Dave, Author at Dave Matias

Freight containers, representing Logistics in Forex Fundamental Analysis.

Forex Fundamental Analysis is a term that is actually very significant to know and understand if you deal with currency speculations.

When applied to Forex, it focuses on the overall state of the Economy (the top-down approach) and considers factors including; Employment, Manufacturing & Production, Earnings, Interest rates, Housing, GDP, and etc.

One must recognize the motives of why and how a particular event, for example, an increase in the Unemployment rate, influences a country’s market, which in the end shapes the level of stipulation for its currency.

The suggestion behind this type of examination is that, if a country’s present or future financial outlook is in good standing, their currency should remain strong or become stronger.

In simple terms, the better an Economy stands economically, the more spending is initiated by corporations and investors. This, in turn, fuels an expansionary economic cycle.

Weighing Economic Indicators

Understanding some components regarding fundamental analysis and indicators is important to Fx traders, because it helps them to know where properly invest their capital. Being a forex speculator means that you have to understand what information is key and what information is just rumors or false data. Certain factors affect an economy more strongly than the others.

Newspaper and glasses

There is a whole plethora of fundamental economic announcements that is coming up every week. However, not all indicators are created equal.

For instance, if you were a global macro trader, then the New Zealand unemployment wouldn’t be as important to you as the U.S. unemployment. While the New Zealand unemployment is certainly important for Dairy speculators in Futures markets, as the country is the biggest producer of Dairy products, nevertheless, the U.S. economy has a much larger impact on the Global Economy as a whole.

The three major factors that influence an economy are Interest rates (which are probably the most important), Employment, Foreign capital and Trade flows. It’s important to note that Inflation has a direct impact on Interest rates.

Here is the list of top Economic indicators for Global Fx Investors, when analyzing any Economy:

Be sure to also read:

Pretty Much Everything You Need To Know About the FX Pips

The Effects of a Country’s Currency Value

One of the ways in which a country’s currency value gets influenced is through exporting goods and services. The more the country exports, whether it is goods, or services, the greater is its competitive edge.

For example, if an economy is strong in a particular sector, as Japan in Manufacturing, or Great Britain in Financial services, then these countries are more likely to export the excess abroad. Exports create jobs, bring in higher income, and increase the overall standard of living.

Exports, also, help to increase the Foreign Reserves in the nation’s Central Bank.

Here is the list of key factors that affect Exchange Rates:

Six Fundamental factors affecting Exchange rates.

Photo credit: CompareRemit.com

Also, check their great article and detailed overview of the factors here >>>

While the impact of a currency’s change on an economy is comprehensive, many fail to notice the exchange rates because most of their dealings and communication are carried out in their main currency. For most people, exchange rate differences become noticeable for circumstances such as Travel.

When performing a forex fundamental analysis, it is advisable to check the currency exchange rate; as the currency, often than not, reflects its economical and political situation. In a nutshell, here is an easy way to look at it; the higher the currency value, the better is the economy. The lower the currency value, the more it is considered to be in a bad shape.

In Conclusion

Forex Fundamental Analysis is a prime approach to investigate the probable shifts of a currency in the course of the strong, or weak point of a particular country’s financial standing and outlook. Evidently, this is why it peaks the eye of Global Investors; as they will invest in a country’s currency if it is performing well. And in order for a country to do well, certain factors influence it in either a positive or negative way.

Have You Tried To Implement Fundamental Analysis In Your Trading?

When Evaluating A Currency… What Economic Indicators, If Any, Are You Focusing On?

Please leave a comment and let us know…

picture of the Dollar and the Philippines money in a Grand scheme of the Fx Pips

In the Forex market, the term “PIP” or Point In Percentage is defined as the unit of measurement for the smallest change in the value of a currency, or the smallest exchange rate fluctuation in a currency pair.

This is how traders measure their profit or losses in Forex. So, if you are planning to speculate in Fx marketplace, it is very important that you learn everything there is to know about the Fx PIPs.

What Exactly Is The Value Of One PIP?

photo of the various small coins representing the Fx Pips

The value of currency in Forex trading is given in PIPs, and 1 PIP is equivalent to 0.0001, 2 PIPS are equivalent to 0.0002, and so on. One PIP is the smallest percentage point change that an exchange rate can make. So, if you have bought United States Dollar (USD) with Swiss Franc (CHF) at 1.2475 and sold it at 1.2489, you’ve made 14 PIPs.

In general, most currencies are usually priced to four numbers after the decimal point. However, not long ago, the majority of Fx Brokers started to quote in five decimals, essentially giving us traders more transparency.

Actually, this fifth decimal point is called a pipette, and, as for now is the smallest change a currency is able to make. Therefore 10 pipettes would equal to 1 pip. Hence, a five spread for EUR/USD is 1.2530/1.2535 – with the four decimal broker, and 1.25300/1.25350 – with the five decimal broker.

In all the major currencies, it is only the price of the Japanese Yen that doesn’t have four/five numbers after the decimal point. For example, let’s consider the exchange between United Stated Dollar and Japanese Yen. In USD/JPY, the price is usually given in to two decimal points, so the exchange between USD/JPY will look like this: 114.05/114.08. This quote has a three pip spread between the buying and the selling price.

What Are Spreads?

In the Fx marketplace, the spread is defined as the difference between the bidding price (buying price) and the asking price (selling price). In order to have a currency pair, there must be two prices. The spread is simply the difference between what the market maker offers to buy from the trader, and what the market maker offers to sell to the trader.

Therefore, if a trader buys any currency from the market and sells it immediately making no change in the exchange rate, he or she will lose money. Why? Because, the amount spent in buying the currency will be more than the amount received in the selling of the currency.

Also, see: How To Choose The Best FOREX Trading Software

Determining the Fx PIPs Value

There are actually three important factors affecting the value of each PIP – the exchange rate, the size of the trade, and the currency pair being traded. In this light, the change in one factor can have a serious effect on the monetary value of the open position.

old-fashioned counting machine in a store when counting the Fx Pips

For example, given that a $500,000 trade involving the United States Dollar and Swiss Franc (USD/CHF) is closed at 1.0192 after netting us 50 pips. To determine the amount of profit made in USD, you will have to look at the following procedure.

First, find out the number of CHF that each PIP represents as follows:

500,000 x 0.0001 = 50 CHF per pip

The next step is to find out the amount of USD that each PIP represents as follows:

50 ÷ 1.0192 = 49.05 USD per pip

Now, to find out the total profit that was achieved in USD, you will have to multiply the total amount of PIPs captured by the value of USD per PIP as follows:

50 x 49.05 = $2452.50 USD profit.

The Bottom Line

During the Market hours the Fx PIPs are never in a stable state; they keep on changing according to the market fluctuations.

Gladly for us, this time-consuming calculation, as to how determine the value of a PIP, is done automatically by the electronic trading platforms.

Also, most Brokers have a table of PIP valuation on their website for a particular currency pair.

Life, of a trader, is good in a 21-St Century!

Simple Logistics To Be Aware: Forex Fundamental Analysis