Forex trading has established itself as one of the most successful investment vehicles around. Our very own contributor Walter Byrd reveals that some investors actually prefer forex trading compared to stock trading, as traders who know how to maximize the market’s volatility can produce huge profits in a short amount of time.
There are a lot of factors that affect the forex market such as macroeconomic statistics, other capital markets, and international trade numbers. However, there are a few surprising factors and sectors that can influence how the forex market moves. In this post, we’ll take a look at how credit rating companies can impact the forex market and trading.
What Are Credit Rating Companies?
Credit rating companies estimate the ability of a debt instrument issuer (like private companies, banks, government agencies) to fulfill its obligations. To make sure they’ll receive a significant yield and be compensated fairly, investors use the ratings provided by credit rating agencies to assess the financial worth of a certain institution. An article by Money Crashers lists the three biggest credit rating companies in the world: Fitch, Moody’s, and Standard and Poor’s. These credit rating agencies express their valuations in letters such as AAA, BB+ or, D. This standardized method to publish information about stocks and bonds across industries is incredibly helpful for anyone who wants to make the most out of their investments.
How Do Credit Rating Companies Affect the Forex Market?
As we’ve mentioned, investors look at credit ratings to evaluate a debt instrument issuer’s ability to repay a loan. For forex trading, credit ratings can reveal information about sovereign debts and government-issued bonds that fund economic growth. Because sovereign debts are mostly denominated in foreign currencies, countries that don’t have stable exchange rates or experience poor economic growth tend to be issued with low credit ratings. This is due to their risk of not being able to return an investor’s money. Countries that have low credit ratings are often given more stringent deals than their high-rating counterparts in order to borrow an equal amount of money from global financial institutions.
Any announcement by the biggest rating agencies can directly affect the forex market. For instance, Moody’s has recently announced that the UK’s credit rating will be downgraded from Aa2 to Aa3, and this has affected the performance of the GBP/USD pair in the forex market.
Does Forex Trading Affect My Credit Score?
If credit rating companies can impact the forex market, does trading forex also affect my personal credit score? Yes, but indirectly. An article by Petal Card notes that having a good credit score comes with tons of financial benefits, such as lower interest rates and higher limits on existing cards. Plus, you can get better loan deals and low mortgage rates, too. So, it’s important that you do your best to boost your credit score. One way to do this is by getting started with forex trading, as it can help you achieve financial stability and receive higher profits. Starting with forex trading is incredibly easy and affordable too, as The Balance explains that most online forex brokerages don’t require a huge amount of capital.
Of course, while looking at the evaluations provided by credit rating companies can help you make better trades, there are other factors that affect how the forex market behaves. At the end of the day, it’s best to do your due diligence and have a foolproof strategy in place before you start trading forex.