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Exchange Trading

Fx Fundamental Analysis: How The Economy Affects Fx Trading

There are basically two types of currency exchange trading: forex fundamental analysis and technical analysis. There is a lot of debate about which is better. In fact, both are important.

The simplest way of looking at these two methods of analyzing the market is to say that fundamental analysis considers the world economy while technical analysis looks at charts. In this article we will consider the different fundamental or economic factors and how they can affect your trades.

It will be clear to anybody who has even the most rudimentary understanding of the currency markets that a nation’s economic status will have an effect on the value of that nation’s currency. A healthy economy means a strong currency, just as a company’s stocks will rise in value when that company is doing well.

Any time that a major financial or economic report is due from one of the main players in the world economy, you can expect to see an effect on the foreign exchange markets. This includes reports of the country’s Gross Domestic Product, statements of the national debt, inflation, employment levels and trade deficits. Many of these reports are given out regularly at predetermined times and dates, and you will see a lot of volatility in the forex markets around those times.

It is very important to keep track of when these reports are due, not only in your own country but in all of the countries whose currencies you regularly trade. You cannot rely on national newspapers and television for this. They do not carry international economic news at a sufficiently detailed level. You need specialist publications. Many people use the internet for this purpose.

However, it is not only the economy that counts. Social and political forces also have a strong influence on a nation’s currency values. Events such as an election, civil unrest, or a natural disaster can cause fluctuations in values.

Some of these events are difficult or even impossible to predict, but you can still base trades around what is likely to happen after the event. You can use historical analysis to see what happened in the currency markets the last time there was a similar event.

If you want to base your trading around fundamental analysis of the forex markets you will need to be the type of person who enjoys following the financial, political and economic news.

The alternative is to use information about upcoming events to avoid trading at those times. People who prefer to rely mainly on technical analysis will do this. But you still need to know what is happening, in order to keep out of the market. So even for somebody who prefers basing their trades on charts, forex fundamental analysis is important.

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Tuesday, June 23rd, 2009 Economic Conditions No Comments

How To Find A Forex Trading Broker

One essential that you must have when beginning currency exchange trading is an account with a forex trading broker. The broker is your link into the markets and will cover you to trade margins.

But how do you go about selecting a good one? Here are 5 points to take into account when you are shopping around for forex brokerage accounts.

1. Reliability

This operates on several levels. Firstly, of course, you want a broker that you can trust, who will not suddenly disappear from the internet along with all of your money. The forex market is broadly speaking unregulated, so there are a huge number of brokers and some are more trustworthy than others.

Your first step is to check that the broker is regulated. In the USA this means that you want a broker who is registered with the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA). Look for a forex broker with a clean record in any complaints logged against them on the NFA site. Other countries have their own regulatory bodies.

Then you need to think about whether the broker’s platform is reliable. This is their software that you will connect with whenever you want to trade. If it is often offline, it is likely to cause problems for you. You could miss out on either opening or closing a trade at the best time. Check forex trading forums for feedback from users on this point, although be careful not to be swayed either way by a single individual who may have his own reasons for being strongly for or against a particular broker.

2. Services

The forex markets are open 24 hours from Sunday night to Friday afternoon EST. Check that your broker’s trading platform is available all of this time (most are) and that they offer 24 hour customer support on trading days too.

Check that they cover at least the seven major currencies USD, AUD, CAD, GBP, EUR, CHF, JPY. Again most will, but it is worth being sure.

A broker should offer you charts, technical analysis, and instant execution of your orders at the displayed price.

3. Costs

Forex brokers do not charge commission but make their money from the spread, which is the difference between the buy and sell prices on any currency pair. Spread can be anything from 1 pip or less, up to about 3 pips, depending on the broker and the pair.

The size of the slice taken by the spread can make the difference between profit and loss in your trading account in the long term so look closely at this. If you know which pairs you are likely to trade most often, the spread on those pairs will be more important to you than others. At the same time, do not be drawn in by a special offer that may not last long once you have committed your funds.

You also need to consider how much is the minimum that you can invest. Most new traders are best advised to start small, so look for a broker who will let you open an account with $250 or less.

4. Margins

Margin requirements can vary a great deal from broker to broker. A lower margin requirement means higher leverage, and higher leverage gives you greater profits or losses on the same fund size. So low margins seem great when you are doing well, but losses will be bigger if things go badly.

5. Lot size

Lot size can vary from one broker to another. Generally 100,000 units of currency is a standard lot, 10,000 is a mini lot, and 1,000 is a micro lot. Some brokers offer fractional lots which give you more power to set your own lot size. This could be a bonus or just an added complication.

There are other considerations including the interest paid on your margin account, rollover charges and other policies. However, these are the main points that you should be looking out for when choosing a forex trading broker.

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Saturday, May 23rd, 2009 Brokers No Comments