This is the era of financial globalization, and thus, commodities, currencies, and equities, all three factors can impact each other in any given country. If you are investing money in forex, you need to focus on multiple economic and micro-economic factors of the country whose home currency you are planning to buy or sell. These factors can help you gauge the ups and downs shown by any currency around the world.
Monitor the central bank’s interest rate policy
Any country’s currency can face depreciation if the nation’s central bank has a weak policy in place. The policy-making bank plays a vital role in taking the local money upward or downward. Thus, keep an eye on the policies adopted by the central bank that governs the currency which you have selected for investment.
In order to deal with inflation, the central bank can adjust its interest rates. Decreasing interest rates can negatively impact the demand for money while an increase in interest rates can prove to be positive news for the currency in the country.
Check the nation’s economic growth monitors
Checking the exchange rate for various currencies is something that every trader does before starting trading. For example, if you are buying a Japanese Yen with a US dollar, you need to check USD to JPY rate.
Currencies of nations that witnesses strong economic growth always offer stability and better than expected increase in their value. Thus, if any country starts showing considerable economic growth, its money is bound to go up. Monitoring economic growth of various nations can prove to be extremely beneficial for traders who are looking forward to investing in currencies that have the potential to increase their value within a few months.
Even long-term factors like inflation, GDP, consumer spending or slow-growth can slowly impact the value of the country’s money.
Stay away from currencies of countries that have more imports compared to exports
Nation’s trade balance often impacts its money. The currency from a country that has a trade deficit often witnesses depreciation as the condition worsens. On the other hand, the currencies of trade surplus nations often show an upward trend. The home currency of a country which depends on imports to satisfy domestic consumption needs can easily fall prey to depreciation due to the trade deficit.
Obviously, the country that exports more goods to other nations would see appreciation when it comes to its base currency.
If you happen to be a novice forex trader, it is advisable to stay away from dealing in currencies of countries that show trade deficit.
Micro-economic elements also impact the forex market
Forex markets witness trillion dollars worth of transactions on a daily basis. These transactions are influenced due to micro as well as macroeconomic factors. Therefore, a trader needs to be very cautious about both the indicators while buying and selling in the FX market.
Look out for fluctuations in treasuries
Public sector banks, government-run institutions, and companies can erode the country’s treasury and impact its money as well. Dealings of PSUs can trigger immediate fluctuations. As a trader, you need to look out for updated economic data that affect the treasury in short-term or long-term.
Monitoring the political conditions in the country
Every FX trader should keep an eye on the political conditions of all the countries around the world. Sometimes, governments make economic decisions, policy changes, and administrative decisions, based on the upcoming elections to make voters happy. Such temporary arrangements may also impact the currency negatively.
Stay smaller and profitable
Amateur traders often end up losing their hard-earned funds as they use higher leverage to win big. This is something that should never be followed. A trader needs to be patient and opt for smaller, profitable trade during the first few days after starting forex trading. Initially, focus on protecting your capital and not on making a profit.
Smaller and profitable trade does not mean trading too frequently. Such over-trading can not only put your trading account at risk but can also result in losses.
Follow the strategies shared by experienced traders
Several veteran traders share their secrets in YouTube videos these days. Such tips can help you understand how they take crucial decisions. This practice will also help you in reducing the overall time that you spend in learning the tricks. You can also use retrocesos de fibonacci as and when required.
Automated forex trading systems
Automated FX trading, with the help of automatic trading systems, can buy and sell the selected currencies as per entry and exit rules set by the user. To use such a system, you need a basic understanding of the programming language used by the platform. The user can set up the entry and exit strategy using the proprietary language. Once the rules are in place, the computer will start buying and selling with the help of a direct access broker. The stop loss feature in the system makes sure that the trader does not suffer losses.
As mentioned earlier, the user should not buy and install automated FX trading system unless he or she knows how they work. Doing so without sufficient knowledge can result in a waste of time, money, and resources as well.
What’s a stop loss?
Stop loss is perhaps the most critical and significant tool to be used while in forex trading. It puts a break on trading when the trade losses reach a predetermined level selected by the user. Stop loss perfectly makes sense because there’s no point in staying in trade once the currency dips below the accepted level as it may result in a massive loss for the trader.
Choose the best online trading partner
Select an online trading broker who offers the best trading platform and operates under license and registration number from FCA, EFSA, CySEC or any other European regulators. Opting for someone trustworthy like Admiral Markets can prove to be safer.
The company offers platforms like MetaTrader WebTrader, MetaTrader Supreme Edition, MetaTrader 5, MetaTrader 4, etc. They also have Android, iOS mobile apps for trading.