Forex Fundamental Analysis
Malaysia has a growing army of Forex
traders. They buy and sell currencies in the largest global market. With a live trading account, you can monetize
foresight. One of the approaches to prediction is Fundamental Analysis.
If you need a reliable platform for forex trading, I highly recommend looking into some of the beste forex broker options which have been proven to be some of the best brokers around. Start trading forex with confidence right now. According to investopedia.com, it is the ‘central pillar of investing’. Many investors, including institutions, take it seriously. Here is why you should be taking fundamental analysis seriously as well.
Basics of Fundamental Analysis
The Fundamentals help you identify
the causes of price movements, and make predictions based on available data.
Why is your currency pair appreciating/depreciating, and where is it likely to
move next?
This makes the method universally
applicable to any scope: long-term, mid-term, and short-term. The difficulty,
however, lies in the need to consider multiple factors. Many traders find this
daunting.
In reality, critics are mistaken.
Use of the Fundamentals does not have to be a quest. If you know what you're
looking for, the search is much easier.
Importance of Fundamental Factors
Basic economics says that prices
move based on supply and demand. Fundamental Analysis focuses on factors
affecting values of Major, Minor, and Exotic currencies. A trader well-versed
in this approach has an edge over rivals who only use price charts.
Why Does It Work?
The more of a currency is in
circulation — the lower its price, as supply is high. On the other hand, a
growing demand causes appreciation. Relevant Fundamentals will show you when
supply and demand for your instrument change. This is something a price chart
won’t tell you. It can show the result, not the causes which are building up.
Another important benefit relates to
emotional control. Feelings are every trader’s enemy. All too often, failed
trades result from fear or excitement. If you know why prices move, you can
evaluate whether a trend will persist. Reliable brokers like ForexTime allow traders to monetize this
knowledge. This is one of the keys to successful Forex investment in Malaysia.
The Top Five Fundamental Currency Drivers
Here are the strongest factors that
move the currency market.
1. Decisions by Central Banks
The central bank is the heart of any
national finance system. This organization monitors commercial banks and lends
funds to them. It also determines how much currency is in circulation. The
supply is within its control.
These banks manage inflation and
interest rates. For example, a high-interest rate for foreign investment
attracts more capital. When commercial banks pay higher interest for borrowing,
they charge higher interest on personal loans and mortgages.
Decisions concerning the currency
rate may cause volatility in the Forex market. Forex traders should keep an eye
on the interest rates, as they are the main tool of central banks.
2. Economic News Releases
Every day, there is a barrage of
economic news. The term may thus seem too broad. What exactly should you zoom
in on? Here are some key aspects:
● GDP (Gross Domestic Product)
● CPI (Consumer Price Index)
● Employment Data (unemployment rate,
average earnings, NFP, etc.)
Important economic events influence
the currency exchange rates. The effects are based on expectations. The market
always has a certain sentiment. Its participants make predictions about
economic data. The foreign exchange reacts when the reality is at odds with the
forecasts.
3. Geopolitical Events
Geopolitics is a salient factor. For
example, a military conflict in a country may send its currency into freefall.
Investors prefer countries with stable economic and political systems.
Another relevant factor is the
government's fiscal policy. For example, lower corporate taxes result in more
vigorous economic development. This makes the economy stronger and more
attractive to investors. Eventually, the currency rises.
4. Natural Disasters
Calamities are important because
they may affect a country’s economy. A weaker economy means a weaker currency.
5. Intermarket Movements
Financial markets are
interconnected. Aside from currencies, there are stocks, bonds, commodities,
etc. Different classes of assets affect one another. For example, in times of
crisis, many investors look for safe havens, such as government bonds or the
Swiss Franc.
Why Fundamentals Aren’t That Popular
First, there is the flawed Dow
theory that many educators promote. It states that price charts reflect all the
underlying economics, being the ‘sum knowledge of all investors’. Therefore,
they are presented as the only basis for trading decisions.
Rookies are manipulated into
thinking that fundamentals are useless. The idea of some robot doing the job
for you is so much more attractive. You are promised that EAs and technical
indicators will tell you when and how to trade.
In most cases, we have marketers to blame. Technical indicators are advertised as a route to quick riches. Many people want to believe that trading can be easy. The reality, however, is different. Not everything is immediately priced in the markets.
You are doing this to earn more $$$?
ReplyDeleteMaybe I could. :)
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