Global Currencies

4. Fundamental Analysis

Fundamental indicators are the announcements which traders follow to show the strength of a particular currency with respect to others. The value of a currency depends on economic news releases that depict the strength or weaknesses of the economy of a country. This is what fundamental analysis is all about; to scrutinize the value of a country’s currency with the help of daily news feeds.

The reports including statistical data on basic topics such as GDP, international trade, employment, manufacturing, retail sales, housing and interest rates are called fundamental indicators. There may be an effect on the value of a country’s economy in a direct or indirect manner with respect to the growth, stability or decline in any of the above mentioned areas.

Factors involved in forex trading

The responsibility of maintaining the base interest rates of a country lies with the central bank of that country and in this way the bank plays a vital role in the forex market. A central bank attempts to pursue growth in the economy along with curtailing inflation, hence it must manage to maintain a fine balance while setting interest rates. Speculation in the forex market is often fuelled depending on a central bank’s decision to raise, cut or hold the interest rates thus changing the value of a currency or group of currencies.

The rates of essential items such as oil and gasoline are also important indicators as consumer spending and confidence can be hurt by soaring prices which may result in a cut back in certain business activity and government services. Also information about a country’s economy is reflected in national and international political events and changes in government policies related to trade and elections.

Some events such as natural disasters and calamities, terrorism, and military actions in sensitive areas of the globe cannot be predicted and therefore may also cause uncertainty in the market. Events such as these also have an impact on the forex market as they develop.

If a trader follows the forex market and related news feeds one can obtain a very valuable tool through which to identify patterns in macroeconomic signals and also can understand central banks current and future actions.

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Risk Warning

Before deciding to participate in the Forex market, you should carefully consider your investment objectives, level of experience and risk appetite. Most importantly, do not invest money you cannot afford to lose.

There is considerable exposure to risk in any off-exchange foreign exchange transaction, including, but not limited to, leverage, creditworthiness, limited regulatory protection and market volatility that may substantially affect the price, or liquidity of a currency or currency pair.

More over, the leveraged nature of forex trading means that any market movement will have an equally proportional effect on your deposited funds. This may work against you as well as for you. The possibility exists that you could sustain a total loss of initial margin funds and be required to deposit additional funds to maintain your position. If you fail to meet any margin requirement, your position may be liquidated and you will be responsible for any resulting losses. To manage exposure, employ risk-reducing strategies such as 'stop-loss' or 'limit' orders.

Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.

Forex.com/UK acts as the clearing agent and counterparty to customers introduced by "Global Currencies" for an IB margined forex transactions. FOREX.com is a trading name of GAIN Capital - FOREX.com UK Limited and is authorised and regulated by the Financial Services Authority. FSA No. 190864.