When it comes to trading currencies, there are many things that need to be accounted for and all of them need to work in tandem prior to placing any ‘wager’ on how you think a pair will move against each other. Any CFD broker or seasoned trader will tell you that it is more than following just an economy in question or what geopolitical events might be shaping a market or even how one of the currencies is moving. That trader will take everything into consideration, weigh what they see and then make a trade.
1. Geopolitical Events
The first thing, and perhaps the easiest thing to keep track of would be geopolitical events. Why? Because they are usually all over the news. A few of the most recent forex market influencers were the United States presidential election, the resignation of Italy’s Prime Minister Renzi and of course Brexit which had a huge impact on markets in the UK. Now then, consider the fact that the busiest forex pair is always the GBP / USD (or vice versa GBP / USD) and you will see how major geopolitical events such as those both countries faced this year (Brexit and a presidential surprise victory) had an impact on market movement. These events are never to be taken lightly as they have a major impact on the economy.
2. World Economies
That brings up the economy, which is another influencer in the forex market. Obviously, if a nation’s economy is on a positive upswing, that nation’s currency will gain in value. The reverse also holds true. When an economy is struggling, their currency will lose value quite rapidly. From new traders to those who have been around the block a few times, always keep world economies in your line of vision. The value of a nation’s money always mirrors its economy so having those on hand at all times helps you make a better spontaneous play if the need should arise based on what you are seeing. In forex, there is no time to wait around. You get in and get out when triggers are met.
3. Activity in the Majors
Then there is activity in the majors to follow. Whether you are watching major currencies to trade against other majors, or are watching activity in major world currencies because you sense something happening in a minor that could net you a huge return if you time the trade right. For instance, let’s say that hypothetically a million new jobs are created in Mexico spurring the economy upwards, taking the value of its currency along with it. Now the peso had gained, let’s say 8 percent of its value from the preceding week so now you need to find a currency in the majors that are not performing as it should and trade against a minor that is super performing.
Now you see how all these things must be seen at the same time as they are all interrelated and work together if you are trying to make a solid return on your forex investment. Yes, it’s like a guessing game but as in any other guessing game, an intelligent guess means you win more often than not. Be smart and watch all these areas and you can do well in the foreign exchange market. Lose sight of one and you are working a handicap. That’s what you need to know and why so many traders do so well. Now, you can too.