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Forex Strategy
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- Fundamental Analysis

Forex Fundamental Analysis


A fundamental trading strategy consists of strategic assessments in which a certain currency is traded based on virtually any criteria excluding the price action. These criteria include, but are not limited to, the economic condition that the country the currency represents, monetary policy, and other elements that are fundamental to economies.

The focus of fundamental analysis lies on the economic, social and political forces that drive supply and demand. There is no single set of beliefs that guide fundamental analysis, yet most fundamental analysts look at various macroeconomic indicators such as economic growth rates, interest rates, inflation, and unemployment. Several theories prevail as to how currencies should be valued.

Alone, fundamental analysis can be stressful when dealing with commodities, currencies and other "margined" products. The reason for this is that often fundamental analysis does not provide specific entry and exit points, and therefore it can be difficult for risk to be controlled when utilizing leverage techniques.

Currency prices are a reflection of the balance between supply and demand for currencies. Interest rates and the overall strength of the economy are the two primary factors that affect supply and demand. Economic indicators (for example, GDP, foreign investment and the trade balance) reflect the overall health of an economy. Therefore, they are responsible for the underlying changes in supply and demand for that currency. A tremendous amount of data is released at regular intervals, and some of this data is significant. Data that is related to interest rates and international trade is analyzed very closely.


Key Economic Indicators are the most likely to move the market is the actual numbers differ with the consensus

Consumer Price Index
A measure of the average price level of a fixed basket of goods and services purchased by consumers as determined by the Bureau of Labor Statistics. Monthly changes in the CPI represent the rate of inflation.

Durable goods orders
Reflect the new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods.

Employment cost index
A measure of total employee compensation costs, including wages, salaries and benefits. This is the broadest measure of labor costs.

Gross domestic product
The broadest measure of aggregate economic activity encompassing every measure of the economy, measuring the total value of goods and services produced during a specific period.

Index of industrial production
A measure of the physical output of the nationís factories, mines and utilities

Jobless claims
A weekly compilation of the number of individuals who filed for unemployment insurance for the first time. It portends trends in the labor market.

Motor vehicle sales
Unit sales of domestically produced cars and light-duty trucks. Figures are good indicators of trends in consumer spending.

Personal income
The dollar value of income received from all sources by individuals.

Personal outlays
Consumer purchases of durable goods, nondurable goods and services.

Producer price index
A measure of the average price level for a fixed basket of capital and consumer goods paid by producers.

Trade balance
Measures the difference between exports and imports of both tangible goods and services. The level of the international trade balance, as well as changes in exports and imports, indicate trends in foreign trade.

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