Although high leverage allows a trader to open very large positions, magnifying their exposure to the market - such margin may also be risky, magnifying potential losses.

fundamental analysis

For a currency trader, fundamental analysis focuses on key underlying economic and political factors to determine the direction of a currency's value. There are a number of fundamental indicators traders may follow that reflect how an economy is changing and gleam insight into Forex market prices to come.

Why Is It Helpful?
In the long run, fundamentals drive price action by answering key questions regarding current events. Some common questions for the forex market are:
• Is the economy expanding rapidly or contracting?
• What parts of the economy are booming or about to bust?
• Are new jobs being created?
• What parts of the economy are central bankers most concerned with?


You can use the answers to these questions to determine if a currency will be strong or weak in the future.

What Fundamentals Are Worthwhile?
You should look at the most important fundamental variables and compare them to determine the true health of the economy. The most important variables will change year to year as international trade dynamics evolve and central bankers & investors redirect their fixations.

Most investors look at three key variables: monetary indicators, economic indicators, and sentiment. Let's take a look into these variables by evaluating the US economy. Here is a brief explanation and example of each.