Forex Markets

Central banks influence Forex markets through monetary policies, such as setting interest rates, buying or selling foreign reserves, and implementing quantitative easing. For instance, when a central bank raises interest rates, the currency often strengthens because higher rates attract foreign investors seeking returns.

Geopolitical events like elections, trade wars, or military conflicts can cause significant volatility in Forex markets. Such events create uncertainty, prompting traders to either flock to safe-haven currencies (like USD, CHF, or JPY) or pull out of riskier currencies.

Some central banks actively intervene in Forex markets to stabilize their currency. For instance, the Swiss National Bank has intervened to keep the Swiss franc from appreciating too quickly, as a strong currency could harm exports.

Forex markets are known for high liquidity, but liquidity can vary depending on the time of day and the currency pair. Major pairs like EUR/USD have higher liquidity, while exotic pairs may have less liquidity, resulting in wider spreads and more volatile price movements.

High leverage can magnify both profits and losses. For example, a small market move can lead to substantial gains if leveraged effectively, but it can also lead to large losses, possibly exceeding the trader’s initial investment. Proper risk management is crucial when using leverage.