Just when you start thinking you’re safe, the economy comes right back to bite your leg. We got over the Great Depression; so, we finally got our things in order, and we started making the money and bringing progress into our future.
But as the laws of Murphy seem to remind us, if things seem to be going right, then something is bound to go wrong. The economic crisis is upon us, and the first thing that will receive a hit will most likely be the Forex trading.
What Is Forex Trading
Foreign exchange, or in short, Forex, is an international market where people buy and sell currencies. The concept is close to the stock exchange, where shares of companies are traded among themselves.
Also, like within stock markets, you don’t gain ownership of that money. You simply profit from changing the value of said currency; you benefit from the exchange rate. And the Forex market is actually the one that sets the value of that exchange rate.
The Causes of Economic Crisis
We don’t just run out of money without a reason. We run out of money because we do it to ourselves. Take the Great Depression, for instance; we never even saw it coming.
One day, we all had roofs over our heads and threw money everywhere we could. The next day, banks collapsed, we were jobless, and half of us lost our investments. And we’re the ones that caused it.
The sad thing is that it’s happening all over again, and it’s making an impact on the Forex system as well. Here are the main causes of the next economic crisis and how it will eventually affect the Forex trading system:
- Political Events
Every nation has elections; they’re so common, we don’t even think twice about them. Still, an election can also have a great impact on the economy of a nation. Think about the money that goes into the election campaign. For one, that’s money that goes down the drain, just to attract the voters.
Secondly, traders see elections as an isolated case of probable uncertainty and political instability. In most cases, a Forex participant will keep a close eye on the election pool and try to predict the outcome. If the government changes, chances are that the ideology will also change. They may take a different approach to fiscal policy, which will eventually affect the value of the currency – and ultimately, the exchange rate.
- Natural Catastrophes
A natural disaster can leave a great hole in the economy of a country. If said nation experiences a massive earthquake, flood or tornado, many things will be lost: lives, morale, and also infrastructure.
As a result, a lot of the nation’s money will go into trying to repair the infrastructure. The higher-ups will have to tap into the country’s resources to clean and rebuild. Therefore, instead of pushing that money into a more advantageous venture for the economy, they are burying it into patching up breaks in the chain of value.
Consequently, the economy will also be weakened, and the exchange rate will go down. A disaster-stricken country will avoid spending as much money, to prevent making the hole even bigger. Suffice to say, a natural catastrophe will definitely mean the fall of the economy’s currency.
War, like elections, is also something that we do to ourselves – only to a larger scale. The impact of physical war on foreign exchange is never pretty. That’s because, just like natural disasters, it leaves behind a broken infrastructure that will ask for a lot of money to fix.
Citizens will most likely have to borrow from other countries in order to get back on their feet, and their efforts will most likely have to be financed by cheap, low-interest rates. This will eventually lower the currency value – and there you have another situation where Forex will be affected by the economic crisis.
All we can do right now is hope that countries won’t start aiming rockets at one another; however, since humanity is territorial and wants power, it will eventually happen – regardless if it’s ten or fifty years from now.
The more we dig holes into the economy of our country, the more the exchange rate will go down. All we can hope for is that Forex participants will see these changes coming and come up with solutions. Even you can learn more about trading and sharpen your skills by setting an online virtual trading account.