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Factors that Affects Currency Industry

 

Forex trading is always changing as there is no central currency or determining ground. Currency traders should always notice even the smallest news as this could be one of the factors that will eventually affect a currency.



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Research, news gathering and data analysis will always be part of a currency traders’ life as these are the sources which will help the traders predict the outcome of the currency. If the currency trader has the information that indicates the future, he will be better equipped to trade and will be assured of success.



But a currency trader should be careful of the source or the factors that will affect their decisions. There are news and factors thought to be very important but they did not affect at all.



A trader should know where to look for the right information and the type of information so that they could make the right decision.



One false decision might not be the end of you but it could be a start as you will continue to rely on the same information which is not helpful at all. This is usually the common mistake of new traders as they try to harness the industry.



Information Hoarding

Aside from looking for the right information to help any trader form an academic forecast for a successful currency trading is to have too much information. Information hoarding is slowly becoming a trader’s problem because of the internet.



Everyone wants to say something and their ideas could be found without too much effort online. Even though all of the data are professionally researched but they are often conflicting. Unfortunately, this has muddled data gathering which increased difficulty in predicting the outcome of currency trading.



That is why the quality and the quantity of the data that will be gathered should be controlled. If the trader knows the factors that will affect the currency industry, they should be able to have a good opinion on what will happen in the near future.



The Political Situation

The country’s currency is greatly affected by its political condition. A country under civil war will always face economic downturn which will eventually reflect on their currency. If the country continues to be at war or in any other political instability, economic reforms will never be possible.



An example is the current situation in Iraq. Although Iraq is already a democratic country with the potential to be one of the strongest in Asia because of its oil reserves, the exchange rate is almost US$900 to a million Iraqi Dinar. The reason for this downturn is the current problem with insurgency which has affected different government functions.



The country’s budget deficit could also be considered as a factor. A country requiring considerable funding but with less tax support from its citizens will get them looking for additional funds that could come from the IMF or the World Bank.



Investors take this as a bad signal for investments as the country does not have the ability to control its official government spending. It could be possible that the government will raise taxes to compensate with the deficit which means additional spending for investors.



Inflation and Interest Rates

A country at peace does not always equate to a strong currency. There are countries that are economically struggling as interest rates from banks rise.



This will affect small and large business which will result to the increase of price on product and services just to cope up with the losses from interest rates.



This will then cause inflation because price of commodities increases without the increase of earnings of its citizen. The purchasing power of the citizens goes down along with its economy.



This will be felt not only in small scale level but in a national level. As inflation rises, business confidence from outside and even in local investment falls. Large corporations will experience losses because of the plummeting stock prices.



This is rather a gloomy situation to deal with but this is a reality every investor should consider as this will help him or her create a good forecast.



The information about the country’s political and economic problem is relatively easy to gather as news will always be available in different media outlets.



Speculations

Speculation in currency trading industry is common. Traders will always make a move to prevent a disaster from happening. This is not triggered by any actual event but it is through the general speculation that something big might happen which will affect the currency industry.



Everyone is trying to make a move even before they could be badly affected by a change in currency.  Speculation may remain only a speculation but it will cause an uproar in the currency industry especially if the speculation came from a reliable source.



From large scale mergers, acquisitions and bankruptcy, speculation about the drastic movements of companies will always affect the country’s currency. Before it affects them in a bad way, traders will look for ways to profit from the speculation.



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This type of information is rather difficult to gather and the ideas are often conflicting. That is why it is still up to the trader on how to interpret the said events to create a profitable forecast.





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