Forex Tips - Understand Fundamentals Before You Trade

By Mark Green

I view fundamentals as a technique of qualitative analysis of economic situations and events that affect a countries currency, it is not easy to master by any means; it deals with a lot of underlying effects and consequences of decisions from the central bank, government and political news, major bank policy changes, major economic events, and world trade news and how this information from different sources may change money market decisions in the forex.

For the beginning trader who would, and rightfully so, just want to plunge into the forex market ready to trade, it can be daunting to learn. That said any good trader will tell you that it would not be wise for any forex trader beginner or otherwise to completely neglect this method to analyze forex market currency pairs and that to truly excel you really must understand both fundamental and technical analysis techniques. Hopefully this article may change your perspective on the techniques and how they are used.

The most important indicators in fundamental analysis are: the country's interest rate, employment figures - which are usually publicly released every quarter but this may vary by country, trade balances; budgets; which are both normally released at the end of every fiscal year, and GDP (gross domestic product) figures. As all currencies of the world are controlled by the central banks of their respective nations, fundamental analysis aims to measure the supply and demand of a currency using the indicators I mentioned earlier. Also calendars of various economic events that can affect a nations currency prices are available all over the internet for discerning scrutiny; this is a good place to start for a fundamentalist.

Having used these indicators and determined interest rates, a trader may open a position(s) where they will sell the currency of a country in which its central bank has lowered the interest rates or whose interest rates are declining; and then buy a currency of a country in which the interest rates are high or are climbing. Interest rate changes last for as long as they are in effect hence the question of time and intervals as in technical analysis is unheard of by fundamentalists. Big investors take full advantage of this and go a step further and buy a country's depreciating economy's currency at a low price, and then fund that nation's boom by investing heavily in industry knowing labor and costs are significantly low, then to top it all up as if they were masters of a flawless symphony, sell the currency back when the economy picks up (boom-to-bubble) at high prices.

In conclusion if you understand the underlying reasons of why a nation's currency trend is moving in a particular direction based on information you derive from comparing money supply (i.e. inflation rates) with previous baseline periods, interest rates of major global economies, and analyzing balance of payments of the nation whose currency you wish to trade in, you will be able to tell when to enter, participate and exit from a bubble early before it destructs. I hope this article has bettered your understanding of fundamental analysis and that you found it informative and useful. - 23309

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China Economy Becoming The Biggest

By Michael Swanson

The question of how much the China economy is growing is an important one for the entire globe. Because all our economies are global now, changes in one will necessarily affect the others. China stocks are going up.

The GDP of China is increasing at a rate of 10% per year. Along with this growth, China has been buying up all the natural resources it can. There is concern that this is hurting other countries by limiting available resources. In any case, control of natural resources has always heavily influenced the global economy.

When considering the strength of a particular economy, one measure is not enough. In the case of China, you can also look at the ratio of government debt to that growing GDP. For China, this ratio is only 20%. Especially when you compare this to the same ratio in the U. S. Which is 60%, you can appreciate how much stronger this makes the Chinese economy.

The growth in the economy in China does come with some concerns. For example, it could create the same kind of bubble that has been experienced in the West. With money flooding the economy, inflation may rise, and consumers may start spending beyond their means and overextending themselves on credit. The result could well be the economic crisis currently experienced, especially in America.

There is also concern over the market for Chinese goods. The downturn in the Western economy has resulted in fewer imports from China. China will not be able to continue to grow at its current rate without a viable marketplace for its products.

For America, this is a good thing because China holds more American debt than any other nation. If China chose to sell their American bonds, the effect would be disastrous. However, as this would also spell disaster for Chinese exporting, this is unlikely to occur.

Suffice it to say that, at present, the China economy is growing and will likely continue to do so. For how long it can continue is going to depend, at least partially, on the global economy. - 23309

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