Posts Tagged ‘fundamental analysis’

Money supply is basically the total amount of currency circulating in an economy at a specific time. It involves issued paper money, coins, and other liquid instruments such as funds on checking and savings accounts in the bank.

The value of Money supply is an important macroeconomic indicator because it may impact the economy through price level of goods and services, inflation, and the business cycle. The government or the central bank releases the information annually.

Analyst from both public and private sector carefully monitors it because of its possible effect on the economy. It is controlled through policies, born from careful analysis of economists, regarding interest rates and increase or decrease of the volume of money currently circulating the economy.

The increase of supply most probably lowers the interest rates thus attracting investments, generating jobs in the process, that would most probably land on the hands of the consumers. The more money in the hands of a consumer, the greater the urge to spend. Businesses would then react to this by increasing the rate of production which would walk hand-in-hand with the increase in the demand of labor.

The types of money and its value on the Money supply are categorized in “M”s:

M0 – is the total cash resource circulating the country.

M1 – All the tangible money, such as coins and currency, and the most liquid resources such as demand deposit and traveler’s cheques. M0 + checkable deposits.

M2 – The combination of the previous type and all time-related deposits; savings deposits, and non-institutional money-market funds. M1 + time deposits ( less than $100,000) and other highly liquid savings.

M3 – The broadest measurement of the money. It includes M2 plus time deposits exceeding $100,000, institutional money-market funds, short-terms repurchase agreements, and other larger liquid assets. M2 + large time deposits and deposits above $100,000.

M4 – the sum of all the preceding types.

The degree of importance of these indicators vary from country to country. There are countries like the United States that pay more attention to M2 while M3 outweighs the other types in most European countries. The Great Britain gives more significance to M4.

Stephen Stevenson

29.05.2012 Post in Trading

binocTraders analyze Forex market in order to make a forecast that will enable to increase the profitability of transactions. Forecast is the part of a trading plan. Different methods of analysis are used to define long-term trends, favorable conditions for opening and closing of deals, prospect price rebounds etc.

As a rule, there are two main methods of analysis on Forex:

  • fundamental analysis
  • technical analysis

Fundamental analysis is based on the investigation of different economic indicators as interest rates, inflation, business activity indices, employment, GDP. The instruments of the fundamental analysis include news, directly or indirectly connected with world financial markets, economic calendar, various statistical reports, statements of main politicians and even rumors.

Traders that follow this type of analysis must know how to separate the key aspects from secondary ones and find cause-and-effect relations between events. To make the proper use of the fundamental analysis one should be aware of the global economy and financial markets, knowing what factors and what information may affect the price of currencies and securities.

The technical analysis is based on the historical data of prices. The study of previous price changes enables to forecast the future situation. The instruments of the technical analysis are price charts, technical indicators and trade advisors. This type of analysis allows to define trends, support and resistance levels etc.

There are several types of price charts: linear, candlestick, bar. It is possible to place various indicators on charts. Most of them are integrated in trade terminal. Indicators are mainly subdivided into two groups –trend indicators and oscillatory indicators. Trend indicators define the current price tendency, oscillatory ones work better while the sideways movement indicating the oversold and the overbought market.

Also trading advisors enable to automate the trading process partially or completely. These are certain programs aimed at performing operations on Forex without trader’s participation, i.e. that advisors (robots or experts) can make deals basing on the received signals automatically.

To compile the trading forecast many traders combine different types of analysis. It is crucial to keep in mind that the forecast is just the forecast: it may not be justified. Even professional analysts sometimes make mistakes in their analysis as Forex market is not stable. The usage of various methods of analysis is crucial for successful work, but the main task of a trader is to trade in accordance with the market and respond quickly on any changes.

Added by Alexandr Kornilov,
InstaForex Clients’ relationship manager

29.11.2011 Post in Trading

Different macroeconomic factors influence financial markets. Fundamental analysis experts examine these factors and base their forecast of currency directions on economic indicators, statistics, reports and news.

Being quite a controversial type of trading, news trading is a popular way of earning on Forex market.

Although news definitely forces the market, it may cause unpredictable consequences.Снимок

New trading has certain drawbacks:

  • information overload;
  • necessity to select right news from the news feed;
  • unexpected changes (events seemed minor at first glance may develop crucial importance, and conversely);
  • changes in data importance depending on global economic situation.

A trader addicted to fundamental analysis face lots of new information every day: planned reports, statements of policymakers, research notes, announcements of political events and rumors…

Anyone who chooses to trade on news should learn to analyze links between economic events, consider psychology of the market and be very careful. Trading on news may easily lead to a trap. The market may move in one direction on the back of expected data and suddenly jump to the contrary after its release.

Information overload is another reason for a headache even to an experienced trader. To select useful information from a mix of different and sometimes contradictory facts is not that simple. Two mistakes are common: a trader either tries to embrace the boundless, or focuses on a particular news aspect and forgets about the others.

Which data should be based on? According to experts, the most important data is information related to unemployment, inflations, GDPs, percentage rates, indexes of consumer and producer prices, production output and retail sales.

Intraday traders are definitely interested in news trading. Normally, the release of important economic or political data cause well-marked short-term price movements. Market volatility may increase and bring profits to short-time traders. Experienced traders say that knowing when regular releases are made and which of them are most important may lead to a success.

However, to avoid risks, many traders prefer to suspend trading at the moment when the data is published. Major traders reputedly know about oncoming market reactions in advance and reap benefits while ordinary traders are able analyze news only post factum…

In any case, it is better not to ignore news. Firstly, there are investors who successfully combine techniques of fundamental and technical analyses (still there are some who repudiate both), and secondly, economic news fosters intellectual development.

Added by Alexey Skachilov,
Clients’ relationship manager