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Currency traders depend upon the fluctuations in value of currencies in order to make money within the foreign exchange market. By buying currency when it is low in value and selling when it is high in value profit can be made. But why does the value of currency fluctuate in the first place? forex lore provides answers to this question and many others relating to currency trading.

There are a number of factors that cause the value of currency to fluctuate significantly. Firstly, the foreign exchange market itself may cause the fluctuation in the value of a currency. For example, if one currency were to sharply increase in value this may cause another currency to sharply decrease in value. However, it is not only factors internal to the foreign exchange market that govern the value of a currency.

The value of a currency is also determined by external factors which impact upon the nation to which the currency belongs. Currency value is dependent upon a wide range of economic factors specific to that nation including the country’s gross domestic product, the unemployment rate, the level of inflation, the national debt and the predicted future for the nation’s economy. Moreover, factors that are not directly economic in nature can have an impact upon the value of the currency. Political and social upheavals can have a dramatic impact upon the value of the country’s currency and currencies which are considered high risk may be avoided by traders, thus decreasing the currency’s value.