FOREX STOCK INDICES

The Stock Indices serve two purposes for the forex market, one being the risk taking factor and the other being the confidence in a countries economy.

Confidence in a countries economy will help the currencies of those countries to improve in the forex market. The reason being more investment going into a country will increase demand for those currencies thus increasing their forex reserves. For Instance a strong performance on the Dow or FTSE will add strength to the Dollar or Pound respectively.

The risk taking factor increases as an Index makes stronger performances. Speculators will begin to take larger risk and emerging currencies and other risky trading will increase in the forex market.

One of the most publicised is the Japanese Yen Carry Trade. Where investors take large risks in the forex market by borrowing the highly volatile Yen to buy Dollars and make money of the difference in interest rates.