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If you have read the article on technical analysis, reading this article on fundamental analysis should shed light on the diversity of the foreign exchange industry, and the many decisions you need to make in order to participate in the thrill and excitement of live trading.
Fundamental analysis is the accumulation and comprehension of information available in regards to a particular currency pair. For example, if you are trading the NZD/USD pair – a fundamental analyst would want to find every piece of information which was available to the market at that time regarding both of these currencies.
Once they had all this information on hand, they could then formulate a trade based upon their opinion of where they saw the currency going in the future. For example, if someone thought that the US dollar was going to weaken in the near term, they might buy the NZD/USD pair – to profit from the equalling rise in the New Zealand dollar over that time.
Where Does the Information Come From?
It’s all very well to say that fundamental analysis is based on the acquisition of relevant and current information. However, one may be asking where all of this information comes from.
This is a fair question. Basically, there are two avenues that you can approach to find information on specific currencies. They are the following:
- Information produced by full-time currency analysts.
- Information produced by your own research.
Which one of these avenues you choose should be based on how much experience you have in the foreign exchange industry. For example, if you have never traded before, it may be impractical to believe that you can come up with your own fundamental information, on which you can base a valid trading decision.
On the other hand, if you have placed a number of trades in the past, and know the ins and outs of the entire foreign exchange industry, producing your own research may be beneficial, and even cheaper.
Regardless of who produces the information, it is up to you as the trader to interpret and turn in the news and relevant details into a successful currency trade. After all, some people could have all the information in the world, but still, make a mistake when they finally pull the trigger and enter the market.
