What are Supply and Demand in forex?

What are Supply and Demand in forex?

What are Supply and Demand in forex

There are multiple strategies used in forex trading and work differently for every forex trader. However, supply and demand are the main factors that control the price movements in the market. In forex, the market does not move because of retail investors, they just follow the market behavior to profit as much as they can. The main actors in moving the prices in the forex market are the financial institutions that have invested in a currency and the central banks that release news and events affecting the supply and demand of the currencies relative to their countries.

This means that understanding what is supply and demand in relation to forex prices is important for every trader. Let us discuss exactly that so you can build a strong base of your forex skills.

Supply: It is the availability of currency in the forex market. When prices start to decrease that means the supply is high and everyone is selling the particular currency pair.

Demand: It is the need to buy the currencies by the majority of investors. This happens when prices start to increase it means that demand is high and everyone is buying that particular currency.

If you are still confused, let us make it easier for you. A high supply occurs when the prices in the charts have been increasing for a long time, and they changed their direction to start decreasing. It means there are no sellers left in the market. Similarly, demand is high when the prices of currency pairs were falling previously and changes their direction to start rising. It means that buyers are active and demanding to buy that currency pair.

How to trade with Supply and Demand?

In forex, you can use this information to your advantage if you can accurately identify supply and demand zones. The supply zones are formed when the prices continuously hit a high peak point and the demand zones are formed when the prices continuously hit a low peak point. Just like you learn to identify different trends in forex, you locate demand and supply zones in the same style. Using the previous data, you can locate these zones and set them which can help you greatly with placing trades.

The supply and Demand trading method, if used with other strategies and trading plans can make your trading very easier. It gives you time to make changes, look for suitable points to open or close trades, and overall helps you trade more profitably.

It is a very useful tool that every forex trader can incorporate into their trading styles and start trading strategically and statistically.

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