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The Basics of Trading Forex

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Making money with currency market trading involves a lot more than just knowing how to place an order, use leverage, and read spreads.  It also involves conducting meaningful and accurate analysis to try and get a handle on what the market is doing and will do in the near future.

This is easier said than done, admittedly, and no single approach is perfect or infallible. But, learning how to analyze the markets fundamentally and technically is a must for any serious forex investor.  This is what separates investing from gambling, just as learning probability, strategy, and betting methods is what separates blackjack or poker from a random game of chance like roulette.

We’ll give you an overview of two types of critical analysis: fundamental analysis and technical analysis.  We will then tell you how you can use these approaches to making a sound financial decision with your trades.

What is Fundamental Analysis?

One of the main types of analysis when it comes to trying to make a sound decision – i.e. a decision that earns money – is fundamental analysis.

Think of fundamental analysis as examining the important economic events and situations in the world.  These include:

Monetary policy (raising or lowering interest rates, buying government bonds, etc.)
Statements about the outlook for an economy released by important officials and agencies
Economic forecasts
Economic reports

Basically, any piece of news that affects the economy can be forex trading news and forms a part of fundamental analysis.

The Major Movers of the Markets: Five Factors to Consider

When conducting fundamental analysis, you can really get into the weeds and digest obscure reports for a slight edge.  But, most investors can conduct sound analysis by keeping their eyes on five factors:

Interest Rates

Raising interest rates is indicative of a strengthening economy (which is generally good for the currency because investors can gain more returns), while lowering interest rates usually lowers a currency.

Gross Domestic Product (GDP)

GDP is the main indicator of the strength of an economy.  A strong GDP report usually makes a currency rise, while a disappointing or negative GDP report often sinks a currency.

 

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