- Fundamental analysis
- presents an analysis of economic and political status of countries currencies are traded in the market FOREX. The task of fundamental analysis is to assess the possible impact these or other events on the movement of exchange rates.
Since the goods in the currency market FOREX stands, the “quality” of the product depends on the state of economy the host country. From changes in the economy in better or worse depends on the rate of national currency against against foreign currencies.
Traders receive information about various events from news agencies, such as Dow Jones, Reuters, Bloomberg, etc. in real time, and make a decision about buying or selling currencies on the basis of opinion the degree of favorability of news for the economy of the currency. To date, access to this kind of news provided through the company’s broker, which essentially saves the trader, because there is no need install expensive satellite systems to pay for subscriptions to news and translate them into Russian. The company “Akmos Trade provides its clients with access through the trading terminals AFM and Metatrader4To own news feed, which is on efficiency, accuracy and comprehensiveness of information exceeds the available on the market.
To properly regarded incoming information, traders need to know what a newsgroup exist in the market and what impact they have on the exchange rate change. All information can be divided into two main categories:
* Projected factors
* Unpredictable factors
Unpredictable factors are unexpected events in the political arena (Sudden resignation and relocation of major government officials – president, chairman The central bank, finance minister, economy minister, etc.), military action, terrorist attacks or natural disasters. No time for this event, nor the extent of its influence can not be predicted, so these factors are force majeure, unpredictable, and it is unlikely a newbie would venture to work in the market during the strong motion exchange rates caused by such events. In this case the risk is very great, for traders, but only gain experience, much more important to understand the principles of market functioning, producing a calm, measured trade. In the case of the availability of open positions exhibited reasonably warrant such Stop Loss will not allow the trader to lose more in advance of planned amount he has.
Projected factors represent the macroeconomic news. The main difference from unpredictable news is that the trader knows the date and time of release of such news, he knows well predictive value of various published indicators, compiled by experts and market analysts. The main similarity is that it is not always safe to say the strength of the market reaction to the actual value macroeconomic indicator in the event that it is different from the forecast.
To work on fundamental news trader needs to know how the forms of the exchange rate or any other currency. The basis of the exchange rate is the so-called real component, calculated by purchasing power parity purchasing power. To calculate the cost of some calculated the consumer basket in different economic zones and their correlation value is derived “real” rate. People who are not professional economists, use a simplified method of assessing the real part of having a strong correlation with the scientific: they appeal to the “Big Mac Index”. To do this, compare the cost of the Big Mac of McDonald in different countries and get “real” rate. This ratio of the dollar against the ruble at the end of 2008 would equal substantially less than 28 rubles.
But this is only one component of the exchange rate. The second component is the so-called “favorable” exchange rate associated with the fact that the economy is in the positive dynamics. This component is actively made by central banks of countries, using various instruments: reserve requirements, interest rates, foreign exchange intervention and so on. The third component is the contribution of commercial banks’ market-makers, working on the spot market. Their function – to maintain liquidity of its assets and execution of client requests. I must say that the spot market is an interrelation between the buyer and seller in which the calculation to make a deal done in 2 days when the banks’ share “purchased / sold currencies. Contributing, each participant generates the current exchange rate, which we observe in his trading terminal.
Trade based on fundamental analysis makes sense to divide the long-and short-term work. With long-term operations trader is certain models of the economy of various countries and make decisions based on analysis of long-term dynamics of GDP, balance of trade between countries, capital flows, unemployment, labor costs, etc. In this case, the position is opened only a few times a year and kept open for weeks, and even months. With short-term operations of a trader is focused on the moment of release, or waiting for the news on the values of macroeconomic indicators, opens a position several times a month and keeps it open from several minutes to several days.
Information about the output of major market news in the online customers’ Akmos Trade “get through the trade terminals AFM and Metatrader4. And in order to advance focus on the issuance of any indicators that traders use Economic calendar. It is usually published on Sunday for the week ahead. The same calendar is available from the macroeconomic data that grew out of the last period.
In this example, bold news, most expected the market: they can cause strong movements in the market.
Attention is drawn to the column, which indicates the predicted value. If the actual value will be much different from looking at the most important indicators for the market participants can expect strong movement in that direction, which indicates the indicator.
Illustrated by the reaction of exchange rates on the yield important economic news is available at the following example (Fig. 1).
At 19:15 GMT on 16 December 2008 the Fed (U.S. central bank) decided to lower the official interest rate by 0.75% to 0.25%. Market participants interpreted this as a very negative news for the dollar and began actively to sell. As a result, within only a couple of hours, such as the euro rose against the U.S. dollar in more than 300 points.
Fig. 1. EUR, the growth rate in connection with news, adverse U.S. Dollar
Macroeconomic indicators are divided into groups:
* Economic growth in the industrial sector
* Monetary sector
* Inflation rates
* Unemployment rates
* Housing construction and housing market
* International trade relations and balance of payments
* Indicators of consumer confidence
* Indicators of business activity
* Budget deficit
In each group there are indicators that a strong impact on the market. In the monetary sphere, this discount rate securities, that reflect the value of money within the country. Interest rates, which are called in different countries in different ways, in fact, represent the interest that commercial banks pay for the use of credit extended to them The central bank. High interest rates attract investors willing to place funds in an asset this country for higher dividends, and this leads to additional demand for this currency, and it in the short or long term, will be strengthened against other currencies. But we must consider interest rates in different countries, not only comparing the absolute values, but also tracking the dynamics of their changes, as this difference in interest rates, the so-called interest rate differential that creates additional demand for currency with a higher interest rate and leads to currency movements.
Indicator of monetary policy of the state – the Central Bank discount rate – is very strong and important indicator of for market participants, so often the players are looking at other economic indicators signal a possible increase / decrease in interest rates. Such an indicator in favor inflation, which is a major cause of rising rates. With rising inflation the Central Bank tightens monetary policy of the state, increasing the value of money in the domestic market, which in turn reduces the velocity of money in the economy, reducing the money supply in circulation and suppresses inflation. To reduce the interest rate the Central Bank receives signals in the form of deterioration with economic growth, declining levels of industrial production, rising unemployment. Therefore, traders are fundamentalists analyze not only how good or bad data coming out of a particular area, but also create some picture of the economy, macro-economic pattern of the state or economic zone.
Work using fundamental analysis is quite difficult – you must have a basic knowledge in macroeconomics, but traders wishing to trade the forex market, your business can give this subject worthy of attention if only to understand how the market FOREX.