How Political Conditions Affect the Forex Market

By: Justin Stewart

Forex trading is something that many people to not understand. While they hear of the dollar "fluctuation", they never quite understand the process or what it means. Forex trading allows banks and other agencies and entities to trade actual currency from around the world on a 24 hour basis (minus weekends). The market moves over $3 trillion a day, so it is easy to see why the process can be confusing and overwhelming at best. While there are multiple factors that affect the direction of the movement of money on the forex market, the political conditions in a country can help people understand some of the movement on the forex market. Understanding these factors and seeing how they play out can help you understand how and why people play the "forex" game to try to achieve returns on their investments.

War

War can severely affect how a currency is traded on the forex market. The forex market looks at world events as starts for long-term trends that will affect the positive and negative trends of the currencies of various countries. If a country has engaged in war, it could go positively or negatively, depending on the situation and the countries involved. Countries that are seen in a good light because of the war may see their currency traded positively. Those who are at a disadvantage, or are seen in a negative light, will see their currency traded negatively, in a downward trend. Either way, war can seriously change the way currencies are traded.

Peace

With that being said about war, those who trade on the forex market also take note of peace and peaceful countries. The countries that stay peaceful in times of war are often seen as stronger countries. They are seen as stable because they are staying out of the war and out of any conflict. Forex traders look for stable countries when the currency they have is in an unstable one to be sure that they do not lose out on their investments.

Allies

The allies that a country can have can seriously affect how their currency is traded. When people have investments in a particular currency on the forex market, they may look to the allies of a country for other investments; allies are seen to be strong together, and can be seen as a good fit for those looking to dabble into other currencies.

Enemies

The enemies that a country can have can also affect how the forex market deals with them. Countries that have powerful enemies may see their currency dip, as investors are not willing to take a risk on an unstable country that could be considered weak. Investors tend to look to the relationships between countries and currencies to try and play the forex market to get the best return on their investment. If a country has powerful enemies, they may not be seen as a safe investment.

Foreign Exchange
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