Piggy is excited about the IronFX partnership that has opened the opportunity for individuals to participate in the global FX market. However, while there has been a phenomenal growth in the global FX market over the last several years, a point that must be made clear is that “forex on-line trading is not a casino!” Of course, marketing websites and blogs have done enough damage by presenting FX online trading as a “get-rich-quick scheme”. The truth is that the online trading “game” requires a bit of some hard work. Trading without information, analysis or a clear strategy is as good as tossing a coin or rolling a dice. It is therefore essential for one to develop a trading strategy before venturing in the live-trading arena. The best way to make money through forex trading is by predicting the movement of currency rates. There are only two ways to do this. The first way is to buy, expecting prices to rise. The second way is to sell, expecting prices to fall. Pricing in currency markets, just like in any other market is influenced by the forces of supply and demand – which is in turn driven by the following factors listed hereunder;Political Factors – A key point is that all forms of internal, regional, international political conditions and events can have a profound effect on currency markets. Political upheaval/instability can have a negative impact on a nation’s economy. For example, developments such as BREXIT/The Trump effect had a direct impact on the underlying currencies;
- Economics Factors – Economic policies influence the supply and demand of money. The market usually reacts negatively to widening government budget deficits and positively to narrowing budget deficits. Reports such as GDP, Inflation figures, employment levels and retail/car sales reflect the levels of a country’s economic growth, thus influencing the value of its currency; and
- Market Psychology – The perception of market participants can influence prices. For example, unsettling international events can lead to some form of “herd behavior”, whereby investors move their assets to a perceived “safe haven”. As a result, there will be a greater demand, thus a higher price, for currencies perceived as stronger over their relatively weaker counterparts.
In conclusion, the above-mentioned factors form the basis of the two market analysis methods in forex trading; fundamental and technical analysis. Fundamental Analysis is the study of the economic and geopolitical forces that determine exchange rates. On the other hand, technical analysis is the framework in which forex traders study price movements. This involves developing trading rules by using various indicators, theories and charting tools.
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