Forex Is The Largest, International Stock Exchange Of Currency
The main difference of Forex fundamental analysis from the technical analysis consists that the fundamental analysis is grounded on position: the prices of currencies in the Forex market are reflexion of a supply and demand which in turn depend on fundamental factors of economy.
Followers of the technical analysis assert that in changes of currency it is not necessary to search for the reason at all and it is enough to analyze the prices. It is supposed that it is impossible to find the reason of change of the prices before the market itself will already have time to include it in the price. The technical analysis in most cases is engaged in shorter time intervals, from minute to the week. On these intervals (timeframes) the fundamental analysis, except for its one variety (trade on news) is almost useless, as the fundamental data usually quits once a week, month, quarter.
However if the analysis purpose is forecasting of intermediate term and long-term forecasts in the Forex market here it becomes already necessary to carry out the researches, concerning the internal, depth reasons of change of exchange rates. Only such type of the analysis will give the chance to estimate perspectives of dynamics of a supply and demand on currencies. Besides, such approach will give the chance to the investor not to consider short-term oscillations – market noise.
The main disadvantage of Forex fundamental analysis is its complexity. It is simply enough at necessary skills to observe 10-20 interrelations caused as consequence of change of the unique fundamental metric, but in a case when fundamental metrics appears 50 only on one country, each of which has relationships of cause and effect from many these links contradict each other or are reflexive, then to you is already required the small research and development center. For this reason Forex fundamental analysis at decision-making use by various estimations of 10-20 % of traders, and the most part from them knows it superficially.
Besides, as it was told above, the fundamental analysis is almost useless for short-term trade, so its usage superimposes limitations on size of your resources. It can simply not suffice money to you for current losses on an open position in some figures (or installation of far stop orders), which is possible at trade on intermediate term trends.
The metrics influencing the Forex market and forming a supply and demand on currency, it is possible to divide into some groups:
- Metrics of movement of the trading and investment capital:
These metrics characterize, what was and can be a supply and demand on currency from outside institutes, which are carrying out export-import transactions.
- Trading balance;
- Balance of current scores;
- Balance of capital scores;
- The balance of payments.
- The metrics characterizing a state of the financial market of the country:
These metrics characterize potential and current profitability of investment institutes in the actives nominated in national currency, and accordingly and flowing or a potential demand for this currency from outside investors in share actives and actives with the constant income (bank deposits, the state and corporate bonds).
- Dynamics of share indexes;
- The sum of the placed bonds of exchequer of the USA and the rate and dynamics of size and the allocation rate;
- Dynamics of profitableness under intermediate term and long-term state securities;
- Dynamics of interest rates in the interbank credit market;
- Dynamics of rates under Mortgage credits.
Before you make up your mind to make a forex investment or start forex trading yourself, better find a good forex book and learn more about foreign currency trading market – this will save you from lots of troubles and traps.