What makes a currency go up and down?
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  1. #1
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    Default What makes a currency go up and down?

    Hi - I am very new to the Foreign exchnage world - but I was wondering if anyone could explain me once and for all what makes a currency go up and down? I understand it's supply and demand but still...... Can someone explain it to me in a simple manner....
    Thanks

  2. #2
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    Default time and activity

    I am new at that and what I think will probably be considered as naiive. I believe part of it is the differences of time between between the countries is part of it in short time. I also believe that there is something that can be formulated in order to make advantage of this, but I haven't done it as I am a total newbie and I still looking for a good strategy because I don't have much money to risk.

  3. #3
    SanMiguel's Avatar
    SanMiguel is offline FX-Men Honorary Member
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    A variety of things, you will never know the full calculation but the FX is a measure of a country's wealth against another. Some of the things that go into calculating this are:
    unemployment
    interest rates
    growth of business
    war or peace
    housing price
    amount of money being transferred to other countries to buy/sell products
    etc. etc.

    Then there are also traders swapping money in the open market. Any order a bank fills, whether it's an order for 1million CPUs from the US to Japan (therefore increasing the value of the yen) or a big bank trading will move the market.

  4. #4
    rhodytrader's Avatar
    rhodytrader is offline FX-Men Honorary Member
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    Quote Originally Posted by alansam View Post
    I believe part of it is the differences of time between between the countries is part of it in short time. I also believe that there is something that can be formulated in order to make advantage of this, but I haven't done it as I am a total newbie and I still looking for a good strategy because I don't have much money to risk.
    I don't know what gave you this idea, but you can toss it away. Time differentials has nothing to do with anything. The market trades 24 hrs and reacts to things around the clock. The exception could be regional currencies which are very thin outside their primary trading day, leading to increased volatility when extraneous events take place, but the wide spreads there account for that.
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    Default answer

    Quote Originally Posted by rhodytrader View Post
    I don't know what gave you this idea, but you can toss it away. Time differentials has nothing to do with anything. The market trades 24 hrs and reacts to things around the clock. The exception could be regional currencies which are very thin outside their primary trading day, leading to increased volatility when extraneous events take place, but the wide spreads there account for that.
    It is not allowed to post links so I'll explain it otherwise. Forex is a new thing and not yet very sophisticated. In more sophisticated financial systems they have pre market indicators that are based on activity which can be different from one to another. For instance, there are days that are known to be stronger in one place than another.

    I am not tossing away anything as I am building a plan I believe will give me a very sophisticated way to know how to invest and know the income in prior with very small range of mistake.

    I did something similar in other field and it worked out. Basically I am new to Forex and I am looking for gaining more knowledge right now, but I don't trust stereotypical invests because that is the safest way for me to lose only! That is true to things I've done in the past, so I know it is true!!!

  6. #6
    rhodytrader's Avatar
    rhodytrader is offline FX-Men Honorary Member
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    Quote Originally Posted by alansam View Post
    It is not allowed to post links so I'll explain it otherwise. Forex is a new thing and not yet very sophisticated. In more sophisticated financial systems they have pre market indicators that are based on activity which can be different from one to another. For instance, there are days that are known to be stronger in one place than another.
    First of all, the forex market is not "a new thing". Currencies have traded freely since the 70s when Nixon took the US off the gold standard. Sure, retail forex trading is a relatively new thing, but the retail market is not the one that moves the market. The banks, multinational companies, and institutions that do have been at this game for decades.

    As for pre-market indicators, they exist in markets where there is a defined market open and close, like the NYSE open at 9:30AM ET. There is no open or close in forex, so there is no such thing as "pre-market".

    And you are in fact allowed to post links so long as they contribute to the discussion and are not done for promotional purposes.
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    Default currency

    Quote Originally Posted by rhodytrader View Post
    As for pre-market indicators, they exist in markets where there is a defined market open and close, like the NYSE open at 9:30AM ET. There is no open or close in forex, so there is no such thing as "pre-market".

    And you are in fact allowed to post links so long as they contribute to the discussion and are not done for promotional purposes.
    I know how a currency is built, I have experience in that, however, I am sure that the right factor to consider in investing is not the market's economical strength.

    It is very easy to know what economy is getting stronger than the other, the statistics are available, but not always it gives you the currency picture. It actually almost never does.

    You can see economy like that of Japan, UK and US while getting weaker but the currency is not linear with non of the economical parameters. There are countries that know how to control inflation/deflation regardless of economical situation.

    So back on topic that is why I don't believe the ideas I saw in the pips school, the currency is a much more complicated thing.

  8. #8
    cas Guest
    Quote Originally Posted by Pipslady51 View Post
    Hi - I am very new to the Foreign exchnage world - but I was wondering if anyone could explain me once and for all what makes a currency go up and down? I understand it's supply and demand but still...... Can someone explain it to me in a simple manner....
    Thanks
    This is how the global FX market is structured...

    Decentralized Market Structure


    There is a Hierarchy of Participants in this Decentralized FX Market.


    At the top of the food chain is the interbank market, which trades the highest volume per day in relatively few (mostly G-7) currencies.
    In the in*terbank market, the largest banks can deal with each other directly, via in*terbank brokers or through electronic brokering systems like Electronic Brokering Services (EBS) or Reuters.
    The interbank market is a credit-approved system where banks trade based solely on the credit relationships they have established with one another. All the banks can see the rates everyone is dealing at; however, each bank must have a specific credit rela*tionship with another bank in order to trade at the rates being offered.

    Other institutions such as online FX market makers, hedge funds, and cor*porations must trade FX through commercial banks.

    Many banks (small community banks, banks in emerging markets), corporations, and institutional investors do not have access to these rates because they have no established credit lines with big banks. This forces small participants to deal through just one bank and often this means much less competitive rates for the participants further down the participant hierarchy.

    Those receiving the least competitive rates are customers of banks and ex*change agencies.

    The majority of FX volume is transacted primarily through the interbank market. The leading banks of the world trade with each other electronically over two platforms—the EBS and Reuters Dealing 3000-Spot Matching.

    So what makes a currency go up or down...?

    It's the transacted FX volume through the interbank market fueled by the largest banks having access to cheap unlimited funds and easy credit.

    This graph gives you an idea about daily volume in London in billions of USD...



    Last edited by cas; 08-20-2009 at 04:38 AM.

  9. #9
    funnyforexbunny is offline Junior Member
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    Dear Pipslady51 for me the phrase that best describes Forex is "The foreign country's demand for home currency relative to home demand for that foreign currency.This demand is influenced by variety of economic indicators and political conditions, especially interest rates, inflation and political stability."
    Forex is a complicated area. I would advise you get familiar with it in details before start trading otherwise you risk losing a lot of money. Trade wisely

  10. #10
    cas Guest
    Quote Originally Posted by funnyforexbunny View Post
    ...for me the phrase that best describes Forex is "The foreign country's demand for home currency relative to home demand for that foreign currency.
    For me the phrase "TA trader picking each others pockets" that best describes FOREX @present.

    Quote Originally Posted by funnyforexbunny View Post
    The foreign country's demand for home currency relative to home demand for that foreign currency. This demand is influenced by variety of economic indicators and political conditions, especially interest rates, inflation and political stability."
    If that would be the case USDX would show about 52 instead of nearly 80.

    We are living in a world of QE now with global interest rates at zero or near zero. Economic indicators don't matter anymore because governments bail out every economic participant with freshly generated paper...called currencies.

    Bond yields get supressed with ever increasing amounts of financial paper products to keep the long term bond curve from rising. Otherwise interest rates need to rise which would bankrupt every global bank active in global financial markets and taking the real global economy with it.

    I wonder how long it will take before governments giving away freshly generated paper to every citizen living in a western country for free...

    It's called money for nothing or socialism a.k.a. centralised government...

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