As the goods on the FOREX market is currency so the ‘quality’ of the goods is determined by the state of the economy of the host country. From changes in the economy in better or worse depends the rate of national currency against foreign currencies.
Traders receive information about various events from news agencies, such as Dow Jones, Reuters, Bloomberg, etc. in real time, and decide to buy or sell currencies on the basis of opinions on the degree of favorable news for the economy of this exchange.
To understand the incoming information correctly traders need to know the newsgroups existing on the market and what impact they have on the exchange rate change. All information can be divided into two main categories:
• Predicted factors
• Unpredictable factors
Unpredictable factors are unexpected events in the political arena, military action, terrorist attacks or natural disasters. Neither the time of this event, nor the extent of its influence can not be predicted, so these factors are force-majeure, unpredictable and unlikely a newbie would venture to work in the market during strong movements in exchange rates caused by such events. In this case the risk is very great and for traders who are only gaining experience it is much more important to understand the principles of the market, making good trade. In the case of the availability of open positions exhibited warrant such Stop Loss will not allow the trader to lose more than planned sum of money.
Predictable factors are macroeconomic news. The main difference from the unpredictable news is that the trader knows the date and time of release of such news also knows predictive value of various published indicators made by experts and market analysts. The main similarity is that it is not always safe to say the strength of the market reaction to the actual value of the macroeconomic indicator if it differs from the forecast.
To work on fundamental news traders need to know how the exchange rate is formed of a currency. The basis of the exchange rate is the so-called real component calculated at purchasing capacity parity. To calculate it a person should calculate the value of some consumer goods basket in different economic zones and their correlation with the value derived “real” rate. People who are not professional economists use a simple way to estimate the real component with a strong correlation with the scientific: they appeal to the “Big Mac Index”. To do this they compare the cost of Big Mac McDonald in different countries and get the “real” rate.
But it is only one component of the exchange rate. The second component is the so-called “favorable” rate of national currency related to the fact that the economy is in a positive dynamics. Central banks of countries make this component using various instruments: reserve ratio, interest rates, foreign exchange intervention, and so on. The third component is the contribution of commercial banks, market makers operating on the spot market. Their functions are the maintenance of liquidity of assets and performance of clients’ requests. I must say that the spot market is the relationships between the buyer and seller in which the calculation of the transaction occurred after 2 days, when the banks’ share “bought / sold currencies. By contributing, each participant generates the current exchange rate, which we observe in the trading terminal.
As in any other sphere of life foreign exchange market needs some education.
Of course, one can start forex investment and be quite successful in it. But sooner or later the losses will come. This is when you might think “Why didn’t I start with a good forex trading education?”
That does not mean that after reading even the top materials you will start closing trading positions with huge income, but this info will save you from many dangers. And even if you decide to get the help of a managed forex trading service, still you will make a much wiser decision.
And a final piece of advice – today the Internet technologies give you a truly unique chance to choose what you need for the best price on the market. Funny, but most of the people don’t use this chance. In real practice it means that you must use all the tools of today to get the info that you need.
Search Google and other search engines. Visit social networks and check the accounts that are relevant to your topic. Go to the niche forums and participate in the online discussion. All this will help you to build up a true vision of this market. Thus, giving you a real chance to make a wise and nicely balanced decision.
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