We often talk about the different way that we can protect ourselves from volatility and sudden jumps in price changes. But we rarely talk about the things that cause the volatility in the first place. Right now I suggest we turn to the most interesting and commonly-traded market – equities market in order to understand – what causes falls and gains in it?

1. GDP data.

2. Political climate.

3. Monetary policies.

4. Interest and attention of traders.

1. GDP data.

If the economy of the country is on the rise that would usually mean that the currency of it is doing extremely well, despite the political and economic climate in the world. And that means that incoming GDP report is going to be perfect for the currency. Good GDP data in their turn are prone to giving even more boost to the currency.

A cycle that plays out well for us in the end.

2. Political climate.

Remember the turbulence that we saw with the USD in the end of 2018? All was due to horrible behavior of Donald Trump. He was slapping trade tariffs right and left and was trying to make friends with world dictators like no one else’s business. He was also constantly lying and supporting violence and discrimination against other races. Of course none of that stopped, it is just that we got used to it.

Anyway, all of that led traders to wanting to sell dollars and go to some other currency as there was no way to predict what was going to happen next. Political climate as well as the behavior of politicians in the country often serve as good benchmarks of whether traders are going to flee or be attracted to the currency.

3. Monetary policies.

Different outlook on strict monetary policies as well as their rapid changes never work out for countries. The stricter the rules, the less people are going to want to deal with the country. If these policies are changing too fast or too frequent that also means that the currency is at a high risk of being left with no interested traders.

So, what to do? Look for the countries where interest rates as well as other monetary policies are stable and do not change that often. Changing of the monetary policies can make a currency go up and down without any notice.

4. Interest and attention of traders.

That’s right. We ourselves form what markets are going to perform like in the nearest future. With bad news coming and going we tend to selloff and buy the currency which means that we are other supporting or killing a currency. That can happen with popular and not so much equities. It can happen to dollar and euro, to lira and ruble and to all of the other available for trading currencies. All that matters, is how much we are willing to support the currency.

Overall there are tens of different factors that can affect the performance of the market and result in falls and gains for us. The important part is to understand that there is nothing we can do about it other than not send the currency in the selloff.