In order to obtain a fundamental analysis on Forex, traders make use of economic indicators that reside in information from analytical reviews of specialists and charts and tables of many numerical indicators serving the purpose. The analytical reviews are published in newspapers on a monthly basis in general, except of some which are issued quarterly.

All economic indicators are published in pairs, the first number showing the events of the latest period, while the second number revising the situation for the month prior to the latest period. This system is beneficial for traders who can draw a justified conclusion about the economy situation. Released at different times, economic indicators always come after the opening of the Forex market so that last-minute adjustments can be made.

Below there are the main economic indicators.

The first one is the gross national product (GNP), which measures the economic performance of the entire economy. At a macro scale, this indicator resides in the sum of consumption spending, investment spending, government spending and net trade. It practically shows the total of all goods and services produced by the residents of a state.

The Gross Domestic Product (GDP) reflects the total of all goods and services produced by domestic or foreign companies in a particular country. In the United States, the GDP is used to compare the performances of different economies.

A third economic indicator is called consumption spending. Personal and discretionary incomes are the ones who make possible consumption. It shows whether the consumers have the tendency towards spending or saving.
Investment spending or gross private domestic spending is made of fixed government spending. The latter has a great significance due to special expenditures, influencing other economic indicators. For example, the military expenses in U.S.A significantly influenced the total employment until 1990, determining a decrease in the number of employees.

The last economic indicator to be discussed is the net trade, being an important component of the GNP. Therefore, the evolution of the net trade directly influences the figures related to GNP. For instance, in the case of U.S.A, GNP has been slowed down because of this component, since the country registered trade deficits in the past decades.

Traders make their movements depending on the data obtained from analyzing the market. Fundamental analysis of the Forex market is based on financial factors. The exchange rates reflect the changes in economy which are, in their turn, generated by changes in government’s monetary or fiscal policies. Only the economic factors should trigger financial factors. The latter ones may have priority over the former ones when governments lay emphasis on different aspects of the economy or have additional international responsibilities. Such was the case of the European Monetary System in the early 1990s.

A basic factor in the markets is represented by the interest rate differential. Since in the Forex market are used two currencies independently from the real economic environment, the market has to focus on two interest rates. Here is where the interest rate differential stems. Traders react and make movements depending on the changes registered at the level of the interest rates. If more countries involved in the Forex market decide to lower the interest rate differential, then the effect wouldn’t affect the parties, but if only one or two parties do this, then the alteration can influence the market.

Another factor that influences transaction on the Forex market is the time lag between the rumor and the fact, the reasons that endorse a change in the interest rate and the perceived importance of the change. If political rather than economic reasons determine a change in the discount rate, then the markets are likely to go against the central banks. The perceived importance of a change in the interest rate differential is another aspect on which traders rely when making deals.

What can have real negative influences on Forex is a political crisis. This can generate a sharp decrease in trade volumes. In these conditions the spreads between bid and offer jump from 5 pips to 100 pips. Predictable political events such as parliament elections, interstate agreements conclusion determine steady changes, whereas a political crisis strikes unexpectedly. The traders have to react fast in order to prevent great losses and fast decisions are not always the best. The only thing certain is that return on the market after a crisis is often problematic.

The article attempts at presenting you the main types of Forex segments of market.

The first type of Forex market is represented by spot market. The most popular foreign currency instrument around the world, the currency spot market makes up 37% of the total activity. This segment is characterized by high-volatility and quick profits, but also losses.

Let’s see how things work on the spot market. A spot deal represents a bilateral contract within which a party gives to the other a certain amount of a given currency in exchange of a specified amount of another currency from the counterparty. These amounts are agreed by means of an exchange rate, established within two business days of the deal date. This period among counterparts is necessary to check out all transactions’ details. The basic instrument of the spot market is represented by the currency pair which is comprised of a bid and a quote currency. An example of a currency pair is USD/JPY=133.27/133.32, which means it takes 133.32 Japanese yens to buy 133.27 American dollars.

Volatility of the spot market represents the degree to which the price of currency tends to oscillate in a certain period of time. This characteristic determines a high-liquidity on the market, which makes the spot market so popular. The short time of a contract execution is another feature that makes traders be so interested in this type of Forex market.

The second type of Forex market is the forward market. On this type of market two tools are used: forward outright deals and swaps, or exchange deals. The latter represents a mixture of a spot deal and a forward outright deal. Unlike the spot market, the forward market has no norm regarding the settlement dates, the period between trades ranging from 3 days to 3 years. Being a decentralized market, the forward market gathers players around the world that enter several deals simultaneously, either on a one-on-one basis or through brokers.

The spot exchange rate and the forward spread are the two main parts specific to this type of market. The transactions start from the spot rate. The latter is used to adjust the spot rate for specific settlement dates different from the spot date.

The third type of Forex market is called futures market. It works on the basis of currency futures, which are derivative instruments since they are derived from the spot price. An expiration date and the size of the trade amount are associated with the currency futures. In order to analyze the situation on the futures market, gaps, volume and open interest are used as instrument.

The forth and the last type of market is represented by the options market. A currency option is a contract between a buyer and a seller which allows the former to trade a certain specific amount of currency at a pre-established price within a predetermined period of time, irrespective of the market price of the currency. The seller has the obligation to give that currency under the predetermined terms. The need for options and the impact on the profitability of options are generated by the behavior of the currency price.

This article is dedicated to describing the most important currencies employed in the Forex market. On the Forex market, there are 5 major currencies that are used in the transactions.

The first currency is the American dollar (U.S Dollar). It is the world’s main currency being used as an universal measure to assess the other currencies traded on Forex. This is why all currencies are quoted in terms of the American dollar. This privileged status has resulted from the fact that this currency was the most stable during the most troubled periods. It became the leading currency at the end of the Second World War. It was only in 1999 when the Euro was introduced, that the U/S dollar has lost some of its importance.

The Euro was introduced with the intention of becoming the premier currency in trading. Like the U.S dollar, the Euro boasts a strong relevance in the currency market. However, high unemployment, government resistance to structural changes plagued the growth of the Euro.

A third most traded currency in the world, the Japanese Yen. has a much smaller international presence than the two currencies earlier mentioned. It is very liquid around the world, the demand to trade it being concentrated mostly among the Japanese economic and financial conglomerates.

The British Pound was a reference currency until the end of the Second World War. Although heavily traded against the Euro and the U.S dollar, the British Pound has a spotty presence against other currencies.

The fifth important currency on the Forex market is represented by the Swiss Franc and it is the only major European currency that doesn’t belong either to the European Monetary Union, or the G-7 countries. It is a major currency and closely resembles the strength and quality of the Swiss economy and finance even though the Swiss economy is relatively small. From a foreign exchange point of view, the Swiss franc has similar patterns with the Euro, but lacks its liquidity.

Systems usually come in the form; peruse the website, part with your cash, receive a manual (usually in pdf form), read the manual, set your charts up, learn the strategy, trade the system, make the same profits advertised on the website, never look back.

Most of these systems are mechanical in use, thus, a certain set of criteria (indicators) have to meet certain conditions before placing a trade.  For example, MACD (12,26,9) has to turn up, 10 Day Moving average has to be sloping up and RSI(14) must be less than 70 on a 15 minute chart.  Please don’t trade this system, its an example.  But basically, most systems are rules based (mechanical) and need to be set up and “learnt”.  To us this involves reading the manual, setting up the charts, observing historic charts (back-testing) and live-running on a small (or demo) account.  We will never use a system out of the box based on the claims on the website and we would never advise anyone else to do so.

Occasionally a system will come with an EA, this is short for Expert Advisor.  These EA’s are usually pre-programmed indicators that are downloaded and applied to Meta Trader charts (they will only work on Meta Trader charts).  This is quite a standard charting package offered by many of the Forex brokers out there so is usually not a problem for most.  The EA is usually incorporated into a systems rules.  E.g. it is basically another indicator that has to be a certain value, shape, etc. in order to place a trade.  The advantage of some EA’s is that they create an audible alert when a trade is setting up/has set up and thus saves the trader some trouble and hopefully, some screen time.

Most systems we come across are Forex related, this makes sense, as it’s the largest (most traded) market and most flexible (its open 24×5 typically).  Some systems are designed specifically for indicies, e.g. FTSE, DOW, S&P and occasionally we come across some commodity based systems too.  However, it is fair to say that for every system we come across 2 out of 3 will be Forex based.

ABOUT SYSTEMS FOR TRADERS

We are a group of 4 traders with over 50 years trading experience between us. All of us have been full time traders at some time or another, two of us still are, the other two still trade on a part-time basis. We set up and now run this new forum in our spare time with a specific purpose in mind.

Many people find it extremely difficult to find completely independent and honest reviews of trading systems and services. This is because many products do not live up to their expectations (as advertised on their own websites) and many product reviews are carried out by other websites promoting and benefiting from selling that product. Our intention with this site is to facilitate a 100% independent and honest forum for such products.

We use our spare time and our experience to produce initial reviews of as many of these products as we can. Reviews are based on our limited exposure, limited because we just do not have the time to review each product for months upon months and trade them all in parallel. However, this fits with our intentions, which is not to test each product to its extremes but to use our experience to get a general feel for it so as to be able to produce our initial review. To achieve this, for each product, we endeavour to do some form of back-testing/result verification and also run the product in real-time (on a small account) for at least a few weeks. Not ideal, however we believe our experience permits us to produce what we consider a reasonable initial review.

Our intention is not to be Judge and Jury, our limited exposure does not permit this.  Following our initial review, the hope is to promote further (hopefully honest) discussion and feedback within the forum from those with more experience of the product, who will add further value. All being well this will result in a forum that the whole trading community can come to rely on and benefit from, not just based our experiences but from the experiences of the collective.

We police (moderate) every single post on the site so all forums will stay on topic.  It will not become another clogged up forum for others ego’s or for off-topic unrelated discussion.

Regarding affiliations, we are completely open and honest about this too.  We do not and will not ever endorse or promote any of the products we review. Nor will we ever accept payment or otherwise for a favourable review.  We do however set up affiliations where possible and ask, that, should anyone decide to purchase any of the products we review that they use our links. The commissions we receive from purchasing via our links (where available) will allow us to fund the future purchase of new systems and services to review as well as keep the site free.

We also ask that users return to the forum from time to time and provide their own feedback. It is only through this interaction that the site can be of benefit to all of us.

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