Fundamentals in Online Forex Trading
Fundamentals in Online Forex Trading
Fundamentals in Online Forex TradingOnline Forex trading is based on three approaches. There is the most common approach which is technical analysis. Then there is the importance of your own money management. Finally, every trader needs to know a little bit about fundamentals.
Fundamentals can be broken down into five main ideas. The first of these involves interest rates and treasury yields. Treasuries are sold by the U.S. Treasury Department each day and they help pay for government spending.
People and other governments buy these notes because they believe that the US government will pay them back with even more money in the future. Of course, the value of these promises changes each day. It is measured by many things that involve fundamentals.
A Forex investor should always be aware of the public sentiment about the US dollar because all currencies move according to this major currency. This is a simple idea but the things that make the US dollar move are far from simple. The five most fundamental things we will discuss here in relation to the US dollar are the interest rates, yield curves, employment situation, national debt and mortgage rates.
For a beginner, it is hard to put your mind around these concepts. Keeping your mind on only five ideas, rather than expanding, will help you to see what is most important and to help cut out the static.
The interest rates, yield curves, employment picture, national debt and mortgage rates are all reported by the US government each day. You can find these values online at sites like forexfactory.com and verify them with your Forex strategist. In this article, we will only discuss the interest rates and treasury yields.
The first two values are fairly simple to understand. Most economists agree that US interest rates will go down and US treasury yields will go up over the next 20 years. This will mean that the US dollar should get stronger in value. You can take this long term view while also looking at the present situation in the country and remembering what Socrates once said; He is wisest who knows that he knows nothing.
Treasury yields change each day according to many factors and they are reported online. You can start to guess how long it will take before the improvements in the economy are going to happen by looking at these daily yields and seeing if they have gone up recently.
In simpler terms, you are going to be guessing how long it will take for the US economy to improve. Right now, interest rates are very high and treasury yields are low. The opposite will start to happen when the economy has started to improve. Then they may fall back again if there are problems along the way.
The most widely viewed of the treasuries is the ten year note. If there is a lot of demand for the note, then the value of the yield decreases. Everybody wants to buy it today so the government doesnt have to promise as much interest in the future. Whenever theres a high demand for this treasury, then bidders pay less and the yield will actually be higher in the future. In other words, yields change in the opposite direction to the prices of treasuries.
The reason that the yields on treasury notes change each day is mainly because people react to the daily news and sell their notes before they are actually mature. They may buy a 10-year note but they dont hold onto it for ten years. They sell it to someone else at a different price because demand for Treasury notes or the yields are suddenly increasing.
In the next article, we will discuss the three other fundamentals which move the US dollar. They are employment, national debt and mortgage rates. By keeping these major ideas in the forefront of your mind, you can combine the basics of fundamentals in your Forex trading to other technical aspects of the market. Then you will start to develop a more well-rounded approach to online Forex trading.
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