Fundamental Analysis Forex

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Fundamental analysis is a way of looking at the forex market by analyzing economic data and political event risks that may affect the price action in a specific currency pair.

Future Forex Market

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A contract traded on an exchange to buy or sell a set amount of a given currency at a set price and date in the future.

FX

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The forex (also known as “foreign exchange” or “FX”) market is a global marketplace where currencies are traded and where exchange rates for every currency are determined.

Seen also: Forex

Gap

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Gaps are sharp price breaks in price with no trading in between. Gaps can occur over the weekend or immediately following a major news announcement.

GBP/USD

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The currency pair GBP/USD is the shortened term for British pound against U.S. dollars. The pair indicates how many U.S. dollars (the quote currency) are needed to purchase one British pound (the base currency).

Hawkish

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A hawk is a policymaker who favors interest rates to keep inflation in check. He generally favors high interest rates and is less concerned with economic growth. A monetary policy stance is said to be hawkish if it forecasts future interest rate increases. The currency could appreciate as capital flows to higher interest rate currency.

Inflation

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Inflation is when the general prices of goods and services rise in an economy, which may be caused by a nation’s currency losing value or by an economy becoming over-heated. When inflation rises, interest rates are often increased.

Leverage

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Leverage is the use of debt (borrowed capital) in order to undertake an investment. Leverage is expressed in ratios, for example 100:1. If a trader uses a leverage of 100:1, the broker will set aside $1,000 from the traders account in order to control a $100,000 position. Most professional forex traders trade with a small leverage (i.e. 20:1, 10:1, or even lower) to save their accounts from high losses. Unexperienced traders often use a high leverage of 1:100 or 1:200 which often eliminates their account quickly.

Limit Order

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A limit order is a type of order to buy or sell a currency at a specific price or better. We typically use limit orders when we re-enter an order after the previous trade was closed with a profit.

Liquidity

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As a trader we generally speak of market liquidity, which refers to the extent to which a market, such as a country’s stock market or currency market, allows assets or currencies to be bought and sold at stable, transparent prices. When the spread between the bid and ask prices grows, the market becomes more illiquid.