Using the financial and economic news is an aspect of foreign exchange training that can be profitable for forex traders, and yet for one reason or another it is often neglected. Most people who start out trading are over eager to get into live trading as soon as possible and they skip a lot of important points in the rush to make (or more likely, lose) money. In order to profit with forex trading, just like anything else, it is important to understand the fundamentals that drive the foreign exchange market.
The market is driven by th8945180246e comparative strength of national economies. This means that if the American economy becomes stronger in comparison to the British economy, the value of the dollar will rise against the pound. However, because the forex market is based on exchange, everything is relative. If the Japanese economy strengthens at the same time and to a greater degree, the dollar could fall against the yen at the same time that it rises against the pound.
In order to predict currency price movements on the basis of fundamental analysis, it is necessary to have an eye on certain factors. Interest rates and the national Gross Domestic Product (GDP) are the strongest influences on the forex market but there are many other indices too. These include the retail price index, manufacturing costs and orders, employment and payroll figures, etc.
Most of these figures are calculated and announced at regular intervals. There may be monthly, quarterly or annual announcements, and it is important to be aware when these are going to happen. Interest rate changes are different in that they will happen whenever a country’s central bank decides that a rise or cut in the interest rate is necessary.
For most retail forex traders working from home, it is difficult to predict the direction of these announcements other than what is reported in the financial press or online. However, it is important that traders keep themselves informed. The announcement itself will tend to be a time of high volatility in the market and even speculation before the figures are released can have a strong influence on the market.
So traders need to know when these financial reports are happening and either understand how to use them, or stay out of the market altogether at those times. For beginners the latter course of action is usually recommended. This means being aware of the forex calendar and closing trades some time before a major announcement is due.
So it is worth taking some time to understand the forex news and how it affects the currency market before starting to trade. Even traders who plan to trade entirely on the basis of technical analysis need to cover this in their foreign exchange training in order to avoid being caught out.