BOP is the balance of payments, it is an account that depicts the payments and the net transfers occurred between the two countries.
Out of two countries one is home country and all the BOP information are recorded from the home country perspective.
The payments involved both the payment for goods, exports and imports are put into consideration for accounting purpose. In case, the BOP is repeatedly negative, it is interpreted that the country is having a economic instability. Inversely, BOP is consistently positive; it indicates that the economy is stable and functioning smoothly.
It is defined as the flow of payments in any one country with the rest of the nations of the world. It determines the correlation between the home country domestic payments and debts that the country owes to other countries of the world.
The amount of currencies that the county has to receive from other nations in the form of receipts and credits for a predefined period of time and is calculated annually.
BOP includes three major components for calculating the balances, these components are current account, capital account and financial account or official reserve account. In order to calculate BOP, if a country has received capital, it is known as credit and if a country has made payments the transfer is refer to as debit.
Therefore, the import transactions come under debit transaction and export are termed as credit transactions.
Balance of Payments of a country = Current Account Balance + Capital Account Balance + Official Reserve Account Balance
Depending on the situation assessed by the analysis of Balance of Payment of the nation, so traders can analyze about the Forex trading.
For instance, the negative current account is balance by the positive financial account like if US having negative current account then from a long time that is financially supported by the positive account the one thing that can be done under such circumstance so that traders can purchase more than the sell is by borrowing money.
Balance of payment helps in analyzing the economic position of the country and thus enables the Forex traders to analyze the trade moves at the Forex trading platform so that they can take forex trading decisions.
In order to understand the core relationship in between the Forex trading and the country's economic condition you need to assess the country's economic condition through balance of payments. Like the recent non-ability to pay off the debts put Dubai in big troubles and the traders have seen the influence of such situation on the Forex trading platform.
In the end, it can be depicted from this article that balance of payment have certain correlation with the Forex trading because the exchange of currencies at the market through respective Forex account enable the traders to add into the country's transactions that further fluctuate the BOP.