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Three current big issues affecting Forex trading

Introduction

Forex trading represents a major financial frontier for traders unaccustomed to how it works. Many novice or even intermediate traders may feel intimidated by the volatility of the market, as well as the lack of a central trading exchange. However, understanding the issues that affect forex trading can help you make informed trading decisions, minimizing the risk that you will suffer a major trading loss.

DISCLAIMER: This article describes general circumstance concerning forex trading. It is not meant to represent financial or trading advice. Please consult a financial authority with specific trading or forex questions.

Economic Indicators

The ongoing financial crisis has had a definite effect on forex trading, just as it has affected the stock market. Factors such as unemployment figures, consumer sales and manufacturing production all provide insight into the general health of a country’s economy. Inflation is a major indicator that carries significant weight in evaluating a both a country’s economic health and the value of its currency.

Savvy forex traders use economic indicators to make informed judgments about the trading value of that country’s currency. However, a single indicator is rarely sufficient to judge a currency’s value. Instead, traders often consider several economic indicators in comparison with one another in making their decisions. In addition to static figures, astute traders also observe trends in economic indicators, as a one month figure may represent an anomaly that can throw off trading.

Central Bank Moves

Also related to economic indicators are the actions taken by central banks, especially actions taken in response to economic indicators. For instance, in countries where the economy is sluggish, central banks often lower interest rates in an attempt to stimulate economic activity such as consumer demand or hiring. By contrast, countries concerned with keeping tabs on an economy at risk of overheating — or preventing uncontrolled inflation – may raise interest rates.

In circumstances where interest rates are already low, central banks may resort to less conventional means to influence economic indicators, and especially to increase liquidity of currency. Quantitative easing involves purchasing government bonds along with other assets from financial institutions. However, quantitative easing may result in a devaluation of a country’s currency.

Political and Other Circumstances

Reading a daily paper, watching news forecasts and other attempts to become politically informed may also have the knock on effect of making you a more informed forex trader. For instance, learning that one country has cut off natural gas or petroleum supplies from a country that needs those natural resources to meet its basic needs could influence how a trader handles trading the currencies of both countries.

Ongoing tensions between countries in a particular region of the world or acute political unrest such as ethnic conflicts can also influence forex trading. Likewise, a natural disaster such as a hurricane that prevents a country from meeting its manufacturing or raw materials obligations may also affect the value of a country’s currency in general and in the forex market.

Conclusion

Forex trading concerns much more than money. Besides understanding how currency trading works, traders must have at least a rudimentary knowledge of economics and world affairs and an overwhelming desire to immerse themselves in the field and learn more about forex trading on a daily basis. Maintaining an awareness of current events not only makes you more interesting to converse with at parties, it can help you become a more astute forex trader.

Guest post contributed by Stacy Pruitt, an avid currencies researcher and freelance writer. Stacy is currently writing a book on advanced forex strategies and trading robots. Her articles appear on various trading blogs.

This was posted in Bdaily's Members' News section by steve hannigan .