How the Principles of Supply and Demand Work in Forex?
Currency Price Changes?: In any economic environment, whether it’s a capital asset or a fixed income portfolio, there is always a balancing act between supply and demand. The more that people desire something the less they are willing to pay for it, while the opposite applies in the foreign exchange market. You will find that the supply of certain commodities and the demand for them, naturally, go in opposite directions. However, the movement of these commodities can be predicted, which gives you a hint on how the principles of supply and demand work in the foreign exchange market.
If you want to know how the principles of supply and demand work in the foreign exchange market, then you should familiarize yourself with the commodity in question. Then, when the prices of that commodity increase, you can expect that individuals who have been selling their contracts will turn their money over to individuals who are looking to buy. On the other hand, if the prices decrease, you’ll find that individuals who have been buying will turn their money over to those who have been selling.
How Are the Currency Prices Determined?
Many theories have been evolved over the years on how the currency markets function. One of the most basic theories about how the rates are determined is the theory of technical analysis. This is a way of using more data to make predictions about how certain currencies would behave.
These are all useful predictions, but they can also be proven wrong when the government decides to change its policy or release more economic data that changes the nation’s economy’s outlook.
Another important factor in how the currency prices are determined in forex is the country’s political situation. Changes in political leadership can have drastic effects on the direction of a country’s economy. Political instability can lead to a sudden change in the value of their currency.
Also, interest rates, natural disasters, and inflation affect currency pricing significantly.