The foreign exchange (forex) is one of the most actively traded markets and can pose some great opportunities for investors to profit. Much of these opportunities arise during short-term price fluctuations, with an array of factors that can trigger this, including economic events and financial data releases.
However, this market volatility can also put you at risk of losing money on your investment. Trading in the forex market on an online trading platform means you can enter contracts for difference, where you can speculate on the value of currency pairs on both a rising and falling market, without owning the underling currency.
To understand more about the market, in this article we will identify some of the economic factors that can have a significant impact on forex trading, so that you can make the most of your investment.
Gross Domestic Product (GDP)
Gross Domestic Product (GDP) is the most significant indicator of a nation’s economic activity. It measures the value of a country’s production of goods and services in a specific time period. It also details the country’s spending habits, since it shows how much they have spent on goods and imports.
Each country releases a full GDP report annually, but some GDP data releases will take place at the close of a financial quarter. To keep on top of these updates, you could consult an economic calendar, which details some of the most important economic events and data releases.
Interest Rates
Global interest rates have a significant impact on exchange rates and are therefore one of the most important economic factors to review when forex trading. These rates are decided by the world’s Central Banks, who meet on a monthly basis to deliberate on the levels of interest imposed in that period. Currencies can be directly impacted by interest rates, with a higher rate causing forex prices to rise, and vice versa in the case of lower interest rates.
Employment
Employment levels are a helpful insight into the overall health of a country’s economy. The more people that are employed, the healthier the economy and the stronger their currency is likely to be. Consequently, if you’re trying to decide whether a currency pair will be a buy in the future, it’s worth looking into the relevant country’s employment levels first and gaging an idea of the country’s economic wellbeing.
As the world’s reserve currency, the value of the US dollar (USD) has a huge impact on the forex market. Because of this, you should consult the Non-Farm Payrolls report, which is released on the first Friday of each month and contains the US’ official employment data.
Federal Funds Rate
A meeting between the Federal Open Markets Committee (FOMC) is conducted eight times per year to construct the US monetary policy. In this meeting the FOMC can alter the Federal Funds Rate — which is their target interest rate for that period. As previously mentioned, interest rates have direct impact on currencies, so…
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