Following economic trends to make your trading stategy work
Economics and finances go hand-in-hand in the world of trading, as many of our readers may know. There would be little point in trading if the economy was straight-forward and never changed. Due to market fluctuation, it’s important to keep an eye on the current trends in order to make the most out of the economy. In fact, you can even make the best out of a bad situation — with CFD (Contracts For Difference) it’s possible to trade and make a profit on markets that are failing.
Economic trends follow some factors which shape the market, and according to Investopedia, there are four key areas that will impact your stock. These four areas are:
- The government: Interest rates, monetary policies, and banking have a phenomenal impact on the trading market. Government spending can make a big difference to unemployment and interest rates can be altered — which as a result, will make a big difference in the economy, which will impact the trading industry.
- International transactions: Deals and financial flow between countries are always going to affect your trade, especially if you’re doing it worldwide. Therefore, it’s important to keep up-to-date with international affairs.
- Supply and demand: Unsurprisingly, supply and demand are one of the biggest factors for the stock market. It explains why Bitcoin is so valuable in cryptocurrency trading.
- Speculation: This occurs even more so if there is uncertainty within the government, particularly when it could affect the financial market.
After understanding certain trends in the economy, it’s easier to predict the market, which will help increase your chances of success. These factors can cause both short- and long-term fluctuations in the market, but it is also important to understand how all these elements come together to create trends. While all of these major factors are categorically different, they are closely linked to one another. Government mandates can effect international transactions, which play a role in speculation and changes in supply and demand can play a role in each of these other factors.
Government news releases, such as proposed changes in spending or tax policy can also have a dramatic effect on long term trends. The lowering of interest rates and taxes can encourage spending and economic growth. This in turn has a tendency to push market prices higher. However, the market does not always respond in this way because other factors may also be at play. Higher interest rates and taxes, for example, can deter spending and result in a contraction or a long-term fall in market prices.
Regardless, it’s vital to only ever work and trade within your own means and that you consider what is best for you in terms of investing and keeping your assets.
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