Factors that Shape Financial Market Trends

Trends are what shape up financial market and allow traders and investors to grab profits. In a market, the flow from one price to another is what creates profits and losses – whether on a short or long-term time frame. Speculating the market trends and calculating the profits, savvy investors plan to invest in real estate markets. There are four major factors that create long-term trends and short-term fluctuations in financial market.

Understanding the major factors that shape trends over long term can provide insight into why certain trends are developing, why a trend is in place and which trends will prevail the market. Following are those major factors:

Governments

In every country and every financial market, the governments hold the power to persuade the free markets. Fiscal and monetary policies have a profound effect on the financial market. By increasing and decreasing interest rates, the government and Federal Reserve can effectively slow down or speed up growth within the country. This is called monetary policy. If government increase or decreases the spending, this is known as fiscal policy and can be used to ease unemployment or stabilize prices.

By altering interest rates or seeing the availability of dollars in free market, government can change how much investment flows into and out of the country.

International Transactions

The flow of funds between countries impacts the strength of a country' s economy and its currency. The more money that is leaving a country, the weaker is the country' s economy and currency. And the countries that export more are bringing money into their countries, which can be reinvested in the country and stimulate the financial markets within those countries.

Supply and Demand

Supply and demand for products, currencies and other investments creates a push and pull dynamic in prices. Prices and rates change as supply or demand change. If something is in higher demand and supply shrinks – prices will rise automatically. If supply increases beyond current demand – prices will fall. If supply is relatively stable, prices can fluctuate as demand increases or decreases.

Speculations and Expectation

Speculations and expectations are integral parts of the financial system. Where consumers and investors believe the economy will go in the future impacts how we act today. Expectation of future action is dependent on current acts and shapes both current and future trends. These indicators are commonly used to gauge how certain groups are feeling about the current economy.