Important economic factors that govern the Forex markets

Beginners seldom understand the importance of learning what makes the Forex markets function - the underlying economic factors! Foreign exchange, a financial market valued in trillions today, allows traders to profit through the exchange of currencies. And this exchange is possible only because currency prices go up and down. Without their fluctuation, prices would be stagnant and exchanging currencies would be impossible. 

There are number of similar factors that cause the Forex markets to move erratically, making it both risky and lucrative. As an adept trader, having knowledge of these factors will help you place profitable trades. 

Forex Trading Strategies

Here are some important factors that influence the Forex markets: 

1) Interest Rates: 

Every trader has to look out for interest rates. They are essentially set by a country's central bank to control investors' affinity towards their markets. If interest rates are high, the chances of investors favoring their currency go up. Similarly, if the banks feel that they need to bring down the number of exchanges, they lower the rates. 

2) Inflation: 

A global phenomenon, inflation governs a lot in Forex. When a country has products that are constantly getting hiked in value, foreign investors are less likely to invest in it. If inflation is constant, a country's currency is bound to get devalued. 

3) GDP: 

A country's GDP is used to measure the value of its goods and services. This includes government expenditure, business spending, private expenses and the overall expenses laid out by a country as a whole. A healthy GDP indicates that a country's economic value is stable and its currency will play out well in the markets. 

4) Economic Events: 

Economic events can range from elections to changes in fiscal policies - and all of them influence the Forex markets. You will have to devise your Forex Trading Strategies keeping these events in mind at all times. Novices often enter trades without any knowledge of a country's economy and end up losing big money.

5) Retail Sales: 

The strength of an economy can also be measured by retail sales. When a country's economy is healthy, customer expenditure will be consistent and even incremental at times. A constant study of this will help traders decide if a country's currency is worth investing in. 

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