What Makes The Forex Market Move?

Keeping track of the forex market and the factors that affect them before opening a position is a detail that is in every trader’s best interest. With trillions of dollars being bought and sold daily, forex is the most liquid and largest market on the globe, which means that prices fluctuate in a mind-blowing way. To maximize your trading opportunities, we discuss the main factors that move a currency.

The forex marketplace is where the exchange rate of every currency is decided. Since it's a decentralized market that is conducted electronically, one might wonder who decides in which direction the prices will move. In simple terms, the prices are decided by the “bid and the offer” available at the time in the market. The bid prices perform for the maximum price that a buyer would be eager to pay for a stock or other security. Whereas, the “offer” price represents the lowest price that a seller is eager to acquire for that same security. The price changes are also decided by the amount of volume, of the “bid and offer” that are available in the market at every specific price.

In principle, many variables can move the prices of the forex market, due to this particular market enclosing the currencies of countries all around the world. However, only a handful of your trades can have a large impact. The Below factors determine what can potentially make the forex market move:

Economic releases. The financial well-being of a nation affects the value of a currency. The forex market moves when financial reports are released by organizations or governments, due to the transparent insight that they give on how a country’s economy performs and helps them compare one country’s economic health in opposition to others. As a tool, economic calendars prove to be the most effective tool for analyzing this factor. 

Central Banks. Arguably one of the major factors that affect the forex market. Central banks are independent institutions that are widely used by nations around the world to support maintaining their commercial banking industry, promote financial strength, and set central bank interest rates throughout the nation. Central banks use their “Monetary Policy” to intervene in forex markets. Such a policy is highly observed by forex traders looking for opportunities for resulting currency movements. 

Political news and events. When it comes to political news and events, forex prices can react extremely sometimes. Take Brexit for instance, which in the past few years, caused the value of GBP to plummet. After the referendum took place, the currency pair GBP/EUR dropped instantly and followed a 20% depreciation in just two weeks. 

Interest rates. Another major factor that moves the forex market, is the interest rate that changes a few times a year at certain moments that can determine the aftermath of your trade. This happens due to the exchange rate moving in favor of the one currency that has the highest rate from the pair, presenting opportunities to trade if you maintain a position with that particular currency. 

Commodity prices. Some commodities consist of prices that can affect the price of certain currencies differently. For instance, Oil prices that have skyrocketed can harm the USD and JPY, as USA and Japan are amongst the largest oil importers in the world. However, they can also support those currencies and countries that produce oil themselves. 

These are the main factors that make the forex market move, and that a trader shouldn’t miss before trading in the forex market. In general, countries that consist of a healthy economic, political and social structure tend to be preferred over those that do not. Try to examine and monitor every factor that may assist you in engaging in a sufficient trading strategy.