Forex is one of the most volatile markets today, but that doesn’t mean that the system is completely unpredictable. In fact, Forex traders make good use of indicators, providing them with near-accurate guidelines on how to proceed with each trade in order to make a profit. Following are just some of the top indicators being used today:
Inflation is perhaps the biggest determining factor when it comes to Forex trading. It is essentially the amount of money of a particular country currently circulating. It can also be defined as the buying power of money. For example, ten dollars may be able to purchase a gallon of ice cream. Upon inflation however, the same amount can only buy half a gallon of ice cream.
Forex traders are always on the lookout for inflation and make sure that their currency choices only suffer through an ‘acceptable’ amount of inflation. This may vary from one country to another, but generally speaking, first world countries have an average of 2 percent inflation per year. If the inflation goes beyond that in a single year, chances are Forex traders will steer clear of this currency. Third world countries have an average of 7 percent.
Gross Domestic Product
Also known as GDP, this is the amount of goods and services country produces in a given year. It’s an excellent indicator of a country’s economic standing since the more products/services you can produce, the higher your income or earnings for said products. Of course, this is on the assumption that the demand for those products are equally high, resulting to a profit. Forex-wise, traders invest their money on countries that enjoy a fast, constant, or reliable GDP growth over the years.
If employment is high, chances are people will be more generous with their spending. The same holds true the other way – which is why traders have to be careful if unemployment rates go up. This means that companies are downsizing because the demand for their products or services is decreasing. Note though that as with inflation, there’s usually a ‘safe’ average in which employment can drop.
Of course, those are just some of the top Forex indicators being used today. You should also take into account other considerations such as Consumer Price Index, Producer Price Index, Institute of Supply Management, and others. Give yourself time to study and evaluate the status of every country before going ahead with your trades. Although not 100% predictable, these indicators can provide a safe path towards profits.