Foreign Exchange Fundamentals: How To Act On Forex Events And How To Predict Their Effects On The Currency Markets

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If you wish to earn money in the forex market then you will have to know foreign exchange basics. You may have a good analytical knowledge of trends and charts but it is also essential to understand the foundation on which the currency trading markets are based. If you do not, you could enter a trade at exactly the false point.

The currency markets are heavily influenced by national and international news and current affairs. This above all relates to financial news but other major events can have an effect too. These may be expected or unexpected.

For example a catastrophe such as a severe earthquake or terrorist attack is usually unpredictable but could have an impact on currency values. There is not much you can do about this except always to be sure to use stop losses.

A more predictable event would be the announcement that the Olympic Games will be held in a certain country. This could boost trust in that country's economy and lead to a rise in the value of its currency. At the same time the other major contenders for the Games may suffer a drop in currency values. So it is essential for a trader to know when an announcement like that is expected, and which countries are involved.

Similar situations are the economical reports that are released almost daily in many countries. Less frequently, but usually foreseeable, there will also be announcements about interest rates, inflation, gross domestic product and other matters of national economic importance.

Try to avoid trading on rumors. You might see news reports or hear other traders speculating that an announcement will move markets one way or the other. Do not trade on the basis that they are right. First because they still could be wrong, and second because if it is such a sure thing, the price has probably already changed to take into account the rumors and you will not gain much even if they are right.

Keep in mind that you are always trading on two countries' currencies, not just one. If your own country is one of them, you will have much easier access to financial reports for that currency and it is easy to forget to check on events in the second country. This is particularly true for Americans because dollar news tends to dominate the forex alerts anyway. It is even more true if you are trading the dollar against a minor currency. You may have to take necessary steps to make sure that your information is not one-sided.

Even if you are just a beginner forex trader, it is vital to keep in mind these aspects of fundamental analysis for the forex market. Exiting the market before any major announcement is usually the best move for a beginner. As you become more experienced you may develop a strategy based on this kind of fundamental analysis, but it is important to become familiar with all of the foreign exchange basics first.

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