Fundamental Analysis – an Introduction to Forex

Fundamental Analysis – an Introduction

Fundamental analysis is the study of economic, social and political data that represents and quantifies the economy in question with the goal of determining future movements in a financial market.

Analysts have been grouped into either Technical of Fundamental camps for many years but if truth be told there are very few pure technicians or fundamentalists. Technical analysts cannot really ignore the effect and timing of economic announcements and fundamental analysts cannot really ignore various signals derived from the study of historic prices and volatility.

It is fairly difficult to take into account all the different economic announcements as well as the political and social situations that affect an economy particularly in today's global market, however by understanding the basics and delving deeper into the various fundamentals of the economies one will likely find that his understanding of the financial markets improves dramatically.

There are a myriad of economic announcements and while it may be important to be familiar with schedules and understand the nature and possible impact of the announcements it would be very easy to be too bogged down by the various information until such time as there is too much and one may simply not be able to come up with an effective basis for trading.

Because of the vast number of fundamentals out there, it may be more important to focus on the main price movers as a basis, rather then try to know a little about a lot.

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Guide to Trading Forex

Set a Stop Loss

Before entering any trade, decide beforehand the amount you are willing to lose and stick to it, set a stop loss on the trade before you enter. Do not fluctuate your stop loss if you are in a losing trade. during times of extreme volatility it can be difficult or impossible to execute orders. stop orders become market orders when executed so the order may not be filled at the desired price. As a result, the initial risk can be estimated, but not guaranteed.

Let your profits run

Do not be emotional about a trade, you will lose some and win some – just know it. Know the reason why you entered a trade and stick to those reasons. The less emotional you are the more successful you will be. Stick to your game plan, move your stop loss as the market moves in your favor and let your profits run. During times of extreme volatility it can be difficult or impossible to execute orders.

Don't be influenced

You have your own game plan stick to it. If you are influenced by others you will constantly be changing your mind, learn to insulate external sources once you have made up your mind. You will always find someone who will give you a logical reason to do the opposite.You have your own game plan stick to it. If you are influenced by others you will constantly be changing your mind, learn to insulate external sources once you have made up your mind. You will always find someone who will give you a logical reason to do the opposite.oreign exchange traders can be separated into two groups, hedgers and speculators.

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Advantages of FX (Forex) Market

The world's largest financial market

As mentioned earlier the FX Market is by far the worlds largest, with over 2 trillion dollars being traded daily there are several distinct advantages brought forward to the investor.

The first are the hours, the FX market never closes and because of the huge volumes the market always has plenty of liquidity within it so that any investor knows that when he wants to enter or exist a trade that will always be possible.

24-hour 5-day a week market

The FX Market is always open. On Monday morning trading starts in Sydney, Australia and as the day goes on more financial markets join in; through Asia – Hong Kong, Singapore and Tokyo then through to the Middle East, Europe and finally the Americas. The most liquid hour of trading occurs in the European mornings when the U.S has joined in and Europe and the Middle East are still trading.

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Getting started with Forex

The forex (FX) market has many similarities to the equity markets; however, there are some key differences. This guide will show you those differences and help you get started in forex trading.

Choosing a Broker

There are many forex brokers to choose from, just as in any other market.

Things To Avoid

• Sniping or Hunting - Sniping and hunting - or prematurely buying or selling near preset points - are shady acts committed by brokers to increase profits. Obviously, no broker admits to committing these acts, but a notion that a broker has practiced sniping or hunting is commonly believed to be true. Unfortunately, the only way to determine which brokers do this and which brokers don't is to talk to fellow traders. There is no blacklist or organization that reports such activity.
  Bottom line: Talk to others in person or visit online discussion forums to find out who is an honest broker.
• Strict Margin Rules - When you are trading with borrowed money, your broker has a say in how much risk you take. As such, your broker can buy or sell at its discretion, which can be a bad thing for you. Let's say you have a margin account, and your position takes a dive before rebounding to all-time highs. Well, even if you have enough cash to cover, some brokers will liquidate your position on a margin call at that low. This action on their part can cost you dearly.
  Bottom line: Again, talk to others in person or visit online discussion forums to find out who the honest brokers are.

Signing up for a forex account is much the same as getting an equity account. The only major difference is that, for forex accounts, you are required to sign a margin agreement. This agreement states that you are trading with borrowed money, and, as such, the brokerage has the right to interfere with your trades to protect its interests. Once you sign up, simply fund your account, and you'll be ready to trade!

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Introduction to Forex

The FX Market

The Foreign Exchange market which is often referred to as the "Forex" or "FX markets" is the largest, most liquid, most transparent financial market in the world. Daily average turnover has now exceeded 2 trillion USD. All the U.S. equity markets combined do not reach 3% of the total volume traded on the FX market.

Unlike other financial markets, where for the most part you can only profit in rising markets, in the FX market whenever one enters into a position he is long (bought) one currency and short (sold) another currency simultaneously which means as opposed to other cyclical financial markets in the FX markets there are endless opportunities.

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