Currency Value – A List of Determinants

This article provides a list of the most important factors which determine a country’s currency value. It is these factors which determine the perception of a potential purchaser of a country’s currency. And it is the potential currency purchaser which ultimately determines the demand and subsequent value for that currency. Here you will find a discussion about these factors.

The information presented here is designed for the Forex/currency trader. This information is also useful to anyone who would like to develop an understanding of factors which determine currency value. For the currency trader,Guest Posting this understanding is needed in order to develop a currency trend analysis for a particular country. Developing accurate currency trends is the key to successful Forex trading.

What determines a country’s currency value really comes down to supply and demand of that currency. If a particular country’s currency is in high demand by purchasers such as travelers, governments, and investors, this will increase the value of the country’s currency. The factors that follow may have a positive or negative affect on the demand for a particular currency. Lets take a look at these factors.

1) Printing of Currency:
If a country prints an excessive amount of currency, more then what it normally would, this can decrease it’s currency value. Any time you have more of anything, this can result in a decrease in it’s value. This is true whether you are talking about currency or commodities such as iron ore, crude oil, coal, gold, silver and platinum. A large amount of currency in circulation can lower the value of a currency. A small amount of currency in circulation can result in the value of the currency increasing.

2) Current State of the Economy:
If a country’s economy is not doing well, this can decrease the demand for that country’s currency. Specifically, here we are talking about the degree of unemployment, degree of consumer spending, and extent of business expansion that is taking place in a country. High unemployment, decrease consumer spending, with a decrease in business expansion, means a poor economy and a decrease in currency value.

The potential for economic growth in a country should also be looked at. If the potential is strong, then it’s currency value would expect to increase. Also, if a country produces products that other countries want to buy, this can increase the value of that country’s currency.

3) Prices of Foreign Goods:
Related to the economy, is the prices of foreign goods. If a foreign company sells goods in a country which are cheaper then comparable products produced in that country, this can hurt the economy of that country. A poor economy results in a decrease in demand for that country’s currency, which lowers it’s value.

4) Political Conditions of a Country:
To what degree does political corruption exist within a country? To what degree do political affairs have on the economy of that country? A country which is known to have corrupt politicians, can result in a lowering of currency value.

5) How Secretive is a Country:
A country which operates at a high level of secrecy, at least as observed by those outside the country, can result in a lowering of the value of their currency. Another words, if not much is known about a country due to a restriction of media expression within that country, this can lower the value of it’s currency.

6) National Debt of a Country:
To what degree are politicians addressing a national debt problem? Are politicians causing an increase in the national debt? In a democratic society, national debt must be paid by the taxpayer. If taxes increase, this results in a lowering of the purchasing capability of society, which results in a deleterious affect on the economy. In this case, currency value will decrease.

7) President’s Popularity:
If a president is popular, this can increase the demand for a currency. If the presidents popularity is dropping, due to unpopular government policies, this may result in a decrease in demand for a currency and a subsequent lowering of it’s value.

8) War and Terrorists Attacks:
A terrorists attack can increase the probability of a war. A war or the strong potential for a war can decrease the demand for a currency, simply because a war drains the economy. Wars are expensive and must be paid by the taxpayer. A war can increase a country’s federal deficit. You simply can not have a growing economy during war time. So war lowers the value of a currency.

9) Government Growth:
Is government growing and expanding to much? New growth by developing departments, and creating unnecessary programs, all costs money. Again, the taxpayer will need to pay for the new growth, which for the long run has a negative affect on the economy. Excess government growth can lower currency value.

10) Tax Cuts for the Consumer:
Tax cuts can stimulate the economy, as long as the consumer spends the extra money he or she may have. But also, tax cuts which are to large can result in high demand for products, which may raise prices, which can lead to inflation and the desire to purchase cheaper foreign products. But in general, tax cuts historically have been good for the economy, which can result in an increase demand for that country’s currency.

11) Interest Rates:
A higher interest rate means a higher demand for a currency. Foreign investors in a currency prefer a higher interest. It is the same principle when you shop around for the highest interest rate when putting money into a savings account. While a lower interest rate improves the economy, currency investors want the money that they purchased to have a high rate of return while holding that currency. This increase in demand for a currency results in an increase in it’s value.

12) Housing Market:
If there is a slowing of a housing market, this means the sellers asking price will be less, and with the realization that a persons home is worth less, this results in less consumer spending. This has a negative affect on the economy. Again, poor economic conditions result in a lower demand for the currency, thereby lowering it’s value.

13) Positive or Negative Perception:
How purchasers of a currency perceive the previous discussed parameters, can determine the degree of demand for a currency. Whether or not the perception is accurate or not is not as important as what the perception itself is. Perception is what determines if a currency purchaser decides to buy or sell a currency.

To conclude, the factors presented here are determ

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What Are the Advantages of Currency Trading?

Currency trading has many benefits and it is also easier as compared to stock trading. Traders can start with low investment by choosing a broker that fits their requirements.

Forex trading is having many career opportunities as it is easily accessible by traders from all around the world. Currency trading is also used to denote forex trading. It is about being your own boss and making money with proper knowledge about worldwide currencies.

What Is the Forex Market?

Trading in currency pairs using the rates determined by the foreign exchange market is known as currency trading or forex trading. Traders buy and sell currencies at the determined currency exchange rate. When a trader sees any profitable opportunities,Guest Posting forex transactions are executed. Sometimes currency exchange is also mandatory.

What Is a Pair in Forex?

Forex trading requires currency pairs for trading. A pair indicates how many units of quote currency can be bought and sold against one unit of the base currency. A base currency is a currency that is listed first in a pair and a quote currency is listed second in a pair.

Traders cannot trade using only one currency, two currencies are important for trading in the foreign exchange market. The currency pairs are also classified into three different categories that are:

Minor Pairs

Minor pairs are also known as cross currency pairs and these pairs involve currencies of strong economies. They are less liquid pairs of the foreign exchange market.

Major Pairs

The currency pairs in this category include the US dollar against other currencies of strong economies across the world. These are highly liquid pairs of the foreign exchange market.

Exotic Pairs

These currency pairs are made of currencies of emerging economies. Their liquidity is very low in the foreign exchange market.

What Are the Advantages of Currency Trading?

The foreign exchange market is the largest financial market in the world. Many opportunities are available for forex trades from which they can earn potential profits. Forex traders are having multiple advantages of currency trading that are as follows:

24 Hours Availability

The forex market means the involvement of currencies from all over the world. It also means that the reach of the foreign exchange market is worldwide. The foreign exchange market is available 24 hours a day and 5 days a week. It is the only market that can be traded 24 hours a day.

Higher Liquidity

When we talk about the comparison of the forex market with other financial markets. The number of participants is highest in the foreign exchange market. This ensures that the currency trading is highly liquid in nature. Large orders of buying and selling can be executed in the foreign exchange market easily.

The best part of the market is that the prices or exchange rates do not deviate due to large orders. It ensures that the market cannot be manipulated. The exchange rates change due to other factors of the market.

Low-Cost Trading

Currency trading has a low commission or brokerage charges on orders of the foreign exchange market. Most of the forex brokers do not charge commission they only charge spreads between two currencies.

It is very low as compared to trading in shares which involves high commission or brokerage charges. Traders should take advantage of this and should make potential profits with forex trading.

Volatile in Nature

The foreign exchange market is highly volatile in nature, which means traders are having enormous opportunities for earning potential profits with their trading strategies. Analyse the market and predict when a price swing may occur. If you can do so you can make good profits with currency trading.

Less Capital Requirement

The forex market does not require huge amounts of capital for investment or trading. You can initially start with low capital also. Traders cannot take this advantage with trading in other financial markets. It is easy to make profits with a limited amount of capital in the foreign exchange market.

Trading Leverage

Leverage means you can use a higher amount of capital for trading as compared to what you have. It is given on a proportionate basis by many brokers across the world. It is also a good advantage of forex trading in which you can earn profits from the leveraged money of the broker.

Easy to Enter

Traders can easily enter the foreign exchange market. If you are looking for short-term profit-making opportunities then also it is a good option for you. There are plenty of trading choices available for a forex trader. They can make short or long term profits according to their requirements.

Is Forex Trading Easier than Stock Trading?

If we make a comparison between forex trading and stock trading, forex trading is a little bit easier than stock trading. As nowadays both of them can be easily traded with a reliable broker and understanding of the markets. Some of the elements of comparison are:

Currency trading can be commenced from a low investment but you have to pay the listed price of a share if you are opting for stock trading.
The liquidity of the forex market is higher as compared to the stock market that is having low liquidity because of a low number of traders.
Market hours of the foreign exchange market are more than the market hours of the stock market.
The factors of fundamental analysis are more with the stock market trading as compared to the factors of the forex market.
Leverage is available with forex trading, which is not available while you are trading in the stock market.
Stock trading requires an understanding of the balance sheet and profit statements of a company, which is not required in forex trading.
Investment instruments are higher in stock trading than instruments available in the foreign exchange market. It makes trades easy to select between them.
These are the factors that make forex trading easier than stock trading. Even though, there are traders who are making profits from both stock and forex trading. But if you are about to begin your trading career then you can start with forex trading which is comparatively less hard than stock trading.

How to Choose the Right Broker?

While choosing a broker for yourself you have to compare a wide range of features. There are many brokers to choose from but make sure you compare these points:

Commission charges by the broker
Amount of leverage offered
Number of trading assets available
Trading platform accessible
The requirement of minimum deposit
The broker is providing customer services or not
The availability of a demo account
Capixal

Capixal is one of the leading brokers operating globally. It is offering a single-click trading feature to traders with a minimum deposit of $20 only. Traders can also opt for a demo account of trading. The best feature of this broker is that 24/7 dedicated customer support is available.

It also has a wide range of investors’ education material that can be easily accessed by investors. The trading platform is MetaTrader4, WebTrader, and mobile app that makes trading convenient for traders.

Brokereo

Brokereo does not charge any commission on trading and you can open a trading account with a minimum of $250. A demo account is also available for all traders. They are offering customer support 24/5 via email, live chat, and telephonic conversation.

It is offering trading on MetaTrader 4, mobile app, and WebTrader as per your convenience. Traders can also access the educational material offered by the broker.

The Bottom Line

Currency trading is the largest financial market that is having many opportunities from which you can earn potential profits. There are many advantages of forex trading, all you have to do is that analyse the emerging opportunities of the foreign exchange market.

Conduct some research at the time of selecting a broker for trading. Traders can make endless profits trading in foreign currencies as it does not require a high capital investment. Study the market thoroughly and make smart decisions.

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