Five things forex traders need to watch out for

There’s a lot to watch out for when it comes to trading forex. The currency market is a complex web of different factors that weave together and make for a fast moving – and potentially lucrative – market.

For traders – whether they’re novices or experts – it can be tricky to keep on top of all of the factors which could affect the price of a currency.

Here are five to look out for:

The actions of world leaders

When world leaders stand up and hold fort, it’s time to sit up and pay notice. The things that key politicians say and do have the power to move the markets up or down, as this interactive guide from Daily FX shows. From a tough talking tweet to a snap election, it’s worth keeping your eyes on politicians.

Credit agencies

Credit agencies are bodies that judge the strength of a country’s economy – giving ratings (with AAA the highest) and outlook assessments (positive, stable or negative). The biggest agencies are Moody’s, Standard & Poor’s and Fitch and their judgements can affect the cost of borrowing for a nation. Clearly, therefore, it’s important to be aware of their reports.

Set piece economic events

The words and actions of politicians might be tough to predict – especially in the era of Trump and Brexit – but there are some things that are easier to prepare for. Big budget statements – where governments set out their economic forecasts and policies – are important to help assess the confidence in an economy and, therefore, its currency.

Natural disasters

Natural disasters such as earthquakes or hurricanes can have a devastating effect on a country – both in terms of the emotional impact on people’s lives and the economic fallout if a nation’s infrastructure is damaged and requires expensive repairs. The rebuilding work required from a natural disaster can take months, and leave a country in economic difficult as a result.

Quantitative easing

It’s easy to focus on issues that affect the demand of a currency, but you shouldn’t ignore the fact that central banks can also increase the supply of a currency. Quantitative easing has been used quite a lot as a policy lever in the last decade or so in a bid to avoid increased inflation.

By understanding the role of central banks, credit agencies, political leaders and finance ministers – and the shock factor of a natural disaster – traders can get a better understanding of the fast paced world of forex.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.