Foreign Exchange Market, FOREX, is an international exchange market where currencies
from all around the world are traded. FOREX trades are always done in pairs,
for example, USD/Euro, USD/JPY, Euro/JPY, GBP/CHF, and CAD/USD. United States
dollars, Australian Dollars, Japanese Yens, British Pounds, Swiss Francs, Canadian
Dollars, and the Euro Dollars are the seven major currencies traded nowadays.
With an average of $1.9 trillion daily turnover, FOREX stand as the largest
trading market in the world.
Regardless of its bulky volume of trades done daily, FOREX is relative new
to the world where the market begins at 1971 and it’s only made available
to the publics since 1998. Currencies like USD and Swiss Francs were backed
up by gold previously. Unlike in the early days when it required huge investment
to start FOREX trading, it is now an easy trading business that trades can be
done with just a computer with Internet access and an active FOREX account.
With the rise of Internet technology, FOREX trading had become an alternative
for those who are seeking financial freedom without the hassles of a conventional
job.
More than 70% of FOREX traders lose money in FOREX market as they traded blindly.
FOREX trading involves a lot of risks thus a well-designed analysis method is
a must. To reduce these risks to the minimum, FOREX traders, like traders in
any other market, implement Technical analysis and Fundamental analysis in their
trades.(For newbies, start learning Forex trading here.)
The Fundamentals
Fundamental analysis basically means studies of surrounding events that affect
the market trends. For example FOREX market, fundamental traders will consider
events and situations that will affect the value of a country currency value.
These factors include the local bank policies, political states, country growth
rates, natural disasters, market speculator’s mood, terrorism attacks,
and wars.
The fundamental is commonly known as no-number analysis where traders are investing
solely on their personal reviews on one-country economy trends. Fundamental
traders normally review a country economy’s situation base on these fundamental
elements and respond accordingly. Generally speaking, natural disasters and
unstable political state poison a country’s economy; thus currency value
drops. Vise versa, if a country is basically free of natural disaster, and it’s
showing a steady economy growth rate, currency of the country will be strong.
In FOREX market, it would be difficult to trade solely based on fundamental
analysis as it only provides an overall view on the market condition. Numeric
data and graphs are much needed to give a more accurate estimation on the market
movement. This will lead our discussions to the second type of analysis method
– the Technical.
The Technical
Quoted from one of the FOREX well-established website, www.Forex.com, Technical
analysis is “a method of forecasting price movements by looking at purely
market-generated data.” (Well, at most of the time, this market-generated
data means the price of the currency) The analysis is done base on the concept
of ‘history repeats itself’ and thru comparing present situation
with the past, technical analysis is quite effective in drafting out the entry/exit
price indicator.
Price charts are often the only item a pure technical trader concerns in. Through
patterns of charts, various indicators will be generated and used for planning
the investment tactic. A few well-known indicators for FOREX traders are strength
indicator, momentum indicator, and volatility indicator. Technicians strongly
believe currency price (or any other market numeric data) moves in trend and
it will always follow a pattern similar to the past.
Although the methodology looks secure with proven tracks in the olden times,
it would be relative unsafe to trade FOREX purely base on technical analysis.
The future does not equal with the past. There are a lot of unexpected variables
that technical analysis does not reflect on: change of country leaders, change
of government, natural disasters, change of bank policies, investor’s
mood, war-- all these factors affect currency value directly and might not have
happened before in the past. A combined of two approaches (fundamental and technical)
is always encourage to get the optimum plots on your investment plan.
FOREX can be extraordinarily beneficial to a variety of people. It gives huge
leverage rates, it gives incompatible liquidity to your money, it gives convenience
to trade on the Internet, and it can definitely give you a lot of money if you
trade smartly. Like any other trading business, if you are new to it, best advice
you can get is to learn and practice more before you test your ‘wings’.
Seminars, eBooks, Internet, papers, video courses – all these are handy
to get yourself ready. You can also try out your skill on the demo account provided
free. After all, FOREX trades 24hours a day and there is always money to make
in the market, so why not be patience until you are fully ready for it?
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