Page 49 - Ultimate Guide to Currency Trading

A Starting Point for Fundamental Research

Good research is the key to spotting setups when currency trading. It is generally not good to go
around throwing money at your trades without some sort of idea of what is a good trade and what is
not a good trade. Remember the idea is that you are undertaking currency trading for pleasure and to
make money. While it might be fun to act in a sort of Wild West-gunslinger fashion and place your FX
bets wildly and loosely, it can be much more fun to properly research a currency pair. You can then
move on to place an order in your FX trading platform—a trade that is well thought out rather than
just a haphazard bet on the markets.

Once you agree that it is actually possible to have a good idea as to what direction certain
currency pairs will take in the future, you will then dis-cover that the careful study of economic
indicators, central bank websites, brokers' reports, and news data is a good place to start. These
sources and this type of information are called fundamental information and the study of it is called
fundamental analysis.

Fundamental analysis is the procedure of looking at a country's growth rate, inflation
rate, current account surplus or deficit, and other information. Sometimes a separate
ALERT
study of economics is required to understand the full picture gathered from the
fundamental analysis of a central bank's website.

Fundamental analysis is the key to a well-thought out and therefore a well-run trading system.
When you allow yourself to study the fundamentals, you are allowing yourself to look at the big
picture. When you look to fundamental analysis, you look at the actual central bank websites of
Switzerland, Sweden, Hungary, Europe, the United States, etc., with an eye for hints and suggestions
as to the state of a particular country's economic well-being. You would search through all of the
announcements and reports for signs that their home economy is doing better or worse, i.e., growing
or slowing (and at what rate). You would then compare these growing or slowing signs, suggestions,
and hints of the counter currency you are considering trading.

For example, for the currency cross of the Swiss franc and the Hungarian forint, CHF/HUF, you
would visit the Swiss National Bank (www.snb.ch) and the Hungarian central bank
(http.//english.mnb.hu) websites. You would then read the past news releases and make note of any
sign that the separate banks are speaking about an economy that is on course or over-heating or
stagnant. Look for key words that can help you decide if that country's central bank thinks that the
economy is going fast, slow, or steady.

A hint of a fast economy would lead you to think that there might be a possible interest rate
hike in the future. Conversely, a hint of a slowing economy would lead you to believe that will be a
loosening or lowering of interest rates. This is true because most central banks regulate the rate of
their home economy's growth by raising or lowering interest rates. A slowing economy would need
lower rates to increase lending (and therefore spending, leading to growth), and a speeding economy
would have to be slowed by raising interest rates to limit lending (and therefore slowing growth).