Trading or as some call it Forex is like many other areas in which you can find a number of factors that affect it.
Whether this effect is negative leads to a loss or positive leads to your trading gain.
If you are new to trading, all the economic factors that affect your trading will be greatly clarified.
These factors are represented in inflation, trade balance, interest rates, as well as both foreign investment and speculation.
Each of these factors will be discussed in detail so that everything is clear for you.
But in the beginning, two important concepts will be clarified, namely, trading and the exchange rate.
Trading and what it is
Trading is the exchange of one thing for another and its aim is to make a profit from the buying and selling teams and this is what is applied in the currency market.
Where we find in the currency market, a foreign currency is sold in exchange for buying another currency, which is called (currency pair).
The goal is to take profit from the difference between both the buying and selling process.
It is also one of the largest markets in terms of liquidity globally, because its daily turnover is approximately $ 5 trillion.
Currency pairs are divided into three types which are major currency pairs, secondary currencies, and unfamiliar currencies.
Major currency pairs are a pair that includes both the major currencies of the market, such as the US dollar, the euro.
Secondary currency pairs is a currency pair that does not include both major currency sides.
Finally, the unfamiliar currency pairs are the pair that includes one end of a modern economic currency and the other is a major currency.
The concept of exchange rate
It is the price at which the exchange takes place between a national currency and another foreign currency.
The exchange rate is also divided into several types. For example, there is the nominal exchange rate, and there is also the real exchange rate.
To that we add both the real effective exchange rate and the actual exchange rate.
Factors affecting the exchange rate
Inflation and interest rate
Among the factors mentioned, we find that there are two factors that are closely related to each other, namely inflation and interest rates.
There is a direct relationship between both workers. In the case of high inflation, the central bank on the other side raises the interest rate and vice versa.
Where we find that in the case of low inflation, the Central Bank will reduce the interest rate.
Speculation is also a factor that greatly influences the exchange rate.
As the Forex market saw in the past many major companies change the exchange rate when they joined the trading, but the current situation is different.
Where you find traders, not the big companies, who influence the exchange rate.
The trade balance joins the list of factors affecting the exchange rate, which is the difference between both the country’s exports and its imports.
It is linked to the exchange rate, because in the case of a higher rate of exports than imports, the state’s currency increases, and in that case the trade balance is in the interest of the state.
This results in a high rate of demand for the currency of that country.