Fundamental
Forex analysis is an important part of forex trading. Fundamental
Forex analysis is basing the valuation of an asset on important
economic reports. In forex trading, it refers to these reports as
economic indicators. Comparing the employment reports from two
countries and making a forex trade based on that information would be
an example of using fundamental forex analysis. Fundamental Forex
Analysis is basing on the analysis of economic, social and political
movement. At fundamental analysis, a forex trader must look at what
country is going on good position and what country is going on bad
position. If a country is going on good position than the currency of
that country is in good position.
Fundamental
Forex traders use information about the global and national economics,
and the financial state of the companies involved, as well as non
financial information such as current political and weather information.
Fundamental Forex traders believe that the Forex market will react to
events in certain ways and that they can predict future Forex market
prices based on these events.
For
example, a Forex Trader for a given currency pair studies the supply
and demand for the country's currency, products or services; its
management quality and government policies; its historic and forecasted
performance; its future plans and the most important for the shorter
term, all the economic indicators.
From
this data, the Forex Trader constructs a model to determine the
current and forecasted value of a currency pair. The basic idea is that
unmatched increases in supply tend to depress the currency value,
while unmatched increases in demand tend to increase the currency
value. Once the Forex Trader estimates natural value, he compares it to
the current exchange rate and decides whether the currency ought to
rise or fall.
Fundamental
forex traders need access to all of the available information as soon
as it is available, and are therefore often institutional forex traders
with large support teams, rather than individuals. Fundamental
Analysis has probably been in use since there were markets to trade,
and has traditionally been done manually, but as computing power
increases it has become possible for some fundamental information to be
processed automatically.
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