Jesse Livermore, widely considered the greatest trader of all-time, once said, “I learned early that there is nothing new in Wall Street … Whatever happens in the stock market today has happened before and will happen again.”

The same can be said of forex markets. The problem is that it can be overwhelming trying to monitor all the data, current events and political news related to the countries whose currencies you intend to trade. There are a few basic factors relating to the economic health of countries that you must understand and monitor if you hope to be a successful trader. Below I have outlined five of the most important.

1. Politics

Any change in the political landscape of a country can have a major impact on its currency. As the old saying goes, “perception is reality.” So, while the actual long-term impact of a political change may be small, the day-to-day to value of a currency can be significantly jolted by rumors of war, natural disasters, major policy shifts (i.e. Brexit) and elections. Monitoring current events in the countries of interest is a good practice, especially if you are trying to make short duration trades.

2. Rate of Inflation

A primary economic indicator to track and gauge as a trader is the rate of inflation. A currency experiencing rising inflation will see its value drop in relation to others.  A high inflation rate is likely to have a negative impact on exchange rates with other nations. One thing to note is that inflation is measured as a rate of change — not as an absolute change in prices. This means it is possible for prices to rise while seeing a lower overall rate of inflation.

3. Interest Rates

Closely related to the rate of inflation are interest rates. When trading currency, we are concerned with the interest rates set by the eight global central banks. These rates are set in response to other national economic indicators, including the Consumer Price Index, consumer spending, employment stats, and the housing market. Once changed, they can have immediate and meaningful impact on markets. Following economic indicator trends over time can also aid traders in taking forex positions.

Besides those economic indicators, however, formal public announcements by central banks can give additional guidance. Pay close attention! Central bank leaders often “tip their hands” when signaling their views on the economy prior to announcing rate changes.

4. Current Accounts

Traders can also look at the “current account” of a country to get a sense of where exchange rates are headed. The current account measures the trade balance of a country. If a country imports more than it exports, it creates a deficit. If it has more exports, it has a surplus. A country with a deficit is forced to borrow capital from foreign countries to make up the trade difference, which lowers the value of its currency. Eventually, if the currency becomes “affordable” enough to trade partners that exports increase, the value of the currency will recover.

5. National Debt

Another factor to consider in currency trading is a country’s debt level or — more specifically — its plan to deal with its debt level. From a forex perspective, high levels of debt are manageable when an economy is healthy and growing. When a country’s economy starts contracting, however, and debts remain high, problems start and exchange rates suffer.

Conclusion

Monitoring the many factors that drive exchange rates can seem impossible, especially for new investors. With experience though, you will start recognizing the patterns and calendars for updates and announcements. Understanding these five factors and how they impact foreign currency exchange rates will give you a good foundation for trading and allow you to better identify good investments in the long run.

To learn more and to start trading with a simple, yet effective broker, visit TIOmarkets.

Avatar
Author

Landon is a freelance writer who focuses primarily on the energy, environment, technology and investing industries. He is a sought-after public speaker and presenter appearing at forums for organizations like Bloomberg, the World Energy Council and Greentech Media. He lives in sunny Arizona with his wife Kelsey and three kids.

22 Comments

  1. Avatar
    Zarami Abubakar Reply

    I really enjoyed this advice, please we need more of it for introductory in Forex Market. Great job.

  2. Avatar

    After going over a handful of the blog articles on your website, I honestly like your technique
    of writing a blog. I book-marked it to my bookmark website list and will be checking back soon. Please visit my web site as well and tell me
    your opinion.

  3. Avatar
    Olayiwola Olumuyiwa Sodeinde Reply

    Beautiful write up. You definitely are well read and experienced. I hope leaders of nations will borrow a leaf from this article. Learning is a continuum, which drives all policies, procedures, processes and practices.

  4. Avatar

    Hello, Neat post. There’s a problem together with your site in web explorer, might check thisK IE still is the marketplace leader and a big part of other people will pass over your great writing because of this problem.

  5. Avatar

    Currently it appears like Movable Type is the best blogging platform available right now. (from what I’ve read) Is that what you are using on your blog?

  6. Avatar

    What¦s Going down i am new to this, I stumbled upon this I’ve discovered It absolutely useful and it has helped me out loads. I am hoping to give a contribution & assist different users like its helped me. Great job.

  7. Avatar

    hey there and thank you for your info – I’ve definitely picked up something new from right
    here. I did however expertise a few technical points
    using this website, since I experienced to reload the site a lot of times previous to I could get
    it to load correctly. I had been wondering if your hosting is OK?

    Not that I am complaining, but slow loading instances times will often affect your placement in google and could damage your quality score if advertising and marketing with Adwords.
    Well I’m adding this RSS to my e-mail and can look out for a lot more of
    your respective fascinating content. Make sure you update this again very soon.

  8. Avatar

    Hi i am kavin, its my first occasion to commenting anyplace, when i read this
    article i thought i could also create comment due to this sensible post.

  9. Avatar

    My partner and I absolutely love your blog and find most
    of your post’s to be precisely what I’m looking for. Would you offer guest writers to write content for
    you personally? I wouldn’t mind composing a post or elaborating on a lot of the subjects you write
    in relation to here. Again, awesome blog!

  10. Avatar

    Heya are using WordPress for your site platform?
    I’m new to the blog world but I’m trying to get started and create
    my own. Do you need any html coding expertise to
    make your own blog? Any help would be really appreciated!

  11. Avatar

    Definitely believe that which you stated. Your favorite justification seemed to be on the internet
    the easiest thing to be aware of. I say to you, I definitely get annoyed
    while people consider worries that they plainly don’t know about.
    You managed to hit the nail upon the top and defined out the whole thing
    without having side-effects , people can take a signal.
    Will probably be back to get more. Thanks

  12. Avatar

    Amazing post. Do you have any other ones you can share? I highlyrate it. I have actually tried Dux Forex as a signals provider and they are amazing. I will keep you guys posted. 🙂

  13. Avatar

    I’ve been exploring for a little for any high-quality articles or blog posts
    on this kind of space . Exploring in Yahoo
    I at last stumbled upon this web site. Reading this information So i’m satisfied to convey that I’ve an incredibly excellent uncanny feeling I came upon just what I needed.
    I most no doubt will make certain to do not omit this
    web site and provides it a look on a continuing basis.

  14. Avatar

    What’s up to every one, for the reason that I am really keen of reading this web site’s
    post to be updated regularly. It includes pleasant stuff.

Write A Comment