Supply And Demand
Tue, Apr 15Supply refers to the quantity of an asset that is available, while demand is the amount of an asset that individuals are willing to purchase. As the supply of an asset increases, its value tends to decrease. Conversely, when the supply of an asset decreases, its value tends to increase. Similarly, as demand for an asset rises, its value increases; on the other hand, when demand for an asset falls, its value decreases.
This principle is applicable in the currency market, where many traders analyze the supply and demand for a specific currency at a particular moment to determine whether that currency’s value will appreciate or depreciate.
One method to assess supply and demand is to visualize a seesaw with all the fundamental factors influencing that currency. For instance, if an economic report boosts demand or diminishes supply for the US dollar, that fundamental factor would be placed on the left side of the seesaw. Conversely, if an economic event reduces demand or increases supply for the US dollar, that factor would be positioned on the right side of the seesaw. If there are more factors on the left side, the seesaw will tilt upwards, indicating that the US dollar’s value is likely to rise. Conversely, if there are more factors on the right side, the seesaw will tilt downwards, suggesting that the US dollar’s value is likely to fall.
This approach allows traders to consider all recent fundamental factors impacting a specific currency, aiding in the evaluation of whether that currency is performing relatively well.
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