Even though financial experts would like to look at forex trading currency as the be all and end all of financial markets, it would do no harm in comparing forex and other financial markets. You are perhaps even aware of some of these other markets: gold, oil, stocks, and bonds. With a fair amount of noise and misinformation about the other financial markets and forex let’s look at some of the main financial markets. See what conclusions can be drawn after a comparison of forex and other financial markets. Read on.
Stocks are microeconomic securities, which rise and fall in responding to individual corporate results and prospects. The forex trading currencies are essentially macroeconomic securities, which fluctuate in response to wider-ranging economic and political events and developments. A comparison of forex and other financial markets like stocks, it is seen that the two markets seldom intersect and that too only at the extremes and for very short periods.
When comparing forex and other financial markets like oil, a lot of misinformation floats on the web. The general notion is that, because some countries are oil producers, their currencies are positively or negatively affected by any increase or decrease in the price of oil. And if a country is an importer of oil, the assumption goes that its currency will be hurt by any fluctuations of oil prices. But which country today is not an importer of oil? The right way to look at oil is as a restrictive factor on overall economic growth. With an increase in the price of oil, the inflation is likely to be higher and thus resulting in slower economy.
When comparing forex and other financial markets – bonds, it is sent hat these bond markets have a more spontaneous connection to the forex trading currency market. The reason behind is that both the markets are strongly controlled by interest rate expectations. Sometimes the forex market reacts first and quick depending on shifts in interest rate expectations. But at some other times, the bond market can reflect changes in interest rate expectations more accurately. The market dynamics of supply and demand break attempts to ascertain a feasible link between the two markets.
In times of economic or political uncertainty, gold is often viewed as a hedge against inflation and as a store of value. The relationship is mostly inverse over the long term with a weaker US dollar followed by a higher gold price, or a stronger USD emerging with a lower gold price. Overall, the gold market is considerably smaller than the forex trading currency market. When you compare forex and other financial markets like gold, it is more important to keep an eye on the dollar, but any intense movements in gold prices tend to attract attention of the forex traders.
To sum up this article on forex trading currency and other financial markets, it is important to keep in mind that all the different financial markets are markets in their own right. They work according to their own internal dynamics based on data, news, positioning, and sentiment. As a forex trader, one should definitely need to keep an eye on the yields of the government bonds of the major-currency countries so as to better observe the expectations of the interest rate market.