These include: (a)economic policy, disseminated by government agencies and central banks, (b)economic conditions, generally revealed through economic reports, and other economic indicators.
Economic policy comprises government fiscal policy (budget/spending practices) and monetary policy (the means by which a government's central bank influences the supply and "cost" of money, which is reflected by the level of interest rates).
Economic conditions include:
Government budget deficits or surpluses
The market usually reacts negatively to widening government budget deficits, and positively to narrowing budget deficits. The impact is reflected in the value of a country's currency.
Balance of trade levels and trends
The trade flow between countries illustrates the demand for goods and services, which in turn indicates demand for a country's currency to conduct trade. Surpluses and deficits in trade of goods and services reflect the competitiveness of a nation's economy. For example, trade deficits may have a negative impact on a nation's currency.
Inflation levels and trends
Typically a currency will lose value if there is a high level of inflation in the country or if inflation levels are perceived to be rising [. This is because inflation erodes purchasing power, thus demand, for that particular currency. However, a currency may sometimes strengthen when inflation rises because of expectations that the central bank will raise short-term interest rates to combat rising inflation.
Economic growth and health
Reports such as GDP, employment levels, retail sales, capacity utilization and others, detail the levels of a country's economic growth and health. Generally, the more healthy and robust a country's economy, the better its currency will perform, and the more demand for it there will be.
Productivity of an economy
Increasing productivity in an economy should positively influence the value of its currency. It affects are more prominent if the increase is in the traded sector
Six Steps for the Forex Success
Step 1. Choose an online Forex Firm
What to look for in an online Forex Firm:
1. Low Spreads.
In Forex Trading the ‘spread’ is the difference between the buy and
sell price of any given currency pair. The lower the spread saves
the trader money. Most firms offer 4-5 pip spreads in the Major
Currency pairs. The best firms offer clients 3-5 pips.
2. Low minimum account openings.
For those that are new to trading, and for those that don’t have
thousands of dollars in risk capital to trade, being able to open a
mini trading account with only $200 is a great feature for new
traders.
3. Instant automatic execution of your orders.
This is very important when choosing a Forex firm. You want instant
execution of your orders and the price you see and ‘click’ is the price
that you should get. Don’t settle with a firm that re-quotes you when
you click on a price or a firm that allows for price ‘slippage’. This is
very important when trading for small profits.
4. Free charting and technical analysis
You need a firm that gives you access to the best charting and technical
analysis available to active traders. The firm that I recommend gives
clients FREE professional charting services and even allows traders to
trade directly on the charts!
5. High Leverage
You want high leverage—the ability to trade a large amount with a small
margin deposit. Some of the best firms offer .25% or 400:1 leverage.
6. Hedging Capability
You want the flexibility of opening positions on the same currency pair in
opposite directions without them eliminating each other and without
margin increase!
What to look for in an online Forex Firm:
1. Low Spreads.
In Forex Trading the ‘spread’ is the difference between the buy and
sell price of any given currency pair. The lower the spread saves
the trader money. Most firms offer 4-5 pip spreads in the Major
Currency pairs. The best firms offer clients 3-5 pips.
2. Low minimum account openings.
For those that are new to trading, and for those that don’t have
thousands of dollars in risk capital to trade, being able to open a
mini trading account with only $200 is a great feature for new
traders.
3. Instant automatic execution of your orders.
This is very important when choosing a Forex firm. You want instant
execution of your orders and the price you see and ‘click’ is the price
that you should get. Don’t settle with a firm that re-quotes you when
you click on a price or a firm that allows for price ‘slippage’. This is
very important when trading for small profits.
4. Free charting and technical analysis
You need a firm that gives you access to the best charting and technical
analysis available to active traders. The firm that I recommend gives
clients FREE professional charting services and even allows traders to
trade directly on the charts!
5. High Leverage
You want high leverage—the ability to trade a large amount with a small
margin deposit. Some of the best firms offer .25% or 400:1 leverage.
6. Hedging Capability
You want the flexibility of opening positions on the same currency pair in
opposite directions without them eliminating each other and without
margin increase!
Posted by
Raja Sohail Ahmed
Double Impact of the Interest Rates on Forex
The interest rates, set by the world’s central banks, are widely used in the Forex trading. Their changes are monitored by the traders and investors because the interest rates determine the fundamental value of the currencies. It’s important for every Forex trader to understand the impact of the interest rates on the currencies he trades on. It’s easy to find the interest rate table to know their latest values, but how to interpret them?
In general, the higher the interest rate associated with the currency is, the better it’s for that currency. Higher interest rates attract investors, because they offer a higher yield. Forex traders prefer buying high-interest currencies versus the low-interest ones to gain the difference yield (such trading technique is called carry trade).
On the other hand, the lower interest rates are usually more popular among the traders when the global volatility rises and the world’s financial system experiences problems. The current financial crisis shows that the currencies with the lower yield are the favorites, because they are less risky than he high-yielding ones.
So what to do and how to react on the interest rates? The volatility index (VIX) is a good tool to measure the global interest rates preference. If it’s below the «normal» level of 30%, the high interest rates act as the attractors and the currencies that have high yield grow. If the index jumps up above that level, the traders prefer to move into the less risky assets and the low interest rate currencies gain.
In general, the higher the interest rate associated with the currency is, the better it’s for that currency. Higher interest rates attract investors, because they offer a higher yield. Forex traders prefer buying high-interest currencies versus the low-interest ones to gain the difference yield (such trading technique is called carry trade).
On the other hand, the lower interest rates are usually more popular among the traders when the global volatility rises and the world’s financial system experiences problems. The current financial crisis shows that the currencies with the lower yield are the favorites, because they are less risky than he high-yielding ones.
So what to do and how to react on the interest rates? The volatility index (VIX) is a good tool to measure the global interest rates preference. If it’s below the «normal» level of 30%, the high interest rates act as the attractors and the currencies that have high yield grow. If the index jumps up above that level, the traders prefer to move into the less risky assets and the low interest rate currencies gain.
Posted by
Raja Sohail Ahmed
Baseline Trader
Its been a long time since posted. On 16 July 2008 that is my birthday, a friend of mine call me up and gave me a birthday present. He said that I should short GBP/USD no matter what. Guess what, till today GU has moved down 2500 pips. Talk about a good birthday present. Thanks Abbas.
I will be posting a short term trading strategy soon. I called it Baseline Trader. It is a short term trade strategy couple with a good money management will give you good result. It is because the high win trade ratio.
In the mean time just sit back and enjoy my birthday present
I will be posting a short term trading strategy soon. I called it Baseline Trader. It is a short term trade strategy couple with a good money management will give you good result. It is because the high win trade ratio.
In the mean time just sit back and enjoy my birthday present
Posted by
Raja Sohail Ahmed
Learn Fundamental Analysis 7
Continues a series of publications devoted to the study of fundamental analysis of the international currency market (FOREX).
In the previous issue, we examined the relationship between public deficits and exchange rate changes using a simple model describing the mechanism of exchange rate changes in long and medium term.
Today we will examine the relationship of international trade and exchange rate changes, using all the same simple model.
International trade and currency
There is widespread opinion that the trade surplus - it was good, and the negative - a bad thing. Also often considered necessary to support domestic producers who can not withstand the competition from cheaper imported goods, as well as be promoted exit of domestic producers to international markets, and winning them a leading position.
The ultimate goal of government policy in relation to these processes is not an impact on exchange rates in order to achieve their specified levels. It is assumed that all such activities must lead to an increase in the welfare of the subjects of the national economy as a whole. Changes in exchange rates may also serve as a tool of this policy, and just be a byproduct of its effect.
However, understanding these macroeconomic processes, properly identifying the main trends in foreign exchange rates, with information, foreign trade policy which tends to hold the government of a country.
In the previous issue, we examined the relationship between public deficits and exchange rate changes using a simple model describing the mechanism of exchange rate changes in long and medium term.
Today we will examine the relationship of international trade and exchange rate changes, using all the same simple model.
International trade and currency
There is widespread opinion that the trade surplus - it was good, and the negative - a bad thing. Also often considered necessary to support domestic producers who can not withstand the competition from cheaper imported goods, as well as be promoted exit of domestic producers to international markets, and winning them a leading position.
The ultimate goal of government policy in relation to these processes is not an impact on exchange rates in order to achieve their specified levels. It is assumed that all such activities must lead to an increase in the welfare of the subjects of the national economy as a whole. Changes in exchange rates may also serve as a tool of this policy, and just be a byproduct of its effect.
However, understanding these macroeconomic processes, properly identifying the main trends in foreign exchange rates, with information, foreign trade policy which tends to hold the government of a country.
Posted by
Raja Sohail Ahmed
