The foreign exchange (Forex) market, works like every other market in the world, it's driven by supply and demand. Understanding the concept of supply and demand will make a big difference to your Forex trading profits. To be successful trading Forex you need to be competent at sorting through all the daily news to determine those messages that are important and probable to have an effect on the market.



Supply is a measure of how much of a currency is available at any particular point in time. The value of the currency is linked to how much of it is available. As the supply of a currency increases, it becomes less valuable and as the supply of the currency decreases, its value increases.

Demand is a measure of how much of a currency traders want at any particular point in time. As demand for a currency increases, it becomes more valuable and as demand for the currency decreases it becomes less valuable.

To understand how demand and supply can effect something's value, think about the Nintendo Wii. When the Wii was first released, there was a high demand for the toy and it sold out quickly. The only alternative for parents who weren't quick or aggressive enough to purchase the Wii when it was released, was to either wait for more toys to be made or pay ridiculous prices on eBay. High demand made this toy more valuable than it would have been if nobody wanted it.

Using this example on the Forex market, if we can measure when supply and demand are increasing or decreasing for a currency, we have a reasonable idea of whether the currency is going to increase or decrease in value.

When you are analyzing a currency to determine whether you think it will increase or decrease in value in the near future, you should think about how all the fundamental factors will effect the demand and supply of the currency. As you think about more and more fundamental factors, you should notice that one side of the seesaw will begin to tip up or down.

The concept of a seesaw for supply and demand can assist you to understand complex economic information. It is a lot easier to look at each individual factor to determine how it will effect the currency's value than it is to try and weigh them up all at once.

Once you have analyzed a factor, put it on the relevant side of the seesaw and move on to the next one. Once you have completed this process, you should begin to see which side is more heavily weighed. Using this information you can form an opinion on whether you think the currency's value will increase or decrease.