Forex Factors
Forex rates change from second to second and are almost too
difficult to keep track of. With the need for live, up-to-the-minute
updates on currency rates and real time graphs,
we see how forex is truly the most
volatile markets in the world.
The changes in the forex market are
certainly not arbitrary. The factors that affect currency
rates are innumerable. It is difficult to account for all of them in
making decisions. There are, however, significant factors a
well-equipped forex currency trader
should look at before taking risks.
Forex Supply
and Demand Factors
When the demand for a
currency is greater than the available supply, it becomes more
valuable. When the demand is less than the available supply, the
valuable correspondingly lessens. The increase in demand of a
currency may be due to an increase in transaction demand or increase
in speculative demand.
The transaction demand for money is affected by the level of business of
a country. A highly industrialized country often enjoys high levels of
business activity which in turn translates to a high gross domestic
product (GDP) and high employment rates. When more people are earning,
there is greater demand for goods and services hence, when a country
experiences a shortage on employment, the demand for its
forex currency weakens and it loses value.
The speculative demand is based on an investor’s speculation that a
currency will strengthen within a given period of time. Hence, with the
prediction, the investor will buy currency. High interest rates
imply a great demand for that forex
currency. Investors do not buy currencies when they think that it
will devaluate. In order to find out whether the
forex currency will weaken, they look into local factors
which affect a country’s currency.
The Central
Bank Manipulation Factor
Central Banks also
participate in changing their country’s interest rates. Government may
flood the market with domestic currency if they want to decrease the
currency’s value or buy their forex
currency in order to heighten the demand.
Of course, this kind of manipulation is not transparent and is often
anticipated whenever a forex
currency is rapidly losing its value.
Local Forex
Factors
Whenever a country is
experiencing instability, demand for that country’s currency lessens.
For example, the currency of a country that is on the verge of a change
in constitution weakens because the instability that will be caused by
the change is not attractive for investors. Whenever there are fewer
investors in a country, the demand for the forex
currency lessens hence, the value weakens.
On the other hand, if the country develops reform programs, investors
will be attracted, making demand for its currency to
go up. Confidence in a forex
currency, which is caused by a confidence in a country’s government,
is the greatest determinant of value.
A new trend in employment has also played a key role in strengthening a
currency. Migrant workers coming from third-world countries have
contributed greatly in strengthening their country’s
forex currency. Cash remittances cause an increase
in demand for local currency. As the number of migrant workers sending
money to their homeland increases, the local forex
currency correspondingly strengthens.
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Becom A Successful Forex Trader
