Influencing factors on the forex market
There's number of reasons why forex pairs move so much (this movement is known in the industry as volatility.) Here's a few volatility-causing factors you should be aware of when forex trading:
Financial news events
Large financial news events, such as budgets, interest rates and unemployment announcements can significantly increase volatility in the markets, especially in local currencies where the announcement is being made.
Political economic stability
The welfare of a country or nation can have major impact on the performance of a currency. If a country is struggling economically, it's extremely likely its associated currency will be too.
As horrible as they are, natural disasters can affect a currency's wellbeing as well as people's lives. Should an earthquake or tsunami occur, expect some sort of volatility to be generated in the currency associated with that region.
Points mean profit (or loss)
In spread betting, the movement of a market is measured in points. The amount of points a market moves determines how much profit or loss you’ll make in a trade. Whenever you open a trade, there will be a difference between the bid and ask prices – this price difference is known as a spread. The market will need to move a certain number of points so that it passes the bid or ask price before you can earn any profit. You’ll need to factor this in when placing a trade, but luckily for you we offer highly competitive spreads across all markets to try to maximise your profit. Also don’t forget that spread betting is currently exempt from both UK Capital Gains Tax and stamp duty*, which can further increase your potential profit.
Trade rising and falling markets
Unlike traditional shares trading, in financial spread betting you have the possibility to trade both a rising and falling market. Should you think the market will rise (appreciate), you can buy (go long), and similarly if you think the market will fall (depreciate), you can sell (go short). Should the market move in favour of your trade, you will earn a profit. However, should the market move in the opposite direction, you will incur a loss.
Risk warning: losses can exceed your initial deposit. Please ensure you fully understand all risks involved and seek independent advice if necessary.