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Emotional risks on Forex market
Written by: PaxForex analytics dept - Sunday, 13 November 2016 0 comments
Emotional risks on the Forex market have another name - risk behaviors. Like any other asset markets, Forex is very sensitive to the output of financial and political news, as well as to manipulation of the major players in the market. But it also happens that the cause of the excitement in the market can be just unsubstantiated false rumors.
News relates to the category of external factors that encourage movement in the market in one direction or another. Typically, they provide information on the status of a State that provides for trading on the stock exchange its freely quoted currency. The most relevant in this case is country’s economic information and details of the changes in rates of a national bank of a particular country.
No less intense impact on the direction and price movements in the currency market have news of a political nature, especially those that signals about changing the policy of the state government.
major players of the currency market. Most often those like national banks of economically developed countries. Even one such major player is able to change the direction of motion of quotes via the execution of transactions on a large scale. In particular, it can be a massive purchase of a currency to replenish foreign exchange reserves of the state.
Since the Forex market is functioning according to the same laws as any other, raising the demand for a currency immediately raises its price. An inverse situation is when a player throws a large amount of currency for sale.
Smaller players, acting through intermediaries, often prone to panic in those cases when there is a declining trend of a currency. In rapid change in the direction of quotes, the majority of traders begin to close their positions, which in turn further reduces the value of the currency.
To avoid losses in such panic situations, it is necessary to strictly follow the established strategy and use only proven and reliable information.