Trade Well With Strategic Investment

25
Jun0

The US$4 million per day foreign exchange market has many players. The major players in the market are Banks, Commercial companies, Central banks, Hedge funds as speculators, Investment management firms, Retail foreign exchange brokers, Non-bank Foreign Exchange Companies and Money Transfer or Remittance Companies. The rates at which currencies are traded are decided by economic factors. The value of currency is influenced by the economic policies of a country, primarily of the central banks and the government. The government plans its budget which is the basis of its spending. This could be a deficit budget or a surplus budget. If the budget is deficit and is increasing over the period, the currency of that country is bound to decline. The money supply and the interest rate of lending determined by the country’s monetary policy will greatly determine the cost of the money or currency of that country.

Goods and services are traded between countries. If the demand of goods and services from a country increases, there is an increase of export from that country. This will in turn increase the demand of the currency of that country to pay for the exports. The exchange rate of this currency increases in the forex market. The currency of a country becomes stronger with trade surplus and alternatively faces a downward push with trade deficit. The inflation rate of a country similarly exerts influence. When the inflation rate is high, the consumption lowers with the demand for goods and services declining with the lowering of purchasing capacity of its citizens. The value of the currency is pulled down. This will also influence the exchange rate of the currency negatively.

The forex trading strategy should not only be decided by what the foreign exchange market indicates in terms of the changing exchange rates but also by economic factors of a country . The economic health of a country as well as political factors too influences the currency value and its exchange rate.

Factors such as gross domestic product (GDP), utilization of its production capacity, employment levels and its retail sales amongst others reflects the economic health of a nation. The value of its currency increases with better economic health of the nation. Increase in productivity contributes to the increase in the value of the currency with increase in productivity. Political instability of a nation caused by instability of the government, political upheavals or financial instability will push down the value of its currency.