What do small businesses need to know about GDP and foreign exchange markets?

 

What do small businesses need to know about GDP and foreign exchange markets? 1

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As a small business owner, it can be tempting to focus your attention on the local economy or at the most, the national economy. After all, if you operate in a specific area, you need to be aware of the situation and various factors that may impact it. What you may not know is that the performance of the forex (or foreign exchange) market can also give you a good insight into how things are on the ground where your business is operating.

The international forex market is the largest and most liquid market in the world. It is a market for buying, selling, and trading various currencies, often with the intention of making a profit from fluctuating prices. The value of the currency of your country versus the value of another countries currency can give you a direct indication of the economic health of your country. Therefore, for any small business owner looking to progress their business, learning to get to grips with the forex market is key to staying one step ahead.

One of the ways which you can do this is through periodic review of your country’s GDP report.

What is a GDP report?

GDP stands for gross domestic product and it’s a figure that represents the total value of services, products, and goods that are produced in a country over a specific time frame. This is usually measured over the course of a year, or in some cases, three months. It is generally used to give an idea of a country’s economic health.

A GDP report is a macroeconomic indicator often used to give a snapshot of a country’s performance during a particular time frame. These reports are used by those investing in forex markets to get a sense of how a particular currency may perform. There are three main kinds of GDP reports: GDP month over month, GDP quarter over quarter, and GDP year over year.

These reports are usually released the first week of every month but the most common type, quarter over quarter, is released at the end of a specific quarter. Quarterly GDP reports include a preliminary estimate which is then reviewed two times.

You might wonder how this impacts you as a small business owner, but the GDP is a reflection of the economy you are a part of. It measures the revenue and the products that are injected into the economy via businesses just like yours. Therefore, the report and its subsequent impact on forex markets are important.

How does it impact forex markets?

What do small businesses need to know about GDP and foreign exchange markets? 2

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A GDP report is what is known as a high-impact release or a ‘Tier 1 report’. This means that when they are due to be released, the markets respond with often significant fluctuations. Overall, volatility increases depending on how accurate the forecasted estates were.

These reports can have a big impact on currency and currency pairs. But these are not the only factors that can affect the performance of the forex market as there are a lot of other variables. Politics, corporate matters, and social issues can all impact the performance of a particular currency.

How to leverage your country’s economic performance

Asides from directly benefiting from the performance of your country’s economy, there are other indirect ways you can potentially profit from the GDP. These include investing in the forex market itself.

If you haven’t invested in the forex market before, you can use forex demo trading accounts to get to grips with how it works. These ‘dummy’ accounts allow you to monitor various currency pairs and execute trades without the risk of losing anything while you learn. Then, once you’ve got the hang of things, you can progress to using a live account to trade on currency pairs that interest you.

Of course, keeping up to date the GDP reports and the performance of your country’s economy and the economy of the currencies you wish to trade is an important part of the process. It’s not good going on just your local knowledge – you need to understand the bigger picture and GDP reports indicative of that.

Running a small business is about looking at the bigger picture. Keeping up to date with the overall health of the country, tracking the value of your currency, and even investing in forex yourself can take you to a higher level of understanding in matters of local and international economics. Such matters may seem above the remit of a small business; however, it is important to keep one eye on the horizon, as you never know when global expansion could become a reality.

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