The currency exchange industry, also known as Forex, is the largest investment industry in the world. Anyone in the United Kingdom can join this industry and start trading options. This market is highly volatile, and because of this, many people can quickly earn profits. The fluctuations in the market’s prices depend on a lot of external factors. To analyze the graph, a trader can conduct two types of analysis – fundamental and technical. Fundamental analysis deals with all the issues that affect the economic performance of a country. On the other hand, technical analysis deals with the graph, timeframe, resistance and support level, momentum, and so on. Here, we will concentrate only on fundamental analysis.
What is Forex fundamental study?
This study pays concentration to all factors like existing currency’s price, interest rates, inflation, GDPs, unemployment rate, etc. If you are a short-term option trader, then this form of analysis may not be the right choice for you because the economic performance of a state doesn’t change in a few minutes. This is why short-term investors like day traders or scalpers should avoid it. This investigation fits for a long-term trading style like position or swing trading.
This investigation is not only about the comparison between two data – current data and the previous one. You can’t obtain a better and reliable result by comparing the existing economic indicator with the information earlier. One may find numerous financial concepts that surround this analysis. It attempts to put different pieces of data together for comparison. Among all the economic theories, the most popular one should be chosen.
How to understand the Forex fundamental analysis
1. Bad news – Good news
The news reports can affect the market and the performance of a trader. For example, any good or bad news can help an investor to understand which currency one should go to make profits and when the price may rise or fall. Thereby, it becomes easier for one to make a decision – whether he should sell his purchased currency or buy more. News provides an excellent guide to the traders about the economic condition of a state. As a new option traders, use Saxo as your primary broker as it will help you execute high quality trades with a great level of precision.
While using a technical study to execute trades in the CFD industry, you don’t have to be concerned about the news. Since you are now focusing on the fundamental research, remember that the investors have to wait for a longer time to make a move because the indicators are published once a week.
2. Economic indicators
There are a few economic indicators that can help a newbie to make decisions. One of them is interest rates. This is the most important indicator of all. One can use the rates to realize what’s going on in a state. He can easily establish the relationship between interest rates, inflation, and financial growth, and all these will help him make an excellent move. Keep a sharp eye on the private and central banks. Nominal interest rates can help you a lot in this case.
Another common and popular indicator of economic performance is inflation. News is released based on the report of inflation. It depends on the economic expansion or contraction. When the economy of a country expands, inflation also expands. As a result, the government increases the interest rates to control the situation, which reduces financial growth and inflation. Governments and central banks aim to balance the entire financial condition of a country.
GDP indicates the assessment of services and goods which are generated within the economy. It tells you about the entire condition of an economy. GDP itself is not actually an indicator, but by observing the changing rate, a beginner can realize the condition of an economy – whether it is shrinking or expanding. An increment in the GDP indicates a positive effect on the performance of a state.