Before jumping into the forex trading bandwagon, would-be traders need to learn a few more fundamentals. There are two terms essential in trading and investing in financial markets, which you would definitely encounter more often than not when you start your forex trading journey.
Technical analysis and fundamental analysis are two important jargons that are used in professional forex trading. These two employ different technique but they have one main objective, and that is to enable you get a better view of the market, and how this market is likely to move in the coming days or so. For this week, we will dig deeper on Fundamental Analysis.
The world forex markets are affected by a diverse range of variables and each of these variables dictate the tempo as to how each currency moves and these movements can be either favorable or not on your investment. Fundamental Analysis in forex trading concerns global economic news and other related current events. These news range from any typical news events, to a change in economic policy by a government, to company news and announcements, as well as a country’s interest rates and policies.
As mentioned above, these news information would have critical influence on how a certain market moves. Positive news hounding a certain market would definitely dictate the prevailing or future economic picture. Positive news for a certain market would definitely paint a picture of a strong economic background, which in turn, would magnet more foreign investments and the spurring of domestic businesses. Hence, having these positive news on the background would likely transcend a strong and growing economy of a market, which would likewise translate to a stronger demand for its currency.
Example: If Country A has been gaining economic strength with a barrage of positive economic news reverberating in its background, its currency would definitely be increasing in value compared to other currencies. This is because foreign investors will troop into Country A to invest , thus driving the demand for the Country’s currency.
How would this affect your trade in the forex market? As you may recall in the previous issues of this series, the basic dynamic of trading is that you will buy a currency in low value and sell it high, or you are going to sell high and buy low. If you have a currency combo with high value currencies, it might be the right time to sell it, thus will give you profits.