Introduction to Forex Trading
The foreign exchange (FOREX) market is the purchase or sale of a currency against sale or purchase of another. The object in Forex is to exchange one currency for another in the expectation that the price will change so that the currency you bought will increase in value compared to the one you sold. Through Forex education and training it is possible to speculate the direction of the market and receive a good return on your investment.
The major participants in the FOREX include commercial and investment banks and central banks. Other participants include corporations, hedge funds, and millions of speculation traders like you. Some of the top banks in the world such as Bank of American, Credit Suisse, and Morgan Stanley are major players when it comes to the FOREX. In order to make money within this realm, you will be competing against all of the major banks as well as individual traders.
When beginning in the FOREX, it’s important to select a reputable broker. After all, the broker is going to be the one paying you when it’s time to cash out. A broker acts as a middle man between you and the FOREX. When you place a trade in the FOREX, your position is filled by the broker and the broker sends the order off to the banks. When it’s time to be paid, your money is with the broker and they need to be able to cover your positions in the market. Most brokers offer a 3 to 5 pip spread on all the major currencies pairs, such as the ERU/USD, GBP/USD and the USD/JPY. A 3 to 5 pip spread basically means that the FOREX must move 3 to 5 pips before your trade is in profit. One pip can be worth any amount, depending on how much money you’re willing to risk per trade. There are two types of traders, fundamentalist and technical traders.
Fundamentalist study the cause of market movement, whereas technicians study the effect. Most traders identify themselves as both a technician and fundamentalist. Most fundamentalist will have knowledge of charts, indicators and chart analysis. Similarly most technicians are aware of the fundamentals. However, the problem is that the charts and fundamentals are often in conflict one another. It’s usually a wise decision to have a bit of training in both fundamentals and technical analysis. One of the most important factors in the FOREX is learning to manage your money.
Traders will experience losses in the FOREX; therefore it is essential that a trader utilizes proper money management. In many cases money management is a simple concept, yet to practice money management consistently is very challenging. Generally speaking money management is knowing when to cut your losses. For each trade, a trader should be looking to make three times the amount they plan to lose. This way a trader only has to be right 33% of the time in order to be in profit
The Consumer Confidence Index (CCI) is widely considered one of the most accurate indicators of consumer confidence.
The Federal Reserve looks closely at consumer confidence when determining interest rates. Data for the index is collected from 5,000 consumer interviews that include questions regarding assessments of current business conditions, and expectations for future conditions, family wages, and employment.
Given the report is conducted regionally, the results also tend to have an effect on the values of local real estate areas.
Fundamental Analysis of the CCI
As the consumer confidence rises, so does propensity for consumers to spend, boosting Gross Domestic Product and other performance indicators. As future prospects regarding an economy improve, so does the value of its currency.
A high CCI indicates a stronger currency.
A low CCI is a sign of a weakening currency.
A low CCI is indicative of lower consumer spending and high interest rates, since high interest rates cause an economic slowdown for everyone from big businesses to individual consumers by making it expensive to borrow money. That is how CCI loosely correlates with interest rates. Consumers are more likely to save when the cost of borrowing increases to ride out dismal economic performance. High employment levels, low interest rates, and increased wages will usually have an encouraging effect on the CCI, although if confidence is increasing too steeply it may be a precursor to inflation.
It is crucial to note that lowering interest rates does not necessarily lend itself to an immediate boost in consumer confidence - the effect of changes in other economic indicators lags in the CCI, it may take 6 to 8 months before ramifications are reflected in spending.
Given that there are no hard figures collected in the formation of the CCI - that is, raw data is just in survey form and "planned spending" is recorded, rather than actual figures - it is helpful to look at broad charts when using this indicator. Month to month changes are not considered crucial enough to trend. A 3 ton 6 month Moving Average chart is recommended; a breach of the MA can be considered significant movement.
The consumer confidence report, published by The Conference Board, is released on a monthly basis on the last Tuesday of the month at 10:00 am EST.
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