Posted on 13 June 2012.
Many investors participate in global forex trading as a way to strengthen and add diversification to their stock portfolio. Foreign currencies can be a very lucrative investment if done properly and with the right timing. Forex markets are largely unregulated across borders and as they are OTC, or over the counter exchanges, there are many different interconnected markets. Two of the most significant factors that influence the forex markets and the relative value of various currencies are political and economic climates within the respective countries. It is difficult for industry insiders to assign specific values to these considerations, yet their influence on currency values is unmistakable.
Currency values are susceptible to fluctuations due to the changing political conditions within their regions of influence. When a new party takes office, or during times of expected or present political upheaval, investor confident drops and there is a collective liquidation of holdings in favor of what are known as safe-haven currencies. A rapid and significant reduction in foreign in investment can adversely affect the value of any country’s monetary system.
Economic conditions will also play an important role in shaping the price, or market rate of a currency. Factors that play a large part in affecting value are government surpluses or deficits in their budgets, inflation rates, economic policies, and the overall health and growth of the nation’s economy. Oftentimes, global forex trading professionals will monitor trends and patterns to detect the current condition of a specific currency.
Although many different characteristics of a nation attribute to the increase, decrease, or leveling off of their currency’s value globally, the most influential are political and economical issues. With a sound understanding of these principles, investors are able to make educated decisions regarding when to buy and when to sell. Global forex trading is a matter of timing and awareness of current events.
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