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The National Futures Association (NFA) is located at http://www.nfa.futures.org/index.asp. NFA is an independent provider of regulatory programs that safeguard the integrity of the derivatives markets.You want to make sure that the Forex broker or firm you are working with is registered with a regulatory body. This prevents fraud and minimizes risks with your investments. For example, FX Club at http://fxclub.com is a NFA member. This means that as a client, you can expect ethical and regulated services. NFA also offers arbitration and mediation programs to help investors and NFA Members resolve futures-related disputes. This is as vital to the foreign currency exchange market in the same manner the Sarbanes-Oxley Act is vital to the stock exchange. The NFA also helps investors conduct a background check on the firms and individuals offering global forex trading. NFA's Background Affiliation Status Information Center (BASIC), investors can quickly and easily check the registration status and disciplinary history of every firm and individual conducting global foreign currency trade. The Commodity Futures Trading Commission (CFTC) is a United States government regulatory board. The CFTC website is located at http://www.cftc.gov/. In the same manner that background checks with NFA can help protect your individual investments from fraud, the CFTC offers multiple regulatory procedures and legal and ethical behavior guidelines for firms, banks, and brokers operating in the globally currency exchange market. The CFTC's website offers a comprehensive list of signs of fraud and delinquent investors, brokers, and firms. This way, you can do your research with a firm before you commit to global foreign currency trade with that institution.
Forex allows for foreign products, services and investments to occur on a multi-national level. This means that corporations, governments, and individuals can purchase currency for one nation using currency from another. For example, going on vacation in Mexico and trading dollars for pesos is a small over the counter foreign currency exchange at a bank or other instutituion. This is the foundation of the forex market -- to allow multinational trade of monetary units. Because each nation essentially has a different amount attached to its monetary unit, and this value changes again when compared to another nation's monetary unit, value can be gained or lost depending on the forex market.
The forex market is a vast global network of multiple players, both on individual and corporate levels. However, there is not a central organization (like the NY Stock Exchange). Instead, there are multiple organizations, many of which are located in New York, Tokyo and London. These institutions handle the largest transactions and function like a currency exchange window at a local bank. A person gives money in one monetary unit and removes money in another monetary unit. The value of the money indicates the value of the trade, similar to trading stocks and bonds. The forex market trades trillions of dollars almost daily. It surpasses the stock market of any single nations, and may even surpass the value of all stock markets combined. This is because the trades are simplified. They are simplified because there is no insider trade information, unlike the stock market. No company can single-handedly destroy or enhance the value of the dollar or yen or British pound in the forex market. Instead these values are dictated by the foreign currency trade and that is predicted by the forex fundamental analysis, which uses national economy indicators.
The Federal Reserve Bank of New York surmises forex market participants as:
Banks and other financial institutions are the biggest participants. They earn profits by buying and selling currencies from and to each other. Roughly two-thirds of all FX transactions involve banks dealing directly with each other.
Brokers act as intermediaries between banks. Dealers call them to find out where they can get the best price for currencies. Such arrangements are beneficial since they afford anonymity to the buyer/seller. Brokers earn profit by charging a commission on the transactions they arrange.
Customers, mainly large companies, require foreign currency in the course of doing business or making investments. Some even have their own trading desks if their requirements are large. Other types of customers are individuals who buy foreign exchange to travel abroad or make purchases in foreign countries.
Central banks, which act on behalf of their governments, sometimes participate in the FX market to influence the value of their currencies.
The over the counter trade is continuous and multiple foreign exchange currency trades which occur through brokers, bankers and investors. Companies, such as FX Club Financial Company, assist with individual broker trade, with low to no commission. The UK is where the most significant amount of global currency exchange occurs. Interestingly, the UK pound is not the most traded currency—the U.S. dollar is.
For the basics, a forex fundamental analysis is the trends, information, status, and indicators of a nation's economic health. This is generally based on absolute purchasing power parity and relative purchasing power parity. The forex fundamental analysis examines the gross domestic product (GDP), which determines the growth or recession rate of a national economy. This economic indicator is also related to personal income, consumption, and expenditure. Consumer spending includes multiple dimensions such as retail sales, automotive sales, consumer price and consumer confidence indices and so forth. The amount of money that a nation spends is related to the ability of that nation to trade goods at home and abroad. Another economic indicator is the trade balance, which is the difference between imports and exports of a nation within a timeframe. The forex fundamental analysis must also take into account the industrial sectors of a particular nation. This is who is manufacturing what products for sale to which nation. The industrial production indicator is related to durable goods orders, business inventories, and supply management. The forex fundamental analysis uses construction data as another economic indicator. This is residential unit construction, purchases, and can include mortgage rated indices. These construction factors indicate a healthy economy when homes are being purchased, which increases after a recession or depression has occurred. Thus, construction indicates a strengthening economy. There are also inflation indicators, such as the producer price index and consumer price index, which are generally used for economic analysis.
These components of the forex fundamental analysis are economic indicators which can be mathematically traced, charted, and therefore predicted. The X-factor that cannot be easily quantified and categorized but has a significant ability to control the value of foreign exchange currency markets and global currency trading is the political factors. The ability of a nation to navigate in the global political environment has direct influence on the value of a monetary unit in that nation. Furthermore, political decisions, such as changing interest rates have a direct impact on the forex fundamental analysis. Interest rates of a particular nation can control the value of the monetary unit when interest rates alter in a single nation, but do not alter in other nations that are involved in the global currency trade. So, if the U.S. raises interest rates and the UK also raises interest rates, there is little change in the forex fundamental analysis. However, if the U.S. interest rate increases, but the UK does not change their interest rate, then the dollar is stronger against the pound.
A forex forecast is based on the fundamental analysis of economic strength of a particular monetary unit. A forex forecast is the prediction made based on economic indicators such as the economy, political, and social structure of a nation. This is because a monetary unit, or currency, is really a representation of a particular nation's economy. So, the economic health of a nation controls the value of the nation's currency. A forex forecast takes multiple components of economic health to construct a forecast model which predicts the movement of foreign currencies.
A forex forecast model takes into account the basics of the Dow Theory where: price reflects market forces; price movements occur in trends; trends are comprised of stages; the volume of trades indicates the market.
There are few limits to the amounts and types of information that can be used for a forex forecast. The forex forecasts rely on fundamental and technical analysis to focus on either long term or short term currency exchange rates and economic forces. The forex forecast model differs, however, from a fundamental analysis in that it is based on technical information that predicts the points at which a dealer or agent should enter and exit a trade. This is how dealers and agents interpret the unending amount of economic and market cycles to determine points at which one buys and sells a specific monetary unit. In short, a forex forecast is a prediction of entry and exit points in the foreign exchange currency market.
The forex forecast is strongly related to the trends in trade. This is the length of time that a price moves in an upward or downward slope. The price trends tend to be cyclic in their nature, especially over longer periods of time. There also comes a point where the entry and exit price points that develop the trends either support, resist, or create barriers in the action of global currency trading. This is similar to the standard theory of supply and demand—there becomes a point where the value of a product, currency, or stock cannot go higher because there is an abundance of trade. There is also a point where it cannot go lower because there is a succinct lack of trade. The forex forecast models attempts to predict entry and exit points and guide global currency trading towards advancing market trends and wealth.
Global Forex trading works by using information intense models regarding the historical, current, and possible future of the economy based on the strengths of a particular sector or national economy. Individual brokers, global forex trading firms, and banking or financial institutions use the information gathered regarding the economy to make trading decisions. Much of the information comes from financial and government institutions in the same manner that stock trade information comes from the companies the stock is representing. In this manner, the agents and brokers use the information gathered from multiple sources to formulate a global forex trading decision based on the prices quoted by the dealers.
The dealers quote prices based on the predicted and current value per unit of the foreign currency. For example, a quoted price would look like “dollars per unit of yen” if it is between U.S. dollars and the Japanese yen. These dealers are constantly ready to purchase and sell foreign currency through global forex trading. This works almost in the same manner as a standard stock trade. The dealer quotes a bid price they are willing to purchase foreign currency at, and quote a sell price based on their asking quote. So, it would be common to see XX US Dollars bid per unit of yen sold. At this point, the agencies such as the individual trader, financial brokers, and banking institutions make decisions for which currency dealer they will purchase from or sell to based on these bidding quotes.
Global forex trading becomes more interesting when the value of global trading is concerned. The value of the trade is not dictated by the dealer's quoted price, but instead it is determined by the order flow. In this manner, strong and weak currencies are developed based on the difference of the value between the purchase price and the sold price. This customer order flow is used to convey information, where a positive or negative order flow indicates the value of global forex trading.