Financial investors keep a close eye on what’s going on in the markets because any positive or negative development may cause a change in the price of the instruments. Markets are sensitive to these events, and things can suddenly change in ways you don’t expect. At this point, the investor must make a correct prediction about the course of exchange rates.
Making correct predictions for investors is not as simple as it seems. It is necessary to have some information, first of all, what are the internal and external factors affecting the markets. The fluctuations in prices are due to these factors. If you are an investor with the goal of making money, you should acquire a comprehensive knowledge of all the topics that interest you.
Detailed forex information allows you to evaluate your savings in the most accurate way. Instantly changing exchange rates in forex, which has become the favourite of recent years with its high trading volume and advantages, is definitely affected by various factors. Below, we have given detailed information about the micro and macro factors affecting the forex market and how the exchange rates change.
What are the Factors Affecting the Forex Market?
Contents
In the forex market, which has a trading volume of around 8 trillion dollars as of 2021, the value of investment instruments is not fixed and constantly changes. This is because of the factors that affect the market. It cannot be said that these factors are as numerous as in the stock market because forex is a market with a very high trading volume.
Forex differs from other markets because of its many features. For instance, it is not affected by factors such as speculation and manipulation, and therefore these factors do not change the value of investment instruments. All kinds of developments in the country or abroad affect the pricing in forex. We can explain the most important of these factors as follows;
Supply-Demand Balance Affecting Exchange Rates
The most important factor in the market is the supply and demand variable. Knowing the details about it is really important because the changes in the price levels of the instruments are largely attributed to these two factors.
Supply and demand, which are the main determinants in all financial transactions, the existence of any investment instrument and the demand for it determine the exchange rates. Generally, prices go up when demand is high, and stay low when there is low demand.
Since supply-demand factors are the most important factors affecting the value of forex instruments, it is also necessary to know what is effective in determining them. Finding the equilibrium amount between buying and selling is very necessary to examine this factor.
Of course, it is difficult to predict the transactions of other traders. That’s why analysis techniques and forex charts have been developed. With the help of graphics and analysis, you can determine the trend direction of both the market and investment instruments.
Traders can see when the price levels of investment instruments will break when they will rise or fall. Accordingly, they can carry out their investments from points that will meet their expectations.
It is very important that you know that the value of the instruments will change within seconds depending on the purchases and sales made by the investors and act accordingly.
If you want to make your transactions in a safer environment, you should make your investments during the time periods when the transaction volume is low. Because, during the first hours when the trade centres are opened, the trading volume is high.
In these times when the trading volume is high, investors open and close their positions in seconds, and all this develops so fast that you cannot follow it. Of course, for this, you need to have good knowledge and experience about forex investment.
If you cannot interpret the instant price changes correctly, you will lose your money. Therefore, you should devote some of your time to learning comprehensive information about forex.
How Economy Affects Exchange Rates
Non-farm employment data, gross domestic product, industrial production, core retail sales, inflation, interest and unemployment rates are among the external factors affecting the forex market. Apart from these, there is important data, and the degree of importance of all of them varies.
Each of the above-mentioned data has an impact on the economy, and therefore on the currency because they affect the factors that affect the demand and supply of money and cause the price to move. Thus, there is a change in the ratio of any currency against another currency. Here, an investor who can benefit from this change is a profit earner.
Important data aside, even insignificant data can affect the value of investment instruments. This is because all data must be interpreted together. For this reason, you should keep track of other data and have information about their importance.
A good investor has information on how to follow up both domestic and international markets. Thanks to the economic calendar developed by the intermediary institutions, you can be instantly informed about the developing conditions.
At the same time, you should be able to determine what changes will occur as a result of your follow-ups. You can learn all this thanks to the free training of forex companies. In this way, you can increase the amount of your budget by evaluating your savings as necessary.
Activities of Central Banks
The central bank of each country is responsible for maintaining price stability in the region in which it operates. Therefore, these banks emphasize the motive of serving this basic purpose, both with their management style and under every transaction with banks.
Interest rates, rediscount rates and required reserves are determined by central banks; It is also the responsibility of this institution to determine the amount of money in the market by making various transactions.
A qualified investor who wants to make a successful investment should follow the explanations of the central banks of the countries with strong economies and the monetary policies they have implemented. Thus, it gains the ability to predict how the markets will change direction, which instruments will increase or decrease in value.
The decisions are taken by the central banks of the leading countries of the world (FED, ECB, BOJ…), their asset purchases and the policies they implement directly affect the price balances. This does not mean that the policies implemented in line with the interests of other central banks do not affect the financial markets.
Another point is that all activities of central banks create two different effects on the market, positive and negative. While an application against an existing problem creates a positive effect, negative effects lead to another problem.
In fact, each of the practices for the economy will have a bad effect. At this point, the central bank should intervene full-time and measure. Forex is also affected by all these situations and reflects this in the exchange rates.
Unemployment Rates and Employment Data
One of the best indicators of the state of the economy in a country is the unemployment level. If the unemployment rate is high, investors feel the need to question their confidence in the economy. They also stay away from taking loans for investment. As a result of a series of negativities, a decrease in the value of the country’s currency occurs.
If the number of unemployed citizens in a country is decreasing, it means that economic growth is accelerating and at the same time, it is concluded that the economy remains alive.
Similarly, employment data shows the number of currently paid employees. If the number of employed people is high, it is understood that things are going well in the economy. When these data are announced, it is possible to see sudden price fluctuations in forex.
Political Developments
No investor expects to invest his money in an instrument with an uncertain future and expect to profit from it. The political turmoil in the country affects the future expectations of investors, and this is clearly seen in the general level of prices. Therefore, it is very important in terms of the value of money that things go well in a country.
The resignation of any official, news about a senior official from the institutions leading the market, election results, developments related to the government, international achievements and many other social and political events are called important political developments. In addition, trust in a country determines how suitable that country is for investment.
People who invest in Forex or other markets follow this closely as they are aware of the impact of political events and situations on the markets. Currencies keep regional and national developments on their radar. Successful investors closely follow the social and political conditions of a country.
Currency Wars
If a country wants to earn more income from the foreign market, this situation has started to affect the financial markets with the development of global trade. Especially countries with high exports do not want to see an increase in their currencies in order to better benefit from the intense foreign trade interaction.
Currency wars are more important when considered in terms of influencing forex, especially when they strengthen expectations that central banks will intervene. Investors who are aware of the current situation in the country of interest and can make strong predictions about central bank policies will sell the currency that will fall in value and buy the other currency. Big gains can be made in a very short time, but also big losses can be experienced in the same way.
How to Interpret the Factors Affecting the Exchange Rates?
We discussed the factors affecting the Forex market above. Most of these elements are related to the general structure of the economy. That’s why you should care about all kinds of economic development.
Being able to interpret the events that took place is also a skill that you can easily acquire over time. For this, you should obtain information about past events and changes in price levels.
Expert opinions and analysis are also good helpers to understand the markets. It will not be difficult for you to understand why the value of instruments will rise or fall. You should definitely not act with inner feelings. Because markets are sensitive. It will be to your advantage to shape your investments according to numerical data.
Fundamental and technical analyzes have been developed to interpret the factors affecting the market. Apart from these, there are many more helpful special indicators.
With the training of brokerage houses, you can get detailed information about special indicators that will allow you to predict price changes of investment instruments, learn how they are used and what they do. Accordingly, you can perform your investment transactions in a more conscious way.
It is very important for you to make a healthy investment by checking the pulse of the markets and turning to the instruments that you will earn. You can make use of your savings by making daily profits over the second-to-second price changes.
As a result, the internal and external dynamics affecting the forex market cause the price levels of investment instruments to fluctuate. You can make money by accurately predicting the price trend directions of instruments in the markets.
If you can correctly predict how the price level of any investment instrument will shape in the future, you will make money. Therefore, it is important that you have information about the issues affecting the market.
You can get information about these factors through domestic and foreign sources, and you can have detailed information thanks to the qualified training of intermediary institutions. Thus, by taking an active role in the market, you can achieve profitable results.
Conclusion
If you are in the financial markets or want to buy, you need to accurately predict the changes in the price levels of investment instruments or exchange rates in order to win. In this context, there are so much to learn and the first of these is the dynamics that affect the market.
Due to these dynamics, there are fluctuations in the price levels of investment instruments that affect exchange rates. Therefore, if you want to be successful and direct your investments correctly, you should learn the necessary points. In this way, you can create lucrative positions and meet your expectations in order to achieve your targeted returns.
Most people who want to evaluate their savings want to enter the market without hesitation. But in order to be successful, it is necessary to know what forex is, how to play, and what are the factors affecting the market. Otherwise, the processes cannot be directed consciously and the expected results cannot be achieved. Therefore, you can learn all the tricks about forex and investment by taking advantage of the training of brokerage houses.
SEE MORE: How to Become a Successful Forex Trader?
