NoaFX Tutorial

1.3 Supply / Demand Behavior

What is Supply and Demand?

The age-old theory of the Supply/Demand behavior has often been the underlying factor behind almost every business transaction in the free market economy. However, it has also been ridiculed for its abstract definition and its lack of isometric relevance, which makes quantitative measurements difficult, economists argue.

However, from a counter argument perspective, supply is valid as long as there is a lack of demand for any given entity and demand is valid as long as there is a lack of supply for any given entity. Therefore, any perceived value at that point in time, given conditions therewith, is deemed the right value for the transaction to commence, as long as there is a buyer and seller present for that to happen.

Though the earlier paragraph might seem like its regurgitated text from an old economics textbook and its "oh-so obvious", its relevance and simple meaning can be so often overlooked, especially in a trading market environment. You have to understand that in the financial market, highly driven by facts and figures, the underlying factor in where the funds flow next is only made by a value of their perception, which may/may not be driven by empirical facts. This particular deciding factor and perception cannot be quantified.

Video here to explain interest supply and demand and interest rate decisions.