The principle of supply and demand

Let us look now on the principle of supply and demand, and are particularly interested in supply and demand of currencies on the foreign exchange market.

All markets in the world revolve around the principle of supply and demand, the foreign exchange market is no exception to this rule.This is a concept so important on the currency market if you have well understood, it can help you differentiate yourself in your dealings. His mastery will allow you to sift through daily financial data, and increase your chances of success in terms of market forecasts.

Look at how the principle of supply and demand influence the foreign exchange market. Consider first the relevance of each concept:

Offer

The economic principle of supply indicates the availability of a specific commodity at a given time. When increasing or decreasing, the offer indicates a change in product value or currency. An increased supply of a commodity or a currency causes a decline in its value. And conversely, a decrease in supply leads to higher value.

We can illustrate this principle by the example of diamond and stone: a stone does not have any specific value because it can easily be found anywhere and the desired size (the offer is important), while the diamond, he does not lie easily and has acquired an important value.

Demand

The economic principle of supply is an important factor in any financial market, but it is demand which is the primary factor influencing the price and the value of a currency. Indeed, the price and the value of a product change according to the increase or decrease the demand for it. In most high-demand, on the product value will increase. Conversely, if there is little demand for a product, its value will decrease.

We can illustrate this principle by the example of selling tickets for a popular rock concert: there are few tickets available, demand will be important, therefore inducing an increase in ticket prices.

We can therefore conclude from the study of these two concepts that the effect of demand on the value of a currency is exactly opposite to that demand.

There are a variety of factors influencing supply and demand of currencies or product and who are part of the fundamental analysis model.

A study long-term supply and demand over a period of one year or more, while a study in the short-term supply and demand for a period of about 30 days or less.

To show you competitive in the foreign exchange market, it is important that you are able to detect increases in supply and demand of currencies.

We hope this article on supply and demand has instructed you and interested. Check with other items on our site, to further improve your knowledge on the subject.

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