The foreign currency market, or Forex market, is the largest financial market in the world. It’s trading average is an astonishing 1.5 trillion dollars a day. Unlike many other markets, the Forex market has no central location, but all transactions are done over the internet. Thousands of different companies and institutions are involved in Forex trading, but also many individual small investors trade too.
But if you wish to invest in Forex trading, you have to know how to analyze the market. There are two types of analysis: fundamental and technical. Fundamental analysis gathers information about the economy and other elements that would affect the Forex market and uses it to predict the future changes in currency prices.
Keep An Eye On Oil
One of the things fundamental analysis must keep an eye on is oil prices. But why should you worry about the increasing oil prices if you are trading Forex, not oil?
The answer is that most of the important currencies will rise and fall with the oil prices. The price of oil is the leading indicator of the economy of the world, as has been proven throughout the decades. And that of course will not be changing. Oil prices are a huge element in currency rates.
Countries that have to import their oil do better when prices are low and take a dive when prices are high. There is such a thing called the international trade balance. When this trade balance is deficit (which means that there are more imports than exports), the currency suffers devaluation. So when energy prices soar, as they have been recently, the value of a currency changes.
The best way to deal with this instability in the economy and Forex market is to trade wisely. Though the situation might be intimidating and you might be tempted to back out of your Forex trading, don’t be discouraged. It is during this time of crisis that you can make the most money. You just have to learn how to trade wisely in this situation.
Taking Advantage Of Oil's Influence
First of all, you must adapt your strategy, then you must stick to your strategy. I can never say enough on sticking to your strategy. It is the backbone or your trading and without it you will never succeed. This may sound harsh but it is true. Without a strategy you will be lost and stranded and subject to suffer loss as the increasing oil prices affect the currency prices in the Forex market.
So how do you trade wisely? Here are three tips that will help you greatly:
1) The best transactions you can make and the most profitable will be between a country that must import their supply of oil and a country that exports oil.
2) Know that the currency of a country that produce and export a lot of oil will rise in value.
3) Also be aware of the fact that the currencies of countries that must import their oil will decrease in value.
If you keep in mind these three things and adjust your strategy to revolve around them, you will be able to trade confidently and successfully as oil prices continue to rise and change and affect the economy of the world.