Forex Trading Information - The Information You Must Know!
Trading in the forex market is demanding, exciting but very risky. A lot of people make money -even more lose money! One way to lessen the odds in your favor is 'Market Knowledge'. You must have the right forex trading information - otherwise you will never be able to make profits consistently.
The market isn't some 'mysterious' thing that operates of it's own accord. The market we are going to be talking about is the overall market that exists in the world - call it the world economy if you like. We however, are interested as forex traders in three influential categories of activity which 'drive' the price of money i.e. forex. Ignore these market influences and you will be at a huge disadvantage.
The three major market influences are:
Economic.
Economic policies that are adopted by Government bodies, either in the U.S. or the rest of the world have a major impact. For example if The FED states that they think the dollar is too low now and that active intervention will be taking place - a rally in the USD occurs - almost instantly until the market feels it's overdone and falls back a bit.
Often statements made by Government bodies and agencies are influential in establishing a longer term trend - so are vital indicators of future price movements.
The economic 'prudence' factor is another criteria, for example that determines the strength or weakness of a currency. Strong, well run economies usually exhibit much more stable currencies. Opportunities can exist when a particular economy may well be heading for a period of weakness possibly a period of high inflation which will result in a devaluation of that currency.
Balance of trade surpluses or deficits will also have an effect. What we are really looking at here are 'fundamentals'.
Political or Sovereign Risk.
Where there is political strife, civil war, corruption, an ineffective political majority that hampers economic decision making the market judges such factors negatively. Threats to a countries national security can have a devastating effect on the value of a currency so these events are always essential to keep abreast of.
Psychological.
Markets are often moved by 'perception' i.e. the U.S. interest rates are going to go up because of high inflation. Such a scenario usually causes an initial sell off in the currency but what investors will find is that the currency will often tend to trend up as more Treasury investments are made by foreign investors seeking a higher return (assuming other market rates aren't climbing as fast) for their capital and hence have to buy dollars to invest in those securities.
Market 'sentiment' can also drive prices. Have you ever noticed the 'lag' between sentiment and prices. Sentiment has a snow ball affect. It gathers momentum and then a large movement occurs. A good example of this in operation was the housing crisis in the sub prime sector of the financial markets which has had a follow on effect of reduced prices for non sub prime properties a market sentiment believes prices are going lower - a self fulfilling prophesy. It's identical to the forex market. Although the forex market is much more volatile!
These are just example of forex trading information that you need to be aware of in a general market overview.