How Global Events Affect the Forex Market

The foreign exchange market is the largest financial market in the world for trading currencies. Millions of participants from all corners of the globe engage in foreign exchange transactions worth trillions. 

To give you an idea of its ginormous scale, heres a fascinating stat for you →

|‘The global forex market had a daily trading volume of $7.5trillion in April 2022, up from $6.6 trillion in 2019.’ |

But its enormous size doesnt make it immune to global events. On the contrary, global events have the potential to spread chaos in the Forex market.  

In some cases, it can immediately affect exchange rates and currency values as well. Keeping this potential for volatility in perspective, well be going over specific global events and see what impact it may carry on Forex trading. 

Common Global events that affect the forex market

Certain global events have a more significant global effect than others. These include the following:

Political Instability

Political activities like an election can hugely impact a country's currency. 

Many forex traders also view elections as a factor in political instability. In most cases, market players track election polls to understand what to expect. This is because a change in government could mean a shift in citizens' ideology.

If they change their views, it could mean a different approach to monetary and fiscal policy. Politicians who are passionate about economic growth can boost a currencys value. 

For example, a “pro economy” leader who loses their position may lead to currency drops. This is caused by the fear of limited future economic growth gripping the speculative markets.

Another political activity is an unexpected election. This can happen through a vote of no confidence or corruption scandals. 

Regardless, unplanned elections can wreck a nation's currency. For instance, citizen protests and work strikes can lead to economic uncertainty. It doesn't matter if a democratic one is replacing an autocratic government, Forex traders can't risk uncertainty. 

That said, the situation isn't all bad. Once the government is in place, valuation factors will start working. This gives the currency a chance to settle and results in economic growth.

Natural disasters

The effects of a natural disaster can be horrible for a country‘s infrastructure and economy. The loss of life and damage to major factories can mean bad news for the nation’s currency.  

Loss of basic infrastructure also reduces a region's economic output. Furthermore, the government and the private sector would have to redirect funds. These resources are necessary for rebuilding and repair, which is money the country could have used for profitable economic ventures.

War

Unlike a currency war, physical wars can be more devastating to a country's economy. Like a natural disaster, the effects of war are brutal and widespread. Also, war damage to infrastructure destroys a nation's economic viability, and this ends up costing citizens and governments billions of dollars. 

During war, there's a lot of uncertainty about the economic future of affected nations, and this causes such countries to experience a high level of currency volatility. But, some economists believe that war has an economic upside and can launch a fledgling economy. 

This can happen if the country‘s manufacturing sector focuses on wartime production. For example, the United States’ entry into the Second World War pulled it out of the Great Depression. But, the reality is that an exchange of human life for economic growth is unreasonable.

Central bank policy

Monetary policy is an all-purpose approach to regulating a nation's money supply. A country's central bank can directly impact its currency through open market operations and interest rate adjustments. 

Examples of top global central banks include the United States Federal Reserve (Fed), the Bank of England (BoE), and the Bank of Japan (BoJ). 

A currency will perform better if there's a sudden interest rate increase. For example, recently, the Fed raised the interest rate which directly resulted in the appreciation of the US Dollar on a global scale.  

On the other hand, a currency can also weaken following an interest rate cut.

Inflation rate

Inflation measures the increase in producer and consumer prices. Central banks attempt to manage inflation by raising interest rates, which can limit the impact of devaluation on the nation's currency. The metrics for inflation are the Consumer Price Index (CPI) and Producer Price Index (PPI). 

Inflation is one of the critical areas of focus for central banks. This means high-than-expected inflation can cause central banks to raise interest rates, which would strengthen the underlying currency.

Five ways to avoid losing money in the forex market while trading

Global events can make the forex market volatile. But you can always safeguard your profits. 

Here are five ways to do that:

• Do your research

Forex trading might look simple, but you shouldn't jump in without a plan. You need to study the market to increase your chances of success. This includes the political and economic factors that can affect your currency pairs.

You should also commit hours of research to develop a trading plan. This would allow you to screen and check your investments while determining risks.

• Find a reputable broker

The forex industry has less oversight than other markets, which means you could do business with a broker having a dubious reputation. 

To avoid this, only open an account with firms that are members legitimate licenses to make online trading possible. 

At Capitist, we go through great licenses and certifications to maintain a great reputation. 

Check out this blogto learn more about why clients love to trade with Capitist.

Also read: 8 incredible perks of online Forex trading with Capitist

• Use a practice account

Most trading platforms come with a practice or demo account, allowing traders to make hypothetical trades without using any funds. 

A significant advantage of this account is that it lets you become an expert at order-entry techniques.

• Safeguard your trading account



While focusing on making money, you need to know how to keep it. For this, you can go right with proper money management techniques. 

A crucial part of this is knowing when to cut your losses and move on. You can use a stop-loss order to protect existing profit and prevent more loss. 

Traders can also set up trailing stops to protect their profits. This stop order is set at a defined percentage away from a security's current market and can help preserve winnings while allowing the trade to grow. 

Start small when going live



After researching and practicing with the demo account, it's time to go live. This means you're about to start trading with real money on the line. But practice trading can't prepare you for actual trading, so you must start small when you go live.

By starting small, you can examine your trading plan and emotions. This lets you gain more practice in executing accurate order entries and stops you from risking the entire trading account on every trading session.

Start trading on the forex market with Capitist

The global forex market is affected by different events, which can be either positive or negative. Regardless, we've covered the leading disruptors to help you better understand the market. You can also use our trading tips to protect your current finances. 

If you need more help with forex trading, weve got you covered. 

The Capitist platformprovides forex market access with content on how you can succeed as a trader. 

With our mobile app, you can also trade and track the market from anywhere! Download the app for Androidor Applenow.

Register nowand start making instant profits in Forexalong with Stocks, Commoditiesand cryptonow.