This number represents the difference between the values of goods and services that a country exports and the value that it imports them at. A surplus occurs if the value of exports is greater than the value of imports, and a deficit occurs if the value of imports is greater than the value of exports. It is in a country’s interest to export more than it imports and thereby generate money that it can use to further its growth. This figure is usually released on a monthly basis.

Without people who work, there would be no economic activity. For this reason, unemployment is an important gauge of the health of a country’s economy and the pace of its economic growth. Increasing unemployment (or decreasing employment, as it is sometimes also referred to as), has a negative effect on a country’s economic growth, while decreasing unemployment (or rising employment) is seen as a positive sign for the economy. Because rising unemployment signals a troubled economy, the market expects the central bank to reduce interest rates in order to increase the supply of money and help boost economic activity and growth. As we saw earlier, the expectation of a rate cut tends to weaken the currency. The converse is true when unemployment is falling – a fast growing economy may soon experience increased inflation because of all

the financial activity taking place, and to prevent inflation from getting out of hand central banks are likely to increase interest rates. As a result of the expected rate hike, the currency is likely to appreciate. As well as unemployment and employment figures, other common labor-related indicators are US Non-Farm Payrolls (NFP), Private Payrolls and Claimant Count, and usually come out on a monthly basis. By far the most important employment indicator is the US NFP, as it tends to have the greatest effect on the forex market. It represents the change in the number of employed people during the previous month (excluding the farming industry), and is released shortly after the month ends, on the first Friday of the following month.

High inflation erodes the value of a currency and is therefore considered very bad for any economy in most circumstances. Central banks normally target an inflation level of around 2-3%, and if their target is exceeded, they usually take action to get back to the desired levels. When inflation is high, the market begins to expect that central banks may increase interest rates, reducing the supply of money in the economy, and lowering inflation. The expectation of an interest rate hike will cause the currency to strengthen, as the market prices-in the anticipated change in an effort to benefit from an announcement before it is officially made. Common measures of inflation include the Consumer Price Index (CPI) and the Producer Price Index (PPI), and are usually released on a monthly basis.

Note:If inflation is above expectations, the currency is likely to strengthen, while lower than expected inflation is likely to weaken the currency.

A country’s Gross Domestic Product is the value of all goods and services produced within a country in a given time period. It represents the health of a country’s economy, High inflation erodes the value of a currency and is therefore considered very bad for any economy in most circumstances. Central banks normally target an inflation level of around 2-3%, and if their target is exceeded, they usually take action to get back to the desired levels. When inflation is high, the market begins to expect that central banks may increase interest rates, reducing the supply of money Inflation which directly affects the strength of its currency. GDP is normally released monthly or quarterly, and the outcome is compared to the country’s forecasted growth.
Note: Traders compare the actual GDP with what the market is/was expecting. If GDP exceeds the forecast, the currency is likely to strengthen, while a lower than expected GDP release tends to weaken the currency

Interest rates are perhaps the single most important indicator when it comes to determining a currency’s long term value. In fact, most other economic indicators affect a currency’s exchange rate because they imply a potential change in interest rates. Central banks usually announce interest rates every month, with the whole Forex market closely watching to see what they will do. By adjusting interest rates, a central bank can control the supply of its currency, directly affecting its value. If interest rates are increased, it becomes more expensive to borrow and more attractive to save, causing the amount of money in circulation to shrink as people store more money in the banks. The money supply is thereby reduced, and as lower supply causes higher prices, the domestic currency strengthens. Conversely, if interest rates are cut, borrowing from banks becomes cheaper and saving becomes less attractive, causing the supply of money in free circulation to increase, resulting in a weaker currency. Major sources that release interest rate announcements are outlined in the table below. Note that you should focus on rate announcements from the countries whose currencies you are trading.

Fundamental analysis can be defined as the study of a country’s economic and financial performance in order to determine the fair market value and future direction of its currency. Fundamentals focus on factors that determine exchange rates, such as countries’ economic health, political stability, and environmental events. A popular way to gauge the health of a country’s economy is through looking at its economic indicators and data releases, which is why every trader should be familiar with them and how they influence the value of a currency

Data Releases: Data releases on their own are not as important as whether they come out above or below market expectations. In other words, in addition to knowing the data that will be released, it is also important to know what the market is expecting the data to come out as. For example, if unemployment comes out at 5%, lower than the previous month’s data release of 5.1%, this may seem like good news. However, the market will react negatively to this release if the expectation was that unemployment would fall to 4.5%. For this reason, you should always know what the market is expecting in order to evaluate whether the actual data release is a positive or a negative surprise. You should also note that the more a data release deviates from expectations, the more it will impact on exchange rates. In the short term, the market typically reacts to any data release within half an hour from the time it is announced. After that, exchange rates usually settle and give you a chance to analyze the longer term implications of the news. You can follow the day’s major data releases and expected results on the easy-forex financial calendar, under the research & analysis section of our website. Now let’s have a look at some major indicators every trader should know and follow.

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If you are day trading, you usually hold your position open anywhere from a few minutes to a few hours and generally not longer than a day - hence the name, “day trading”. A medium-term trader will look to get the general market direction right and profit from more significant currency rate moves. This kind of trading requires many of the same skills that a day trader would use, especially when it comes to entering and exiting positions. However it also demands a broader view on the markets, additional analytical work as well as much more patience. Chapter 3 and 4 provide you with the basic tools and knowledge to take your trading further.

Setting a stop loss is a way to limit your risk. You decide upfront what your maximum loss could be by choosing the stop loss rate. If the market reaches that rate, your deal will be automatically closed. Since you are the person setting the rate, you are in control of your investment. Setting a take profit rate works in the same way. You decide on a desirable profit amount and your deal is automatically closed when the profit rate you have chosen is reached. Using a take profit rate helps you to control your trading without having to continuously monitor your position.
Types of Orders: 
You can decide to open a day trade, limit order or forward order.

• A day trade, also known as a market order, is an order to buy or sell at the best available price. This type of order is typically executed immediately.
• A limit order is an order to open a day trade deal at a rate that you have pre-defined when and if the market reaches that rate. The limit order will remain pending (i.e. waiting to be turned into a day trade) until the market reaches that rate, or the time expires. It has the usual features of a day trade, including a margin requirement.
• A forward order is an open trade with a value date greater than the spot value date. It has the usual features of a day trade, including a margin requirement. All three types of orders can have tailored stop loss and take profit rates set by you, in order to help you manage your risk.

Through the use of leverage, traders are able to invest a small amount of money and trade much larger deal sizes. This is useful because the movement in currency rates can be very small, and larger trades represent larger profits/losses for every pip change in the rate. Leverage allows you to trade with more money than you have in your account, because you effectively “leverage” your free balance to open a larger trade. Leverage is shown as a ratio, for example 1:100. Note that leverage amplifies both potential profits and losses alike.