Forex Markets

May 23, 2013


What Are Factors That Make The Forex Markets Move

Investors in any marketplace, be it securities or currencies, want to know what causes price fluctuations so they can predict when these may happen and make a profit. While stock investors research publicly traded corporations to make trading choices, these trading Forex must think about what influences the currency exchange rates between nations. Forex can be volatile with significant fluctuations in brief term prices, so it’s particularly important for the Forex trader to know what drives these movements.

Financial News Releases For The Forex Markets

The Forex markets trade 24 hours a day between Sunday and Friday afternoon and also the Forex market is very volatile. Just as with equities, pricing on the Forex is influenced by economic and political factors of each nations base currency. The U.S. dollar is used to back 90% of all of the transactions on the Forex marketplace and as the US economy plays such a significant role on the economy, economic information released by the government will affect the market prices. Below are some of the prime financial news releases that Forex traders have a tendency to look at when deciding whether or not to enter a position:

  • Rate Of Interest Decisions
  • GDP Rate Increase/Decrease
  • Unemployment Information
  • Inflation: Consumer/Produce price
  • Retail Sales
  • Consumer Confidence Surveys
  • Business Confidence Surveys
  • Trade Balance
  • Manufacturing Confidence Surveys

Nevertheless, whilst all of these news releases no doubt play a short term function in price movements around the Forex as well as other monetary markets, their influence is very temporary and the costs may be short lived, therefore the volatile nature of the marketplace could make trading these instruments very challenging.

Psychology Is A Extremely Significant Factor In The Forex Markets

There’s an additional factor obviously that does play a role within the movements of all monetary markets and that’s human behavior. Indeed, Psychology is a extremely significant factor in any investment decision and its effects may be studied in financial charts. Four human feelings play very big roles in the cost movements around the Forex:

  • Greed
  • Fear
  • Faith
  • Hope

Greed – compels even technical traders to ignore profit targets and chase a trend too far or to add to a position which can drive prices.

Fear – of loss is a very common human emotion and it definitely causes numerous traders & investors to hold on to a losing position rather than exit for a loss. Stop Loss orders being triggered can also drive costs if they provide substantial liquidity, such as those from large institutions.

Faith – is a process where traders has such a strong belief in their trade that they just blindly hold on.

Hope –  is where a trader is normally to scared to close out a losing position and just hopes it comes back. Frequently these traders will even add to a losing position, ‘hoping’ to make up some losses.

Technical Analysis Can Factor Into Price Movements

Technical analysis can also factor into price movements as this is part of pattern behavior, where people will react to certain patterns. Consider that if most traders are looking for the same patterns, then it’s likely that price action movements will happen from these patterns.

So essentially, the market moves based on a mix of news, human psychology and technical analysis and pattern traders.

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