Saturday, July 3, 2010

Factors That Drive the Forex Market

There are several factors that affect the forex market. One of the things you'll need to learn in the trade is to understand those factors that cause currency rates to fluctuate each day, and how to respond to them. Economic, political, social and natural factors that occur in a given country or region can either have a negative or positive effect on forex trade. Therefore, it is always important to keep abreast with such indicators. Normally, these indicators are released through forex authorities, financial institutions, government organs and private organizations.

Broadly, the factors can be studied as fundamental or technical analysis. Fundamental analysis looks at those factors at an outer scope while Technical analysis looks at a more internal range within the forex market. One of your duty as a trader is to analyze such factors and come up with a course of action whenever they arise. Information on forex indicators can be obtained from annual economic reports which are usually published by the government as a measure of country's economic growth, policies as well as major events. They can also be provided by financial institutions, forex authority or through your broker.

Among the commonly used indicators in forex markets is the GDP (Gross Product Domestic), which is the total market value of goods and services produced by workers and capital within a country during a given period of time. Others include country's exchange rate, level of unemployment and political stability. The exchange rate of a given country is the ratio of the value of goods and services that the country has imported, against the one that it has exported. Exchange rate is more swift, and so, it has a very dynamic effect on the day-to-day trend of forex trade rather than long-term.

Among industrial countries, Industrial reports acts as reliable indicators of economic movement in the forex exchange. The report shows variations in the production of goods in factories and other production utilities. It is considered healthy in forex market for the country when it is producing more than it is importing or consuming as the interest rate and the exchange rates will be ideal.

Another key factor that acts as an indicator of forex market performance is CPI (Consumer price Index). Consumer price Index is the average value of goods and services used by a common consumer. CPI takes into account more than 200 categories of items to indicate level of inflation. The report is normally of much importance not only among forex traders but also among the policy makers as reflects on the long-term economic growth trend in a country.

There are many other factors that affect forex trade. Although these indicators tend to relate to each other, the degree of impact on your trade may vary; and so, it is important to understand how each force works, and how to respond to each case. This will go along way in avoiding making huge loses and rather take profitable opportunities to grow your business.

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