The best Forex traders are well grounded on the basics. This allows them to dig deep, think fast, and act decisively. One aspect of Forex trading arguably entitled, as the “most basic of basics” are market determinants. This article will provide a basic discussion of the same coupled with a few examples in order to serve as a primer for more specific readings.
Determinants in its most general definition means, things that bring about or explain the occurrence of an event. Taken in the context of foreign exchange it means theories and occurrences that explain the movement or inactivity of the foreign exchange market. Of course, you need to work under the assumption that every foreign exchange fluctuation or inactivity can be explained, provided the complete picture and the proper determinants are identified.
Laws, Jurisprudence and Customs
The best Forex trader always takes into consideration local, national and international laws enacted by the legislature, jurisprudence adjudged by the courts and considered res judicata, as well as practices, traditions and procedures that have ripened into standards and upheld by different entities as mandatory customs. For example, an international agreement providing for relative purchasing power parity between states mean that trading in the currency of both will result more in trending rather than a breakout. Of course due consideration must be made as to the stature of these laws jurisprudence and customs, in that some of them may lack executor statutes or are not usually practiced or does not hold true on the floor of the Forex market.
The best Forex trader knows of the various trading models. This is because trading models provide structure to the seemingly unintelligible market fluctuations. Of course, some models are considered truer than others. For example, the balance of payments model purports to explain several aspects of the Forex market such as the appreciation or depreciation of currencies. This model puts great weight on the tradable goods and services while at the same time discusses globalization in passing. This market model however failed to explain why the US dollar continued to appreciate in the 1980s to the 1990s despite its soaring deficit.
The best Forex trader knows that as a general rule the historical economic data as well as the current economical policy of a nation influences foreign exchange rates. Why? This is because the government controls the economic policy and the latter controls a very big purse that can be used for different aspects of governance. And while previous historical data can provide the trader with past trends, current economic policy, especially one with an executory law directs future trends.
The best Forex trader knows that society rules public policy. This means that a properly organized societal force can pressure government into making or modifying economic policy. Some traders use the percentage of well-educated and directed middle class in order to gauge how well the societal element can pressure the government. However, poverty also plays a huge role in society, in that a huge percentage of poor citizens are indicative of improper governance resulting in low or volatile foreign exchange rates.