Traders have to consider quite a lot of things so that they get the best possible results in forex trading. It does not really matter, whether you are at the beginning of the trading journey or you are more advanced. There is always a great deal to do. Some things are more complicated than others. But sometimes they just sound so complex. We want to make it simpler for you. Today we are going to write about 4 factors that influence forex trading a lot.
Important factors in forex trading
Forex attracts many investors. It is in fact one of the biggest markets. At the start, it may seem complicated with all currency pairs that exist. And as it is important to know what influence the market, it is not always necessary to dig deep into it. Below, you will find 4 of the most influential factors described in a simple way.
1. Interest rates
Central banks determine the interest rate for the country. For example, the U.S. Federal Reserve Bank set the interest rates for the United States. This is a little bit simplified, but you do not need all the details of how it works. It is enough to know that these interest rates are charged by banks when they borrow money from another bank and can significantly influence the market. Inflation is reduced when interest rates are higher. And business activity rises when they are lower.
IQ Option offers an economic calendar where you can follow important news releases. Beware of references to changes in interest rates as they will most probably affect the currency of this specific country.
2. Country's economy
The general economic situation of the country is very important when it comes to the value of its currency. A stable or growing economy allows putting more money in circulation, buying more services and goods.
This is why you should also follow the economic reports. They are often made yearly, quarterly or monthly even. Take note of GDP (Gross Domestic Product) reports.
3. Political and military conflicts
Political and military conflicts affect a global economy and so they have an impact on the situation in the markets. Sometimes you may think that upheaval in a small country that you have never heard of will not influence other countries economy. But today's world is very much connected. Even political changes in a tiny part of the globe can lead to big changes in the other corner of the world.
Let me give you an example. Myanmar is a small country however, it is a net exporter of natural gas to China. If the energy costs increase, the prices in the market will rise.
So observe what is going on in the world and find out how it can affect your trading.
4. Technical and fundamental analysis
Both, technical and fundamental analysis are of great importance in forex trading. Technical analysis is based on the evaluation of the price charts for a specific currency. Fundamental analysis requires you to know what is going on in the economic and political world (pretty much what was described in the 3 points above).
It is a good idea to focus on one or just a few currency pairs and get to know them well. The most popular pair among the traders is the EURUSD currency pair. With time, you will become able to spot the repeatable patterns and the way the market reacts to news releases.
You do not have to understand all the complicated issues in order to become a successful trader. Keep in mind what we have discussed here. You will naturally need to invest some time if you want to get good results. You will need to have a good trading strategy, conduct technical analysis and follow the economic calendar so you know when the price can behave differently than usual.
Make use of an IQ Option demo account. It is free of charge and you can practice as long as you need to. Even when you are further down the trading road, you can come back here to check the new approach.
Wish you profitable trading!
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