It’s not easy to predict the future of the forex market, but there are now more resources and tools available to traders than there have ever been before. Below are some of the basic tools that traders can use to try and work out, or track, future forex movements and exchange rates.
What is Foreign Exchange?
Forex (or foreign exchange) is the worlds most traded market. In a single day, more than £3.85 trillion is traded on the market, which makes the hundreds of billions on the stock markets around the world look miniscule. While the corporations and banks make the majority of the profits, trillions of dollars are still being traded by normal people each day.
There are two main drivers for the foreign exchange: supply and demand. Both of these drivers are influenced by opinion. However, there are numerous factors that can influence opinion.
Investors have more resources than ever in order to help aid their strategies. These all help them to gain an edge in the market which has led to the market being more competitive than ever before. Metatrader 4 remains a highly popular platform due to the amount of information it displays. Not only does this platform allow you to move windows around and change the interface, but you can also make the information more user-defined.
Approaches Investors Should Use to Predict Forex Movement
You need to define the basics of your strategy before deciding what approach to take. Most of the trading volumes in the market are focused on currency pairs like GBP/USD, EUR/USD and USD/JPY, but many traders find opportunities by looking at less popular pairings.
Timeframe is another major factor that will help you choose what approach to take. Most traders choose to start fresh every day by closing down their positions in the evening in order to avoid movements in the market that could occur whilst they sleep. These people also usually decide to set themselves a daily stop loss in order to avoid losing too much money in one day. Others choose to keep their positions open for longer periods of time; this is known as swing trading.
Using Fundamental Analysis to Predict Movements
In order to predict potential movement, you need to take a deep look at the fundamentals of the market. Think about all the factors that might alter the exchange rates. The idea behind fundamental analysis is that it can spot a currency that isn’t priced correctly and will eventually alter to the correct rate. Fundamental analysis is better for spotting long-term price movements.
The key things you should consider are:
- Economic growth – think about the performance of the economy, look to see if it’s growing or shrinking. An economy that’s growing will usually translate to a stronger currency.
- Interest rates – this has a huge impact on the forex markets. In most cases stronger currency is created by higher interest rates.
- Inflation – the speed in which the cost of services and goods is rising has an impact on the monetary policy in a country.
- Trade and capital balances – changes in the amount of trade, or money going in and out of a country, can affect the currency.
- Geopolitics – currencies can be swayed by internal relations and government politics. Look for any potential shake-ups in the country.
- Employment and wages – employment levels usually coincide with how strong an economy is, but it’s also important to take into account the movement in wages.
Fundamental analysis is a brilliant way to identify and keep track of possible changes in the Forex markets. By using some of the tools and advice above, you will be in a better position to work out future exchange rates and forex movements.
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