Forex Market Movements

Forex market is a speculative market. The price of the currency in the forex market always fluctuates. The success in the forex trading lies how skillfully you predict the forex market movements. A trader who can skillfully predict the market price movement can trade successfully in this fluctuating market. However, to make profit from your trade you should have fairly thorough understanding of the factors that affect the movement of a currency's rate of exchange. Unless and until you understand the factors behind the price movements in forex market, you can’t trade efficiently in this market. However, the following factors will enable you to make more accurate predictions in this movement, thus enabling yourself a better opportunity for success.

Economic Growth

Usually, if a country's economy is strong, there is always a great possibility that its central banks will raise interest rates so as to arrest inflationary growth. However, the higher the interest rates, the greater the participation by investors in that country's financial marketplaces. The increasing numbers of investors participating in that particular country's markets, demands for that currency increases. Greater demand equals an increase in the currency's exchange rate. This is one of the great essential factors that cause market movements in forex.

Geo-Politics

Political factors also cause forex market movements online. Foreign exchange market is one of the only biggest financial markets that can be successfully traded by virtue of political and economic news. One should always remember that currencies are representative of countries rather than companies. Any disturbance to the political landscape will oftentimes affect the direction in which the exchange rate moves. This is another important factor that cause price movements in forex market.

Interest Rates

Increase in the value of a country’s currency will always lead to the rise in interest rates. The increased value of the currency reflects what is called capital appreciation, and this consequently affords the investor the opportunity to profit. Every currency rate always comes with an interest rate attached. Interest income is generated in one of the following two ways: buy currencies from countries with high-interest rates and finance these purchases with currency from countries with low-interest rates. This will also cause forex market movements.

Trade and Capital Flows

One should always determine whether or not the currency is dependent on its country’s trade and capital flow before making a final prediction regarding the movement of a particular currency. Capital flow can be defined as to the amount of investment a country receives from international sources. However, trade flow refers to the income resulting from trade. This is one important factor that you need to consider while predicting the movement in forex market. Make sure you consider the above factors when making your investment decision.