What is fundamental analysis?

What is fundamental analysis?

Fundamental analysis

presents an analysis of economic and political status of countries, whose currencies are traded on the market FOREX. The task of fundamental analysis is to assess the possible impact of certain events on exchange rate movements.

As a commodity in the FOREX market advocates currency, the 'quality' of the commodity is determined by the state of the economy of the host country. From changes in the economy in better or worse depends on the rate of national currency against foreign currencies.

Traders receive information about various events from news agencies, such as Dow Jones, Reuters, Bloomberg, etc. in real time, and decide to buy or sell currencies on the basis of opinions on the degree of favorable news for the economy of the currency. Currently, access to this kind of news provided through broker companies that substantial savings trader because there is no need to install expensive satellite systems to pay for subscriptions to news and translate them into Russian. Company Akmos Trade offers its customers access through POS AFM and Metatrader4 , to own news feed , which is on speed, accuracy and comprehensiveness of information than available on the market counterparts.

To properly regarded incoming information, traders need to know what newsgroups exist on the market and what impact they have on the exchange rate change. All information can be divided into two main categories:

Projected factors

Unpredictable factors

Unpredictable factors are unexpected developments in the political arena (sudden resignation and moving top government officials - president, chairman of the Central Bank, the finance minister, economy minister, etc.), military action, terrorist attacks or natural disasters. Neither the time of this events, nor the extent of its influence can not be predicted, so these factors are force-majeure, unpredictable, and unlikely a newbie would venture to work in the market during strong movements in exchange rates caused by such events. In this case the risk is very great, and for those traders who only just gaining experience, much more important to understand the principles of the market, producing a calm, measured trade. In the case of the availability of open positions exhibited reasonably warrant such Stop Loss will not allow the trader to lose more in advance of the amount zaplaniruemoy .

Projected factors are macroeconomic news. The main difference from the unanticipated news is that the trader knows the date and time of release of such news, also knows predictive value of various published indicators, compiled by experts and market analysts. The main similarity is that not always safe to say the strength of the market reaction the actual value of macroeconomic indicators in the event that it differs from the forecast.

To work on fundamental news, traders need to know how the exchange rate is formed of a currency. The basis of the exchange rate is the so-called real component, calculated by purchasing power parity. To calculate it calculates the value of certain consumer goods basket in different economic zones and correlation of their value is derived "real" rate. People who are not professional economists, and enjoy a simplified way to estimate the real component, with strong correlation with the scientific: they appeal to the "Big Mac Index". To do this, compare the cost of Big Mac McDonald, the company in different countries and are "real" rate. With such a ratio value of the dollar against the ruble at the end of 2008 would be equal to substantially less than 28 rubles.

But this is only one component of the exchange rate. The second component is the so-called "favorable" rate of national currency, related to the fact that the economy is in the positive dynamics. This component is actively making central banks of countries, using various instruments: reserve ratio, interest rates, foreign exchange intervention, and so on. The third component is the contribution of commercial banks, market makers operating on the spot market. Their purpose - to maintain the liquidity of assets and performance of clients' requests. I must say that the spot market represents relationships between the buyer and seller in which the calculation of the transaction occurred after 2 days, when banks are "exchanged" bought / sell the currency.'s Contribution Each of the parties forming the current exchange rate, which we observe in his trading terminal.

Trading on the basis of fundamental analysis makes sense to separate long-and short-term job. When a trader is long-term operations of some models of the economies of different countries and make decisions based on the analysis of long-term changes in GDP, trade balance in different countries, capital flows, unemployment, labor costs etc. This position is open only a few times a year and kept open for weeks, even months. With short-term oriented trader operations at the time or waiting for the news on the values of the macroeconomic indicators, opens a position several times a month and keeps it open a few minutes to several days.

For information about the output of major market news in the online customers "Akmos Trade" get through the trading terminals AFM and Metatrader4. And in order to advance to navigate to the issuance of certain indicators traders use the calendar of economic events . It is usually published on Sunday for the week ahead. The same calendar can be found with the macroeconomic data that grew out of the last period.

In the example above in bold news, most expected the market: they can cause a strong movement in the market.

Attention should be paid to the column, which indicates the predictive value. If the actual value will vary significantly from the forecast on the most important indicators for market participants, we can expect a strong movement in that direction, which indicates that the indicator.

To illustrate the reaction of exchange rates on the yield of important economic news is available at the following example (Figure 1).

At 19:15 GMT December 16, 2008 the Fed (U.S. central bank) decided to lower official interest rates by 0.75% to 0.25%. Market participants interpreted this as a very negative news for the dollar and have been actively selling it. As a result, during the couple of hours, for example, the euro rose against the U.S. dollar more than 300 points.

Fig.

1. EUR, the growth rate in relation to news unfavorable to the U.S. dollar

Macroeconomic indicators are divided into groups:

Indicators of economic growth in the industrial sector

Monetary sphere

Inflation

Unemployment

Housing and housing market

International trade relations and balance of payments

Indicators of consumer confidence

Asset management ratios

Budget deficit

In each group there are indicators of high exposure to the market. In the monetary sphere that interest rates Central Bank, which reflect the value of money within the country. Interest rates are called in different countries in different ways, in fact, represent the interest that commercial banks pay for the use of credit given to them by the Central Bank. High interest rates attract investors willing to place funds in an asset of the country for higher dividends, and this leads to additional demand for the currency, and it is in the short or long term, will be strengthened against other currencies. But we must consider the interest rates in different countries, not only comparing the absolute values, but also tracking the dynamics of their changes, as this difference in interest rates, the so-called interest rate differential, creating additional demand for the currency with higher interest rates and leads to exchange rate movements.

Indicator of monetary policy of the state - the Central Bank discount rate - is very strong and important indicator for market participants, so often the players are looking at other economic indicators signal a possible increase / decrease in interest rates. This indicator appears inflation is the main cause of higher rates. With rising inflation Central Bank tightens monetary policy of the state, increasing the value of money in the domestic market, which in turn reduces the velocity of money in the economy, reducing the money supply and curbing inflation. To reduce the interest rate the Central Bank receives signals in the form of deteriorating economic growth, declining levels of industrial production, rising unemployment. Therefore, traders are fundamentalists analyze not only how good or bad data, go to a specific area, but also create some picture of the economy, macroeconomic pattern of the state or economic zone.

Working with the use of fundamental analysis is quite difficult - you must have some basic knowledge of macroeconomics, but traders wishing to trade in the foreign exchange market, our business may be given to the subject worthy of attention if only to understand how the market FOREX.

Recommendations

Look at the site of DC "Akmos Trade" market analysis section "Analytics" can relate this information to price changes in currency charts

Pay attention to how market participants react to the news coming from the online news agencies.

Use for analyzing graphs constructed at 5-minute, 10-minute and hour candlelight