Investors and Forex

There are investors who trade on stock exchanges. These people can significantly change currency rate during their work. We usually hear from media about their risk appetite.

Today is monday and we saw a small fall of Euro. There were no important news that might change the rate. When it happens, usually media says that investors made their profit-taking.

What does it mean? I'll try to answer. There are 3 states that have an impact on forex.

First state - strong risk appetite. It means that we have investors buying metals, oil, capital issues etc... USA dollar is not only a safe haven currency, it is also a currency used in all transactions on stock exchanges all around the world. That means when somebody buys oil through the internet with an aim to earn some money the rate of USD lowers. In that optimistic market state everyone tries to get rid of their USD and purchase some goods.

Second state - profit-taking. When everyone sees the rise of prices on goods, people who became their owners, tries to sell them with higher price. Frequently this rise happens because of the same people who recently bought them. In that moment prices on goods falls and rate of USD rises.

That way investors do the following. They buy goods when USD is strong and prices on goods are cheap. For example, they do it on monday. Then during the week rate of USD falls and goods becomes more expensive. In that moment investors don't have a big profit because of cheap USD. Then on friday they sell their goods making USD stronger. This is called profit-taking. That way most of investors makes their money.

Third state - weak risk appetite. When it happens USD become strong. Investors keep their money and do not invest in anything. They may be scared because of economy. Bad news and reports keep them away from trading. It could last a while, but anyway they have to work to make a living. So they are hoping on any good news to trade again. The longer they waited for good news, the higher impact on stocks and USD will be.