If you ask me what is the secret of success in forex trading – the answer would be ‘strategy’. And to frame this strategy, what you require is the skill of analysis. For planning a trading strategy, you need to do a fundamental investment analysis which talks about the causes affecting market movements.
Idea of investing fundamental analysis
Fundamental analysis is an in-depth prediction of the areas like social, political, economic, environment – how all these are going to affect currency movements of a nation. For instance, when a country has a strong economy, its currency is expected to be strong. Naturally, investors will be more attracted towards that particular economy. Your investment decision on global FX market depends on all these factors. You can collect data and information from GDP, employment, news, magazine, trends, etc.
The economic indicators are released periodically – daily, weekly or monthly. Keep yourself updated and make profit.
Let’s delve into the details.
Interest Rates: A major factor of fundamental approach
You can say, interest rates are the most important factors to be considered in a fundamental approach to analysis. It directly affects the currency value. When interest rates rise, investors get greater incentives for investing their money and vice versa. This core concept of macroeconomics influences decisions of central banks regarding their respective economies and hence, your investment strategy.
How can you use fundamental investment analysis?
Well, traders in forex market use this concept of investment management fundamental analysis for plotting their entry-exit points. You must have a complete overview of all the conditions that are affecting the currency. Apart from interest rates, the other factor that largely affects currency is international trade.
Deficit balance in the international trade scenario is a negative indication for the currency value. If imports are more than exports, that means money is going out more, than coming in.
Beginners must be aware that forex is a round-the-clock open market and situation can change at any moment. So, you have a high chance of losing. Not scaring you! Create a strong prediction based on investment fundamentals analysis and put your money accordingly. The best is to practice with demo accounts offered by online FX trading platforms for free.
Few more tips before you get started:
- Don’t keep impractical expectations
- Don’t bother yourself with overloading information. You would then fail to take right decision.
- Every country has their own set of economic indicators
- Understand the market and the currency first
Fundamental investment analysis: Summing up
Value investing fundamental analysis is a broader concept with not one but several parts and their sub-parts. A lot of factors can influence the economy of a particular country, and this approach is examining those fundamentals affecting currency movement. In forex, fundamental analysis means studying the nation along with its overall health.
“Focus on protecting money rather than making it.”
Only with accurate prediction, you can gain maximum profit in this money spinning forex business. You can always join an online forex trading platform and learn more about fundamental analysis for investment decision making.