There are two major methods for trading forex: fundamental and technical.
Fundamental analysis relies upon a broad and near-expert understanding of multi-national macroeconomic statistics and events.
Fundamental traders believe that the value of a pair is determined by the underlying health of the two nations involved in the pair. A high value for
GBPUSD, for example, would suggest a better economic outlook in Britain vis-à-vis the United States. Global events like news, catastrophes, politics or economic shocks all play a role in determining price.
Technical analysis is based on the mathematical analysis of price, and of many variables which all derive from price. Technical traders believe that technical indicators include fundamental analysis and also provide repeatable, tradable patterns. Technical traders use charts to determine support and resistance, draw trend lines, or analyze measures like moving averages, etc.
camp you belong to determines your trading approach. A fundamental trader may take the Warren Buffet approach and buy-and- hold a pair, expecting long term returns. A technical trader may play long term as well, but usually day trades. Some fundamental traders trade on news, which may just be certain days of the month.
Showing posts with label FOREX. Show all posts
Showing posts with label FOREX. Show all posts
Sunday, March 28, 2010
What is forex?
Forex is the foreign exchange marketplace where currencies from different countries are valued and exchanged. Most people only know about forex to the extent that they have changed money going from one
country to another. When they did so, they unwittingly played a role in the world’s biggest marketplace. Forex trades almost $2 trillion per day, a
total that exceeds all of the world’s biggest – and better known – markets.
Since currencies are valued differently, there is a market in place to set those values. Where a market exists speculation inevitably follows. In this case, the market is hyper-active. Banks sending deposits around the
world, corporations hedging their exposure to currency risk in different
countries, government banks forwarding national economic goals through monetary policy, and massive investment funds playing the role of speculator. Not long ago, that was the extent of the market. It was the domain of the professional trader or banker.
The word “market” usually invokes the idea of a central market place like the New York or London exchanges. This is not the case in forex. Instead, forex functions through what is known as the “interbank” market. Interbank is a fancy way of saying that banks trade with each other, absent a central market place. This is one major reason why volume data is not available for forex. It’s also the reason why retail investors and smaller traders were left on the sideline for so long.
In the 90’s, a series of events unfolded that made forex available to retail investors. Deregulation led many companies to form pools of liquidity where retail investors could take advantage of the huge speculative opportunity in forex. These dealers offered high leverage, low minimums, and a new way to trade
country to another. When they did so, they unwittingly played a role in the world’s biggest marketplace. Forex trades almost $2 trillion per day, a
total that exceeds all of the world’s biggest – and better known – markets.
Since currencies are valued differently, there is a market in place to set those values. Where a market exists speculation inevitably follows. In this case, the market is hyper-active. Banks sending deposits around the
world, corporations hedging their exposure to currency risk in different
countries, government banks forwarding national economic goals through monetary policy, and massive investment funds playing the role of speculator. Not long ago, that was the extent of the market. It was the domain of the professional trader or banker.
The word “market” usually invokes the idea of a central market place like the New York or London exchanges. This is not the case in forex. Instead, forex functions through what is known as the “interbank” market. Interbank is a fancy way of saying that banks trade with each other, absent a central market place. This is one major reason why volume data is not available for forex. It’s also the reason why retail investors and smaller traders were left on the sideline for so long.
In the 90’s, a series of events unfolded that made forex available to retail investors. Deregulation led many companies to form pools of liquidity where retail investors could take advantage of the huge speculative opportunity in forex. These dealers offered high leverage, low minimums, and a new way to trade
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