4 MAJOR MARKET FORCES
Understanding what makes the market move is key knowledge for traders and investors to maximize profit in their deals. These major market forces should be tracked by traders and investors to be able to predict trends and anticipate movements so that they may be able to analyze and decide on their next move. There are four major market forces.
Governments are one of the most powerful movers of the market. They hold control over competitive markets as they are the ones that regulate fiscal and monetary policies. Conducting their monetary policies, they make their interest rates decisions by either raising or cutting rates. The ability to determine this has a significant impact on growth as it is a deciding factor on whether economy will accelerate or slow. Implementing a fiscal policy, a government regulates its spending to stabilize its economy by controlling prices and unemployment. In the US, the Federal Reserve is the governing body.
The strength of an economy and its currency is highly dependent on the flow of funds between countries. In case more money is going outside of a country, its economy and currency will be weak. And if more money is flowing in, then it is a robust economy and a strong currency. This is why countries that are more export-oriented have healthier economies. It means that more money is coming in.
Supply and demand
Prices rise and fall because of supply and demand. Simply put, a product that is in demand with less supply has a higher price, while a product in excess with little or no demand is cheaper. The goal of most economies is to regulate the supply and demand so that the two are balanced. A product that has ample supply will have fluctuating price based on demand.
Speculations and expectations
Speculations and expectations of traders and investors are one more major market mover. They are necessary components of the financial system as they influence the direction of a market trend. The mood of market participants is measured by sentiment indicators. They provide an insight into how markets respond to current events. As a result, it is possible to predict the market direction.
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