Speculation and Market Sentiment

[Tobi]

The Forex market is extremely speculative in nature. This is because Forex provides the leverage for investors to amplify their trade several times using borrowed money and then invest in the markets. Therefore, sentiments take over the Forex market more than they take over other asset markets because of the availability of easy money.

Hence, just like all other markets, Forex markets are prone to irrational exuberance and they too can distort exchange rates in the short term creating long term investment opportunities.

Many other factors like the price of commodities such as gold and oil also play a vital role in the determination of Forex rates. However, that will be discussed in a later article in this module.

 

[gwolf666]

Regarding the Forex market, it is true that speculation plays a fundamental role. The availability of leverage allows investors to amplify their positions, generating greater volatility and dependence on market sentiment. This, in turn, can lead to distortions in short-term exchange rates, creating long-term investment opportunities.
Irrational behavior and market exuberance are not unique to Forex; they can be seen in other markets as well, but the influence of rapid movements and amplified leverage makes it more pronounced in this space.
And of course, the prices of commodities such as gold and oil also directly impact exchange rates, something that undoubtedly weighs heavily on Forex market decisions.