How does the foreign exchange market trading differ from operating on the stock market markets?
The FOREX market is open 24 hrs a day for almost 6 days a week, and has no central geographical location. Typically, it also offers leverage as a standard built into the financial instruments used, which gives an investor the possibility to undertake a higher risk and seek higher profits than in the case of the stock market.
What are the most popular currencies traded on the FOREX market?
The most popular currencies traded include the US dollar (USD), the euro (EUR), the Japanese yen (JPY), the British pound (GBP) and the Swiss franc (CHF). The currency pairs of EURUSD, GBPUSD, USDCHF and USDJPY and called “majors”, as those markets are in the centre of the interest of international traders.
Where is the FOREX central location?
There is no one central location for the foreign exchange market. Forex is considered to be an “over-the-counter” market (OTC) and is decentralised, as trades are conducted between two counterparts directly in many different financial locations, and/or financial centres.
Who are the FOREX market participants?
The main participants are central banks, commercial and investment banks as well as other investment related companies and international corporations.
Why occasionally when there are crises and the prices of major assets fall, are there a few that actually rise?
This is related with the confidence investors have in certain assets. For example, gold has always been treated as a substitute for money - it is a material asset and, one which has intrinsic value. This is why when there are crises in general, investors will show an increased interest in gold. Another example is the Swiss Franc (CHF). This currency has been treated for many years as a safe (stable) currency. So, as well as with gold, when a world crisis is observed, investors start investing in Swiss investments appreciating the value of the CHF. You can find more information on these relationships in the general market mechanics section of our website or in the macroeconomic data.
Are there differences in formulas or the methodology between the same macroeconomic indicators issued by different countries or regions, such as the US and the euro zone?
This question may be important for traders who perform very detailed analyses. Indeed there are, most of the time, differences between the same indicators, either in respect to the precise formula applied, or in cases such as the CPI, the content of the basket of goods used. On the other hand, in the case of every country or region, there is always one official source that is responsible for publication of the given data release, and one official set of data. As the methodology used, in the case of most of the countries, has to meet certain international quality standards, standard reports such as GDP or the CPI can be compared between the different countries or regions.
Are there macroeconomic indicators that are unique for a given specific country?
Macroeconomic indicators are constructed according to the country’s specifics. Therefore, there will be indicators that regard only that country. Examples for this may be the US Michigan report, or the IFO report from Germany. You can find more indicators in our section related to macroeconomic data for the US or for the euro zone
Do only measurable macroeconomic indicators affect market prices?
No, there are other very important indicators affecting market prices. These can be confidence or sentiment opinions, which economists sometimes try to present in a measurable way. Also experts opinions may have significant influence on prices. You can see what factors influence prices in our general market mechanics, our section related to macroeconomic data for the US or for the euro zone.
How do changes in the prices of commodities affect currency prices?
For commodity investors, currencies are just instruments for performing transactions. Therefore, a rise or fall in interest for commodities will result in a rise or fall in the prices of currencies in which commodities are traded. For example, oil is traded in USD, so an increase in demand for oil will lead to the appreciation of the USD.
There is so much information published. What data should I focus on?
This is a dilemma that many investors have, and at the same time it is very difficult to give a precise answer. Basically, one should follow the most influential information for a specific asset, but also taking in account market activity. This is because when the markets are very volatile, only the most “important” macroeconomic information provides significant changes in prices, but when the markets are rather stable usually less important news will result in significant price movements. Our selection of information is available in the general market mechanics section;
What is the difference between the US unemployment data and initial claims (jobless claims)?
Initial claims or jobless claims is just a fragment of the employment report. While unemployment data covers the entire employment situation in the US, the jobless claims is a weekly report showing only data related to insured unemployed individuals who file claims (known as “initial claims”) when losing their jobs. Detailed information on both reports may be found in our markets overview - macroeconomic data section;
Which one is more important, fundamental or technical analysis?
An investor should not treat both types of analysis as one replacing another, but rather as complementary ones. Usually fundamental theories are used for long-term investments, and technical analysis for short-term investments;
Why does the condition of a country outside of euro zone sometimes affect euro prices?
Trade relations do not focus mainly on countries which are only within the euro zone, but also with countries outside - not even those planning to enter the euro zone, like for example Russia, United Kingdom, or even the US. This applies not only to the euro zone but also to other countries like the United States. The close trading links between the US and Latin American cause the US dollar to react to the most important information concerning countries from that region. More information is available in the general markets mechanics section of our website or in the macroeconomic data section.
Why, during a speech of a top political official, do the prices of assets such as currencies sometimes shift very quickly?
There are many factors affecting the price of assets, not only those based on fundamental theories, but also others affecting investors perspective of the market. They also include events such as speeches of top political officials. More detailed information is available in our general market mechanics.
With so much volatility on the financial markets, is the fundamental analysis useful?
The fundamental analysis provides the perspectives on the development of themarket situation in the longer term. Typically, for short-term trading, investors usually use technical analyses. However, one should never forget the fundamental foundations which are used, even in the short-term when news is published;
Are there any typical investors psychological behaviour?
The behaviour of investors is, among others, a subject of analysis of a discipline called behavioural finance. Typical patterns that can be distinguished in this respect include: herd behaviour, overconfidence effect, or the regret theory. More information can be found in our market psychology section.
I usually trade by just following my intuition. How can I improve my trading results?
Intuition may sometimes play a significant role in the investment process, but typically it should not be the only tool that the trader uses. First there should be an assets analysis (see what is available for trading and how they move), then it is extremely important to make a plan and stick to it. This is probably the most often disregarded step in the investment process. When you have a plan on how much to profit and how much you can risk on a trade and in the whole investment process, stick to it. The basics concerning risk management are covered in the risk management section of our website. One should not be too greedy – typically prices will not rise or fall indefinitely, and one should not wait until the market recovers to cover losses. Finally it is also advisable to consider the use of all available tools that support the trading decisions, to help make trading decisions, such as the technical analysis tools available on our MetaTrader 5 platform.
I want to learn more about trading on financial markets. How should I start?
Getting to know the financial markets is more efficient when combining a theory with practice. In order to get the practical, hands-on experience, we recommend you to use our demo account. This will help you to familiarise yourself with the different markets and assets. Theory can be studied on our website, there are also many books and other on-line resources that can be beneficial. The most important topics to be covered include fundamental analysis, technical analysis, risk management and psychological aspects.
Is it possible to become a professional trader?
Being a professional trader is a “dream-job” for many beginners in the investment world. It is true that there are investors, especially at an institutional level, such as hedge funds, that treat operating on financial markets as their main source of income. However, achieving such proficiency for many potential investors may be really difficult, as it requires lot of hard work spent on perfecting the quality of trading techniques, risk management techniques and one’s own psychological attitude. Professionalism in this sense requires more or less a stable (and positive) rate of return on investment, that may be hard to achieve, given the financial risk that has to undertaken in the search for profits.
Is there such a thing as market psychology?
Yes, definitely. Some people say that a good trader should have a poker player attitude. That is, one should put aside their emotions and focus only on the information related to their portfolio investment. This is very difficult to perform without some time spent on the self-study and constant improvement of one’s own psychological attitude toward trading. Knowing some basic psychological patterns that traders follow may also help, some of such negative behaviour are presented in our market psychology section.
What makes markets move?
There are many different factors that have an impact on the dynamics of the financial markets. For a broader picture it may be beneficial to think about the market as a place of interaction between supply and demand, analysing the reasons that make traders buy or sell given assets. The traders acting on the demand side may be influenced not only by the economical foundations of an asset, but also other subjective things like fear, confidence, behaviour of other market participants, etc. Additionally on the supply side, factors may come into play such as the random, force major events, natural resources, weather and others, all of which are explained in our fundamental analysis section.