Supply and demand are often mentioned when discussing prices of goods and services. Forex is no exception. Normally, when supply exceeds demand, the price of goods will decrease, whereas prices increase when demand is higher than supply. Join Learn Forex Trading to find out what supply and demand are and the factors affecting demand in Forex.
The concept of supply and demand in Forex
Supply and demand and commodity prices are closely related to each other. When price increases, supply also increases and demand decreases and vice versa. Supply and demand is the price adjustment of the market, bringing prices back to equilibrium. And in Forex investment, traders must clearly understand what supply and demand are. If you are a new trader, you can see the information below to better understand.
What is the bow?
The supply of a product, good, or service is the total quantity of goods or services that suppliers offer on the market, at different prices.
The supply level will correspond to the commodity price, supply capacity, and production costs. In addition, supply also depends on other factors such as input prices, tax policies, technology, production quantity…
What is a bridge?
Demand is the total volume of products, goods, or services that consumers need to buy. It corresponds to prices and income. Needs need to be distinguished from clear needs: Needs are human desires and necessities. While demand must also meet the ability to pay.
The demand for a good depends on the price and income of customers as well as their expectations of the product.
See more: Become a wise investor with ForexFactory
What is the relationship between supply and demand?
In the market, supply, demand, and price are closely related to each other. They determine and influence each other.
When commodity prices increase, supply increases and demand decreases. When commodity prices decrease, leading to lower profits, supply also decreases but demand can still increase.
In another situation, if the supply suddenly increases but the demand does not increase, the price may decrease and vice versa.
In addition, at one point, demand increased but supply did not keep up. This will lead to a market shortage and prices will increase. Supply, demand, and price are factors that are always linked and influence each other.
Factors affecting supply and demand in Forex
In Forex, what factors directly affect supply and demand? There are countless factors affecting demand. However, below we will point out a few of the most important factors.
Prices of goods and products
Selling price is the first and biggest factor that directly affects supply and demand. The higher the price, the lower the demand, and vice versa.
For example: If you need to buy a certain currency or commodity, but its price is too expensive, you will have to consider whether to buy it or not. And you can wait until it drops to buy.
Price and service are relevant
Factors affecting demand for a good. Also expressed in the prices of other related services and goods. In the Forex market, there are many types of similar goods and products with different prices. If there is a price difference between items that can be substituted for each other. Products sold at low prices will have higher demand.
This rule also applies to most products, commodities, indices, and metals because they are considered complementary by traders.
Trader’s income
Traders’ income also affects supply and demand. If investors’ income increases, purchasing demand also increases, thereby increasing the supply of goods and products.
On the contrary, during a crisis, unemployment causes income to decrease. The price will decrease and of course, the demand for buying will be less.
Product trends
When choosing to buy a certain type of product. You will attach great importance to the trend factor whether it is an expensive or cheap item.
For example: If you choose to buy gold or silver products. At that time, gold was trending up in price. Then you will want to buy it to sell it later to make a profit. But what if the gold price is too high? If you predict it won’t increase anymore, you won’t buy it.
Profit opportunity
The profitability factor has the biggest influence on supply. It is also one of the factors affecting demand. If a certain product has great potential and has high-profit opportunities. Surely the exchanges and traders want to buy.
To achieve the desired profit, traders need to buy and follow the trend. Take profits or close losses at the right time.
The law of supply and demand in the Forex market
Forex trading activities are classified as special trading. Therefore, this market is also more or less affected by the law of supply and demand. This rule greatly affects short-term investors because they are afraid of missing out on opportunities.
For the Forex market, the law of supply and demand clearly shows the adjustment of supply and demand. From there, determine the equilibrium price with transaction volume.
This rule has a direct impact on the fluctuation of product prices listed on the market. Through the law of supply and demand. The psychology of traders is also expressed through changes in product prices.
See more: Registering Exness broker account on your phone
Effective trading strategy with supply and demand zones
To trade with supply and demand zones you need to have a specific plan. When you have a strategy in place, trading will be much easier. It also helps reduce factors affecting demand. Specifically, there are two trading strategies as below.
Trade by price range
What are the factors affecting demand? Supply and demand zones can be used to execute range trading if the zones are well established by the trader. You can combine the use of technical indicators or RSI indicator. To help and assist in identifying overbought and oversold conditions.
Because this is a non-trend-oriented transaction. So if you want to trade for a short time or hold orders for a long time, it’s okay. After viewing the oversold and overbought conditions on the chart in high time frames such as D1, H4… Then go to a slightly smaller time frame to determine more signals and entry factors such as: determining trendline, and price model….
Breakout trading
Surely the price cannot be maintained forever and it will eventually make a directional movement either up or down. Therefore, if you do not want to wait long and want to enter, after the price breaks that supply and demand zone, you can immediately enter an order here.
Our advice for this way of trading is: to place pending orders such as buy-sell limit, and buy-sell stop… with a small number of Lots for initial FOREX capital. If the market goes in the right direction you determined before. Then consider entering more orders with a larger Lot number but still don’t forget to manage risk.
Epilogue
Hopefully, through the Learn Forex Trading article, traders have grasped the concept of supply and demand. At the same time, know the factors affecting demand. From there, you will know how to trade and place orders more effectively.
