Big Mac Index

In the most fundamental sense, forex trading is about the differences in the real value of currencies. Money represents the value of a given economy.

And the prices of things within a country usually determine the long term price of currencies. Currency pairs fluctuate around those differences. But what does a McDonald’s hamburger have to do with that?

The Big Mac Index

For those who don’t know, the Big Mac Index is published by The Economist. It’s an unofficial way of measuring the relative value of currencies. The technical term for it is an informal measurement of PPP (which we’ll get to later). It turns out to be reliable enough to guide policy.

How it works is that McDonald’s makes its signature hamburger with the exact same ingredients no matter where it is in the world. And, manufacturing it requires a broad mix of consumer goods. These include meat, vegetables, … Read the rest

The Importance of Fundamental Analysis in Forex

Fundamental analysis is an approach to analyzing the markets by taking into account factors such as the social, economic and political issues. These factors tend to influence the supply and demand of the security in the question.

Fundamental analysis is one of two ways to analyze the forex markets. The other approach is the more widely popular technical analysis.

Both fundamental and technical analyses are important when you want to study the markets. However, traders mostly ignore the fundamentals when trading currencies and focus only on the technical analysis.

The general argument is that day traders who only trade within a small time frame need not concern themselves with fundamentals. This is because fundamentals are what tend to impact longer-term trends.

However, regardless of whether you are day trading or swing trading, it is important to pay attention to the fundamental developments in the markets as well. You can actually expect to … Read the rest