Currency trading is a type of trading where the trader buys and sells different currencies to make a profit. The most attractive part of currency trading is how it's mostly affected by micro-events, like whether the US dollar or Euro will strengthen or weaken.
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This means that traders don't always have to care about how individual stocks are doing to make a profit. Which begs the question;
Why should Forex Traders Care About Tech Stocks?
Forex traders should care about tech stocks because they can be used as a tool to gauge market sentiment and make smarter decisions about where to invest their money.
It is a measurement of risk appetite.
Tech stocks have different valuations as compared to other stocks. Other stock pays out dividend and are valued based on the income they produce.
But tech stocks have high valuations and most of them don't pay dividends. Therefore investors buy those stocks with the hopes of making a profit once it goes up in value.
They are also not as volatile as other sectors so it's might be hard to find the right entry point for an investment in this sector. Tech stocks can be a good investment if you know how to invest in them correctly.
Investors buy these stocks with those high hopes of making more thereby taking on high risks.
Forex traders should still care about them not only because they have high valuations but also because it has some measurements of risk appetite.
Additionally, tech stocks are mostly owned by companies whose product models have used cases or utility.
The economy affects luxury too
The stock market is a great indicator of the economy, and when the economy is bad, luxurious items become less important especially during inflation because they are priced out of reach for most people.
Families would reduce or cut off their entertainment subscriptions when the economy is experiencing a downtrend because they may not be able to afford it anymore.
Traders can use this information to make better trading decisions with tech stocks. This is because as soon as inflation kicks in, families start living on budgets and reduce their consumption of tech-influence luxury.
Once traders notice a decline in the performance of the tech stocks, they can be sure that the economy will be taking a hit, which becomes a macro indicator/trend for certain currency pairs.
Businesses feel the squeeze too
Tech giants are one of the businesses to feel the impact of a staggering economy, as they rely more on advertising and less on consumer spending.
You may be wondering how tech stocks and Forex traders can be connected. The answer is simple. Tech companies make their money through advertising, so it’s not that crazy to think that tech companies will also feel the financial hit of a staggering economy.
Businesses are always looking for ways to reduce costs and scale up, so they might try to do this by reducing the cost of customer acquisition and retention.
Since it's more cost-effective to retain customers than to seek new ones, businesses would try to reduce costs and might scale back on promotional activities.
This is one of the reasons why businesses might not be as aggressive in finding new customers during a staggering economic period. In this case, marketing strategies have to be adjusted accordingly.
So forex traders can start paying attention to tech stocks whose companies rely on subscription models. For this will help them make smarter decisions on their trading strategies and analysis.
Conclusion
The tech sector has been booming in the past few years, with companies like Amazon, Google, Facebook, etc., experiencing huge growth. This is a sector that has seen its fair share of ups and downs. Tech stocks are still an attractive investment option for traders because they are high-risk, high-reward investments. And they have macro trends factors that can judiciously be utilized by a forex trader for his benefit.