Foreign exchange (forex) markets are risky and highly unpredictable. However, the buying and selling of currencies is a very popular way to earn money. Owing to the large operation time involved, forex trading generates about $2 trillion in a day. And although the largest currency traders are big banks and huge companies, forex is done directly among traders.
Every forex trader calculates his moves – when, what, and how to carry out trading – depending on either fundamental or technical analysis. The analyses are the same in a way that both utilize whatever market information is available but they differ in how such information is used. Most forex traders can use either of these concepts, but it is also possible to combine both.
Fundamental traders in forex use data on global and local situation of economies, politics and even climatic conditions. They also consider the financial states companies are in. These forex traders believe future market prices can be concluded based on the market’s response to these events.
When financial turmoil, political instabilities and natural disasters occur, fundamental forex traders will find think that market prices will go down. On the contrary, positive events will make stock prices go up. Fundamentals mostly do not come as individual traders in forex markets. Almost everyone of them are groups, or institutional organizations. Support teams are always identified with fundamental forex people, and since the rise of automation in information processing, the long used labour-intensive analysis techniques are slowly losing favour.
On the other hand, technical forex trading are classified as such because they use the market and trading information they have gathered together with mathematical indicators. Data such as earlier prices are used in chart and are kept up to date in real time. Forex traders of this type hold in opinion that they only need to know the price movements since the entire information about a certain market can be found the there. As mathematical analyses are easily automated, most individual forex traders are the technical people.
Technical forex people base their trading moves solely on computed trading signals. No emotion is involved. But since no mathematical model is perfect, the risks involved remain.