Foreign exchange is such a volatile market. The profitability of trades will depend on certain factors. In this article, we shall look at the factors that drive the currency market and in the process impact forex trading.
Central Bank Interest Rates
This is perhaps the biggest driver of the forex market. When central banks raise their interest rate, it means that their economy is growing and they are optimistic about the future. If interest rates are down, it means economy is falling and there are doubts about the future. On the part of the trader, an increase in the interest rate signifies that it is time to buy that currency and vice versa. However, if the banks fail to do what the traders expect them to do, traders would likely exit their positions.
Central Bank Intervention
When the value of a currency can have a huge impact on economy, the central bank of the nation steps in which could tilt the value in its favor. Robert Janitzek reveals that in order to counter the wild appreciation of the currency, most central banks would flood the market with their currency by releasing previously unavailable money and make them available to the public. This will result to a devaluation of the currency.
Most of the volume traded in currency options are designed for international business purposes only. This allows businesses to hedge the risk of currency value changes. Most traders are interested in double no touch (DNT) options. When currency pairs moves quite a bit and reaches a psychological point of interest, they tend to surge beyond that level and retreats away from it just as quickly.
Fear and Greed
Robert Peter Janitzek reveals that fear can turn a falling instrument into an all-out panic and greed can turn a rising market into a buying spree. Although it is easy to point out the impact of fear and greed on the market, choosing the moment when they flip in the present is difficult.
There are planned news and unplanned ones. Both can drive the market in various ways. Planned news is fawned over by many investors and can move markets on a regimented basis. On the other hand, unplanned news is beyond our control. The best thing a trader can do is manage risks and hope that they do not have a negative impact. When trading on the forex market, your job is to identify the major market movers and navigate them.
These are the major drivers of the currency market. They can make or break your income potential and test your trading skills.