Forex Trading Tools You Ought to know

Just as any profession goes hand-in-hand with the necessary tools, in order to become a successful forex trader, you need to equip yourself with the right tools. At the top of the list of these tools is the forex news economic calendar.

What is the economic calendar?

An economic calendar is a schedule that keeps track of major economic events around the world. Events such as interest rate decisions, monetary policy statements, employment statistics, GDP announcement, consumer price indices and even bank holidays. These events make up the economic news calendar and they play a big role in how currencies and commodities move in the forex market.

While all these events may be unique and are announced individually for each country, they often tend to have a ripple effect on many economic markets. As a matter of fact, each country has its own economic calendar but online brokers often provide a forex economic calendar that puts together the major events.

For this reason, it is very important to create a forex trading strategy/plan based around these economic events.

Why do you need this tool?

Forex trading falls under a special category of careers whose most important asset a trader can have is information and access to relevant news. If you do not have access to this information, you risk exposing your funds to huge losses. If you have access to this information and you use it wisely, then you will find that making money in the forex market is very easy.

When the value of currencies or a commodity change, it is mostly because of two reasons:

  • Fundamental reasons
  • Sentimental reasons

Fundamental analysis

Fundamental analysis is described as looking at the intrinsic value of a currency or commodity. It involves looking at every aspect of the currency such as economic forces, political forces and even social forces in an economy.

For example, if you would like to trade the EUR/USD pair, you need to perform fundamental analysis on the US dollar. You would start by considering how strong or weak it is in the United States. This means you have to research on things like:

  • What are the monetary polices the United States Federal Reserve has put in place to regulate the US dollar?
  • Where does the economy stand in regards to the gross domestic product (GDP)?
  • How is the economy performing in regards to inflation?
  • Is the US exporting or importing goods and services to and from other countries and if so which is more? This would affect how much money is leaving the US from imports and how much is coming in from exports.

From here, you would need to perform a similar analysis on the Euro and by doing this analysis, one is able to ascertain how the USD will perform when paired against the Euro. This informs your decision on whether to buy or sell the pair in order to make a profit.

Sentimental analysis

Sentimental analysis refers to how market participants ‘feel’ about a certain currency or commodity. For example, each month the US government releases employment data popularly known as the Nonfarm-payrolls (NFP).

This is often used as an indication on how the status of the US economy; if the number increases as expected, it indicates steady growth of the economy and vice versa. However, if this number increases or decreases beyond expectation, it could indicate an onset of inflation or deflation which are both bad for the economy.

Using such information majority of traders in the forex market may infer or ‘feel’ that the USD dollar is getting stronger, so they will buy it in large amounts, meaning that its value will go up. This increase in demand for USD may inadvertently cause the value of other currencies such as the Euro to go down. For a forex trader, this would mean that selling EUR/USD would result in a profit.

Forex news economic calendar

As we mentioned earlier, several online forex brokers offer economic calendars. Considering the fact that every country has its own unique economic events that happen every day it may not be feasible to add all these events to one economic calendar.

As such, most of these online forex brokers put together a live economic calendar that captures only the economic events that would have a significant effect on a global scale. This means that you can watch the events on the calendar unfolding in real time and take strategic positions in the market that will result in profits.

Some brokers have gone a step further to incorporate filters on the forex news calendars that allow the trader to choose which events to see based on how much volatility they are expected to cause in the forex market. The top 5 major economic that you need to look out for while creating your forex trading strategy include:

  1. Interest rate decision (Central bank)
  2. Gross domestic product
  3. Inflation/deflation data
  4. Jobs (what is the employment rate in the country)
  5. Trade balance

If you have any questions, please ask below!