Supply and demand refer to the fundamental economic forces that drive price movement in the forex market. Supply represents the availability of a currency for sale, while demand reflects the desire for that currency.
Understanding supply and demand is crucial as it helps traders anticipate market movements and identify potential areas where price may reverse or continue.
In forex, when demand for a currency exceeds its supply, the price rises. Conversely, when supply exceeds demand, the price falls. Traders look for areas where these forces are likely to create price reversals, often identifying zones of supply and demand on price charts.
Test your knowledge of supply and demand with the following questions:
