door needs to be fixed, wait to call a repairer. Many common problems can be fixed quickly...

Education4 weeks ago

7 Tips to Choosing the Right University for You

Are you considering continuing your education at university? If so, it can be overwhelming to decide which school is right...

Finance1 month ago

3 Ways Loans from Credit Unions Are Different From Major Banks

If you’re in the loan market, you may wonder if a credit union is the right choice. Here are three...

Food1 month ago

The World of Coffee: Exploring the Aromas, Flavors, and Benefits of the World’s Most Popular Beverage

Coffee is one of the world’s most popular beverages, enjoyed by people of all ages and backgrounds. It’s also one...

Education2 months ago

New Driver? 5 Things to Consider When Looking for Driving School

When it comes to choosing a driving school, there are many factors to consider. Not all driving schools are created...

Home Improvement2 months ago

Landscape Irrigation Systems: The Basics

If you’re a homeowner, you know that keeping your lawn and landscaping looking nice can be a lot of work....

Travel2 months ago

5 Things to Look for in Luxury Hotels

When it comes to luxury hotels, there is a lot to look out for. Here are five key things that...

Home Improvement2 months ago

Is There a Difference Between Commercial and Residential Concrete?

If you’re a contractor, you know that concrete is a versatile construction material. But did you know that there are...

Law2 months ago

5 Tips to Find the Right Litigation Firm

When it comes to selecting the right litigation firm for your legal needs, choosing wisely is of utmost importance. It’s...

Categories

Archives

Trending