If you stop and think that the world is linked together by a number of factors, you’ll be surprised to find out how the actions of some affect many. This is the case in the foreign currency market, where the price of a country’s currency is determined by demand and supply as well as global trade.

Every day, people engage in $5 trillion in currency transactions. And this certainly leaves a print on the currency rates. Note that politics also has a major effect on the markets.

As a trader, you wouldn’t think that something like an election can affect volatility in the Forex. But as history has proven, it does. An election can be perceived as the opening door to instability which leads to heightened volatility in the exchange.

Experts, who trade on fundamentals, often follow the polls and forecasts. A change in government may imply a different strategy in monetary policy for that country, a factor that will seriously influence the price of a monetary unit. As recent events have revealed, the fact that German Chancellor, Angela Merkel’s party lost the elections in her home town, means that there was a loss of confidence. This brought the value of the Euro down on that particular day. To avoid making assumptions, savvy Foreign exchange participants look for certain indications. In this case, they’ll look to see whether the other party is known to be fiscally responsible, to trade accordingly while taking the right risks.