Thursday, July 17, 2008

Factors Influencing Forex Market Trends

Factors Influencing Forex Market Trends

The largest market today for stock trading is the FOREX market, and it grows continually as more and more people are investing in it. It can be very inconsistent even volatile however, as promising as this market may be when it comes to profit.

It is preferred that you be familiar with certain factors that influence trends in the Forex market if you are deciding to join this area of investing. Acquaint yourself with the many different scenarios that can cause currencies to go up or down. This will certainly help you a lot in making decisions for when to buy or sell in the market.

Three major factors affect the Foreign Exchange –a country’s economy, political conditions and market psychology.


Basic things that create changes in a country’s currency are economic factors. When a country has economic conditions such as a budget deficit or surplus, there will probably be reactions in the market and it will reflect on values of the currencies. Inflation trends, and the general economic growth of the country are also other conditions that will reflect in the FX market.

A prosperous economy in a country is a good sign that investors will be able to adhere to doing trade with a more positive attitude. Indicators such as growth in a nation’s gross domestic product (GDP),high employment levels and retail sales among others will basically attract more investors resulting in a nation’s currency value being likely to rise.

Political Conditions

Conditions of a country’s political sector are another very important factor that influence trends in Forex. Political instability or turmoil can sometimes create negative fluctuations in an economy. But if a country can rise above political obstacles, the opposite may occur and the economy may improve.

Events in a region causing instability can create negative or positive interest among investors for a nation’s currency. And as such, conditions will influence the trends for demands and prices of a that particular country's currency.

Market Psychology

The perception of traders and investors will greatly influence the Foreign Exchange market in many ways.The market is highly dependent on whether or not investors would want to gamble on a country’s economy in order to determine whether currency prices will go up or down.

For example, such conditions where unsettling international events happen, under the “flight of quality” rule, investors would look for a safe haven for their funds. Whenever there is a higher demand in a country’s economy, then a higher price will be given to buyers and the currency’s value will rise becoming stronger.

Other events that contribute to traders’ perceptions may be long-term trends and history of a currency where people invest based on what they have noted over a long period of time, and even where people may base their investments on economic numbers depending on what numbers show a greater value.

The market in Foreign Exchange is often volatile, unpredictable and fluctuating. So if you are interested in trading in this market, make sure that you take the time to be educated and knowledgeable about good strategies that can help you keep your funds safe and even gain profit. If you know what you are doing in this market it is indeed very profitable. In other words ....EDUCATE yourself before committing funds.

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