Forex Trading For Beginners – Fundamental Analysis & Forex Trading Strategies #5

April 14, 2013 JoshTaylor

Having a basic knowledge of Fundamental analysis will give you a better foundation for your investment decisions on the Forex Market. It looks to measure a companys true value, in which the Forex trader evaluate the country and its currencies just like companies. With Fundamental analysis, it shows the true value of the currency.

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In order to have an idea of the currencys value, Forex traders will take note on the economic reports issued by the country, political events, and other significant reports that could be at play in affecting the movement of the currency. The value is in a constant move due to many possible factors (such as economic growth and financial strength). With all of these factors, a Forex trader could start doing Fundamental analysis.

What is Fundamental Analysis?

A fundamental analysis is all about getting an understanding of a country, the health of its business and its future prospects. It includes reading and analyzing annual reports and financial statements to get an understanding of the countrys comparative advantages, competitors and its market environment.

Forex Trading Strategies Carry Trade:

There are plenty of Forex Trading Strategies out there but I would like to focus more on Carry Trade:

A strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate. A trader using this strategy attempts to capture the difference between the rates, which can often be substantial, depending on the amount of leverage used.

In simple words, you borrow at a low rate and lend at a higher rate. A Forex trader could make a highly profitable trade when leverage is used because even with a small difference between two rates it could yield a higher profit. A good example is the Yen Carry Trade during the 1990s. Japan decreased its interest rate to almost zero. Forex traders borrow at a very low rate large sum of Japanese yen, then converted into U.S. dollars (which are used to buy U.S. Treasury bonds which yields and coupons at around 4.5 5%). With this, Forex traders earn almost all the yield from the U.S. Treasury bonds. Not only that, with leverage, returns are greatly increased.

For example, if you have a U.S. $1,000 in your trading account and have a 10 times leverage, you can control a position of U.S. $10,000. If you would use the currency carry trade with the example above, you will earn 3% per year, or $300 gain annually, if and only if the currency pairs value remains constant or appreciates. Hence, Forex carry traders look not only to earn the interest rate differential but also capital appreciation.

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In reality, the exchange rates between two countries are ever changing. There is an erratic movement of price that is why most carry traders would prefer lower-yielding safer currency since the carry trade strategy is longer term in nature, it is much susceptible to a variety of changes over time.

Bottom line is that acquiring an idea of the fundamental factors that affect the movement of price of currencies and applying Best Forex Trading Strategies are important steps to a well-informed investment decision. With your on-going reading of  our free Forex Course for Beginners, you will in no time have a good foundation of the Forex Market and be able to trade successfully. Learning Forex Trading for Beginners is a continuous effort so I hope you will not skip on your daily reading diet of Forex Strategies and Free Forex Tips! Once again, Happy investing!

Source:

www.investopedia.com/university/forexmarket/forex6.asp

FOREX TRADING FOR BEGINNERS:

Forex Trading For Beginners – Risk And Benefits #4

April 13, 2013 JoshTaylor

In every investment, there is always a risk involved. In this article, we will take a look at some of the risks associated with the Forex market as well as the benefits it has to offer. Also, we will differentiate the Forex market from the Equity Market so that we will fully understand how Forex works in order to learn to trade Forex .

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We have already discussed some of the important factors (size, volatility, structure among other things) about the Forex market, that contributed to its successful and growing state. In terms of liquidity, the Forex market is highly liquid in nature where in a trader could invest huge amounts of money without affecting any given exchange rate. This is made possible by the low margin being required by most Forex brokers. For example, it is possible for a trader to invest US $1,000 for a position of US $100,000, a 100:1 leverage. This amount of leverage acts as a double-edged sword because investors could either rip large gains or run the risk of a massive loss when movements arent favorable. Because of the leverage that the Forex market could offer, it attracts many speculators in the midst of many foreign exchange risks.

Not only that the Forex market is highly liquid but also it is mostly open 24 hours a day, which is favorable for traders who have a tight schedule. In the chart below shows the major trading hubs and their trading hours.