What is Fundamental Analysis?

What is Fundamental Analysis?

Fundamental analysis is based on the theory that the market price of an asset tends to move towards its intrinsic (or “real”) value. Fundamental analysis is the actual method used to try to predict the intrinsic value of an investment.

In Forex trading, fundamental analysis entails predicting the price valuation of a currency and its market trends. This is done by analyzing current economic conditions, government policy and social factors within a business cycle framework. In order to accurately analyze the market, traders gauge a country’s economic state by examining macroeconomic indicators covering:

• Interest Rate Announcements
• Gross Domestic Product (GDP)
• Consumer Price Index (Inflation) and Spending Indicators
• Employment Indicators
• Retail Trade and Consumer Confidence
• Balance of Trade Surplus or Deficit
• Government Fiscal and Monetary Policy

Main Macroeconomic Indicators

There are many economic indicators and private reports that can be used to assist in evaluating the fundamentals of Forex. In order to successfully utilize these to your advantage, a trader should understand what the indicators are, what their figures mean and what effect these figures have on a country’s economy.

Macroeconomic indicators are published regularly by government agencies and the private sector. These statistics indicate the current status of the economy on a particular area of the economy – such as industry, labor market, trade, etc.

In order to assist our traders with effective market analysis, Trader24 offers all our users use of an Economic Calendar. This calendar details dates of critical fundamental announcements and events. When the calendar is correctly used, it can be a valuable resource for any Forex trader. In fact, most seasoned traders follow these dates and events carefully to assist them in their daily trades.

Once the macroeconomic indicators have been published, we are then able to observe the volatility of the market.

Interest Rate Announcement

Interest rate plays the most important role in moving the prices of currencies in foreign exchange markets. Central banks (the institutions that set interest rates) are therefore the most influential factors. As currencies are the representations of a country’s economy, differences in currencies affect the value of currencies in relation to each other. When banks change interest rates, this has a direct impact on the Forex market’s movement and volatility. As these factors have such a large impact on a Forex trader’s trading patterns, accurate speculation of the central bank’s actions can significantly increase a trader’s chances of a successful trade.

Gross Domestic Product (GDP)

The Gross Domestic Product (GDP) represents the total market value of all goods and services produced in a country during a given year. It is the broadest measure of a country’s economy.

Given the fact that GDP is considered a lagging factor, most traders focus on two (2) reports – issued in the months prior to the final GDP figures – the advance report and the preliminary report. If there are significant revisions between these two reports, considerable volatility can be expected.

Consumer Price Index (CPI)

Probably the most crucial indicator of inflation is the Consumer Price Indicator (CPI). Inflation is tied directly to the purchasing power of a currency and affects the country’s standing on the international market. The CPI represents changes in the level of retail prices for the basic consumer – if an economy has developed in “normal” conditions, an increase in CPI can lead to an increase in basic interest rates; an increase in basic interest rates, in turn, leads to an increase in the attractiveness of a currency.

Employment Indicators

Employment indicators play an important role in measuring the attractiveness of a currency, as this reflects the overall health of an economy or business cycle. A healthy economy is one where good numbers of jobs are being created, a large percentage of the workforce is actively working, smaller numbers of new people are declared unemployed, etc. In order to accurately measure the health of an economy, it’s important to have a clear understanding of the employment indicators. Further to this, the rate and speed at which wages increase are also a good indicator of the health of an economy.

Retail Sales

The retail sales indicator (released monthly) is an important factor for a trader to consider as it shows the overall strength of consumer spending and the success of retail stores. The report can be used to predict the performance of indicators and to assess the immediate direction of an economy.

Balance of Payments

The Balance of Payments represents the ratio between the number of payments received from abroad and the number of payments going abroad. In other words, it shows the total foreign trade operations, trade balance, and balance between export and import, transfer payments. If the coming payment exceeds payments to other countries and international organizations the balance of payments is positive. The surplus is a favorable factor for the growth of the national currency.

Government Fiscal and Monetary policy

A government aims to achieve a stabilization of an economy through manipulating fiscal and monetary policies. A stable economy is considered to be one with full employment, control of inflation and an equitable balance of payments. Fiscal policy relates directly to expenditures and taxes; whereby monetary policy relates to financial markets and the supply of credit, money and other financial assets.

How to Choose a Forex Broker?

TopAsiaFx.com helps you compare and choose your preferred Forex Broker. We suggest keeping the following checklist in mind when making your decision:

• Is the Forex Broker regulated?
• Account Details: Ideally, your broker should offer either a selection of account types or some element of customizability. Competitive spreads and easy deposits/withdrawals are good indicators too.
• Number of Currency Pairs offered: The variety of currency pairs on offer, as well as the quantity, should be considered (the more of both, the better).
• Availability of Customer Service.
• Quality of the Trading Platform: look for a platform that is easy to use, straightforward and offers a collection of technical and analytical tools to enhance your trading experience.

Rank	Broker Name	Special Offer	Minimum Deposit	Spread	User Score	Maximum Leverage	Regulation	Start Trading
1	NordFX	55% Deposit Bonus	$10	0.0 Pips	96	1:1000	VFSC	Open Account
2	SGT Markets	Refer a friend $10	$500	0.0	95	1:400	IFSC	Open Account
3	OctaFX	50% Deposit Bonus	$100	0.4	94	1:500	IBC	Open Account
4	Exness	No	$1	0.1	93	1:2000	FCA,CySEC,IBC	Open Account
5	IC Markets	No	$200	0.0	92	1:500	ASIC	Open Account
6	Tickmill	$30 Welcome  Account	$100	0.0	91	1:500	FSA,FCA	Open Account
7	Axiory	$50 Deposit Bonus	$200	0.0	90	1:400	IFSC	Open Account
8	Justforex	100% Deposit Bonus	$1	0.0	89	1:3000	IFSC	Open Account
9	ThinkMarkets	No	$250	0.4	88	1:400	ASIC,FCA	Open Account
10	XM	$30 Welcome Account	$5	0.0	87	1:888	ASIC,FCA,IFSC	Open Account
11	FBS	$50 Welcome Account	$1	0.0	86	1:3000	IFSC	Open Account
12	HotForex	No	$5	0.0	85	1:1000	INC	Open Account