Factors like interest rates, trade flows, tourism, economic strength, and geopolitical risk affect supply and demand for currencies, which creates daily volatility in the forex markets. An opportunity exists to profit from changes that may increase or reduce one currency's value compared to another. A forecast that one currency will weaken is essentially the same as assuming that the other currency in the pair will strengthen because currencies are traded as pairs.
That common trait is fear, which creates the 'fight or flight' response in humans. Unfortunately, it is this fight or flight response which can cause the downfall of many traders. We cannot change what we have evolved to feel over millions of years, but we can change how we approach these feelings, by studying the psychology of successful Forex traders and then applying the findings. Today, we will look at how we should behave and respond to trading situations from the correct Forex trading psychology point of view.
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
Both types of contracts are binding and are typically settled for cash at the exchange in question upon expiry, although contracts can also be bought and sold before they expire. The forwards and futures markets can offer protection against risk when trading currencies. Usually, big international corporations use these markets in order to hedge against future exchange rate fluctuations, but speculators take part in these markets as well.
Imagine a trader who expects interest rates to rise in the U.S. compared to Australia while the exchange rate between the two currencies (AUD/USD) is 0.71 (it takes $0.71 USD to buy $1.00 AUD). The trader believes higher interest rates in the U.S. will increase demand for USD, and therefore the AUD/USD exchange rate will fall because it will require fewer, stronger USD to buy an AUD.
Election year historical data is a good base for identifying the range of outcomes for this year as 2020 is an election year. The data below shows the historical data, which may be relevant to how 2020 might shape up. Given the many unknowns in 2020 (impeachment, trade war truce, economy and the outcome of the election itself), this year is especially ...