A currency trading equation that can help you understand FX better
Fx trading is undoubtedly one of the most lucrative business options. You can earn huge bucks in this form of trading. In spite of the fact that people have been in to currency trading for ages, there are a few simple concepts that they are not aware of. They tend to overlook the fundamentals of Fx trading and hence end up being on the losing side more often than not. This article will help you in understanding Fx trading with the help of a simple forex equation.
‘Supply’ union ‘demand’ + ‘human point of view’ => price mover.
This forex equation emphasizes on the factors on which prices of the currency market depend. The important driving force in price movement is the supply demand ratio. This criterion is true universally for every business, leave aside Fx trading. If the demand of a good or a service increases, it is obvious that its rates also increase. Similarly, if a particular currency pair is in more demand, it goes without saying that its prices are going to appreciate. This is because a currency that has good future prospects will tend to attract more traders. So, there will be more number of bidders for a currency pair at a particular rate. When the bidders are more, the prices appreciate to filter out less capable bidders until there are only the best bidders vying for that particular currency pair.
This forex equation also focuses on the supply side of the currency pair. If the suppliers of the currency pair are less than the number of takers, the prices are going to increase.
Currency trading does not only depend on the supply demand ratio. If it were true, you could easily predict the markets with the help of supply demand indicators. The main reason why markets do not move as per this technical is the addition of human perspective. When huge sum is at stake, people tend to get apprehensive and take wrong decisions there by disturbing the market trends. Human emotions do not conform to the established theories and hence currency market moves in a way that not many can predict.
What this forex equation does is that it clears out some of the misconceptions which most traders have while operating in currency trading. Firstly, you cannot predict the market to perfection. With the help of indicators, you can at best predict where the market is heading. Secondly, there is no fixed formula to trade effectively in Fx trading. How you trade depends on a lot of dynamics that keep on changing from time to time.
If you come to terms with this forex equation, it will certainly help you to take better decisions.
By kushal doshi
Author can be contacted at : kushaljdoshi@gmail.com
