Global financial markets are dynamic and alive organisms that require utmost understanding of not only financials but macroeconomics and other social events as well. Some facts about financial markets are not something you would expect from a serious sector such as the finance sector. For example, the Big Mac index is not something you would expect to learn in university, but it has more importance than it seems. Let’s list some top 5 circus facts about financial markets to blow your mind.

1. The “Big Mac Index” - Why burgers matter!

Forex beginners might be astounded when they hear how this index can affect their investing portfolios. A Big Mac is more than just a meal. The Big Mac index was created by The Economist in 1986 as a lighthearted way to measure Purchasing Power Parity (PPP). The PPP simply means that exchange rates should adjust so that a basket of goods costs the same everywhere. Since the Big Mac is sold in tens of different countries, its price reflects the true value of goods, plain and simple. It is a really brilliant idea to use a single, globally available fast-food item as a proxy for complex economic theory. It cuts through jargon, and while the banks might represent different percentages for inflation and CPI, the Big Mac price never lies. To calculate the “index”, you just need to compare the local price of a Big Mac in different countries to its price in the US. If it's cheaper abroad, the local currency might be undervalued, and conversely, if it is more expensive, it might be overvalued. So, the next time you wonder how strong your local currency is, just check the Big Mac index to get plain and noise-free data.

2. High-Frequency Trading (HFT) - Trading at literally speed of light

HFT bots are complex algorithms that can open and close 1000 trades in milliseconds. They actually trade at the speed of light. These robots are also the main reason why modern financial markets like Forex currencies are so liquid, as trillions of dollars are traded daily. They are developed by large companies with large sums of capital, and a significant portion of stock markets are executed by supercomputers in fractions of a second. Basically, you can not compete with these bots when it comes to trading analysis and order execution speeds. This is why many traders started to switch to medium and long-term trading, as almost all edges on lower timeframes are governed by HFT bots. HFT firms compete purely on speed and sophisticated algorithms to exploit time differences across exchanges, and there is a whole arms race going on behind the scenes where many of these firms are competing to catch a portion of the profits. As a result, markets are liquid and spreads are low, but finding the edge in lower timeframes is not as easy anymore. The 2010 flash crash was caused by these HFTrobots. This was a trillion-dollar flash crash.

3. Behavioral finance - your brain is your worst investment advisor

You might think your brain has millions of years of evolution solely to help in your financial decision-making, but no, your brain can actually be the worst advisor you can ever encounter. Greed and fear are two primary emotions driving all the financial markets out there. In other words, financial markets are not rational. Human psychology, emotions, and cognitive biasesplay a major role, which is sometimes predictable for big institutions. These emotions can make markets experience wild price swings up and down. The answer? You need to have strict discipline and stick to your trading and investing plan to be successful.

4. Tulip Mania

This is probably history’s wildest financial craze, when flowers cost more than houses. During the Dutch Golden Age in the 1630s, prices of rare tulip bulbs skyrocketed to absurd levels before collapsing spectacularly. This is probably among the oldest financial bubbles and is even more interesting for modern investors. A single failed auction triggered panic, leaving many bankrupt and the economy shaken. Tulip mania is a true archetypal financial bubble and crash.

5. Currency manipulation by countries

Many countries do not let their currencies float freely based purely on market supply anddemand. Instead, they actively manage its value relative to another currency like the USD or Euro, or a basket of currencies. In this case, central banks buy or sell their currency using foreign reserves to maintain the fixed exchange rate. Generally, it is a bad idea to have your currency pegged to another asset, and it also makes it nearly impossible to trade pegged currencies for profits.