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ForexSuccessfulTraders

Economics 101
FxST Trader Handout

Dedicated to Making the Art and Science of Trading Forex Available to Anyone Who Has a Passion to Create Their Own Financial Future

2012

Copyright 2009 -2012 World Currency Traders, LLC. All Rights Reserved www.ForexSuccessfulTraders.com

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Risk Disclosure Statement


By your viewing and usage of the information contained in the following pages, you agree to the below terms, conditions and associated risks. The risk of loss in trading can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. If you purchase of sell Equities, Futures, Currencies or Options you may sustain a total loss of the initial margin funds and any additional funds that you deposit with your broker to establish or maintain your position. If the market moves against your position, you may be called upon by your broker to deposit a substantial amount of additional margin funds on short notice, in order to maintain your position. If you do not provide the required funds within the prescribed time, your position may be liquidated at a loss, and you may be liable for any resulting deficit in your account. Under certain market conditions, you may find it difficult or impossible to liquidate a position. This can occur, for example, when the market makes a limit move. The placements of contingent orders by you, such as a stop-loss or stop-limit order, will not necessarily limit your losses to the intended amounts, since market conditions may make it impossible to execute such orders. The high degree of leverage that is often obtainable in equities trading can work against you as well as for you. The use of leverage can lead to large losses as well as gains. This brief statement cannot disclose all the risks and other significant aspects of the markets. You should therefore, carefully study this disclosure notice before you trade. The mention or discussion of any securities within this report does not imply the purchase or sell of any securities or the recommendation to purchase or sell any securities. Any discussion is strictly for instructional and educational purposes only. Notice: Intraday trading (day trading) is very risky, and is not suitable for everyone.

Disclaimer: During an online training program, and/or on location, demonstrations may be provided. Hypothetical or simulated performance results have certain inherent limitations unlike an actual performance record; simulated results do not represent actual trading. Since the trades have not been executed, the results may have under or over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown or implied in any of the Daily Trade Logs or training program.
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No Advice: You understand that we provide no tax, legal or investment advice of any kind, nor do we give advice or offer any opinion with respect to the nature, potential value or suitability of any particular securities transaction or investment strategy. You further understand that while you may be able to access investment research reports through the internet from the website, including computerized online services; the availability of such information does not constitute a recommendation to buy or sell any of the securities discussed therein. Any investment decisions you make will be base solely on your own evaluation of your financial circumstances and investment objectives. No Claim, Solicitation, or Guarantee: No representation is being made that an account will or is likely to achieve profits or losses similar to ones own shown or implied in any training program, or while as a user of our services. The student and/or user must carefully consider their suitability to trade and their ability to bear financial risk. The entire risk of use and consequences of use of the trading methods contained in this program fall completely on the student. The student should be aware that no guarantee of a profit has been said, made, or implied. Paper/Demo Trading: We recommend that all information contained in any program be thoroughly tested by the student via paper/demo trading (without the risk of real funds) until the student and/or user/member has learned the methodology and proved to themselves that the methodology can assist them in generating consistent profitable returns. The student, and/or user should be aware that paper trading is substantially different than trading with real funds. Slippage, fill prices, and fast market conditions cannot be accurately accounted for in paper trading. Therefore, it is recommended that when paper/demo trading, the student uses a strategy of deducting from their paper trades, a minimum of 3 times the average round turn commission rate per contract. (Example- if the average round turn commission rate per contract is approximately $10, then the student can show consistent profits while deducting these hypothetical higher commission rates from their paper trades, then there is a higher probability that they will have similar profitable success when trading with real funds. This strategy will attempt to account for some of the slippage, but this strategy is not a guarantee of less risk nor does it account for all of the possibilities and risks that can occur when trading with real funds. Changes in Strategy: Due to ever changing market conditions, any program provided may expand, revise or alter its trading strategies. In the event that the student decides to take position in any market, any such changes in strategy may result in exposure of their account assets to additional risks that may be substantial. Past performance is not necessarily indicative of future results.

Copyright 2009 -2012 World Currency Traders, LLC. All Rights Reserved www.ForexSuccessfulTraders.com

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FxST Economics 101


Economics Every Trader Should Know
The Basic Concept of an Economy: The price of a currency will be influenced by the economy. The effects of inflation or deflation determined dollar direction. The health of the economy is determined by the reports below. Fundamental Analysis: I look at the various reports as part of a jigsaw puzzle. As each new piece of the puzzle is found and correctly place, in the big picture according to importance and overall impact, the direction of the currency becomes obvious. The Business Cycle: The business cycle represents a repetitive succession of changes in the economic activity. The business cycle has four phases: 1. Expansion (also called recovery) 2. Peak 3. Recession (also called contraction) 4. Trough In the expansion phase, business activity is growing, production and demand are increasing and employment is expanding. Business and consumers normally borrow money to expand, which causes interest rates to rise. There is a precarious balance between rising interest rates and the growth of the economy. Currencies are very sensitive to interest rates. Many economic reports are interpreted directly by their potential effect on how the central bank may view the results. Never underestimate the power of interest rates to move the market.

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Consumer Price Index (CPI) Rises: Reflects the trend of the average price of a bundle of consumer goods. This figure is positively related to inflation and if the CPI rises, this indicates rising inflation. Producer Price Index (PPI) Rises: Reflects the trend of producers costs. This figure is positively related to inflation. If this price index rises, this indicates rising inflation. Demand for goods rises as well as prices. Given higher costs, investors require higher rates of return. This pushes rates up to reduce inflationary pressures. Retail Sales Rises: Reflects the purchasing power of an economy. This indicates stronger economic growth. Fed may have to tighten interest rates. Personal Income Rises: Shows the growth in average income. The higher ones income, the more the individual consumes, prompting increases in demand and higher prices for consumer goods. Personal Consumption Expenditure (PCE) Rises: Shows the growth in average expenditure. If the PCE rises, there is a demand in consumer goods. Prime Rates Rise: The interest rate charged to highly reputable customers of banks. If the rates rise there will be less borrowing and expenditures. Fed Raises Discount Rate: Interest charged by the central banks to commercial banks when borrowing money. Higher rates attract short-term inflow of investment. Therefore, an increase in the borrowing rate for banks from the Fed usually results in increased rates for banks clients. This action is used to slow credit expansion. Market Impact: US Dollar Index DOWN

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Federal Funds Rate: The interbank rate for borrowing or lending cash to meet reserve requirement. If the rates rise, there will be less borrowing and expenditures. Market Impact: US Dollar Index DOWN

Fed Buys Bills: Fed adds to banking system reserves which may lead to a drop in rates. Market Impact: US Dollar Index UP

Durable Goods Order Rise: The amount of orders received by manufacturers. The higher the figure, the better the economy. Pickup in business activity usually leads to increased credit demand. This may subsequently cause interest rates to rise. Market Impact: US Dollar Index UP

Gross Domestic Product (GDP) Falls: This figure reflects the growth and the economic situation of a country. If GDP falls, this reflects a slowing economy. Fed may loosen the money supply prompting a decline in interest rate. Market Impact: US Dollar Index DOWN

Housing Starts Rise: Shows growth in economy and increased credit demand. Fed less accommodating and any attempt tightening by allowing interest rates to rise Market Impact: US Dollar Index UP

Industrial Production: The industrial output of an economy. The higher the figure, the better the economy. If production falls, however, this indicates slowing economic growth. If the fall was low enough, the Fed may be more accommodating in allowing interest rates to fall to stimulate the economy. Market Impact: US Dollar Index DOWN

Inventories Up: Unsold output and the currency of this country could be weakened. This indicates a slowing economy since sales are not keeping up with production.
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Market Impact: US Dollar Index DOWN

Oil Price Falls: This reduces upward pressure on interest rates, thereby enhancing prices of debt securities. Market Impact: US Dollar Index DOWN

Precious Metals Prices Fall: This reflects decreased inflation. Demand for inflation hedges a debt. Market Impact: US Dollar Index DOWN

Unemployment Rises: A rate showing the percentage of the unemployed workers within the total population. If unemployment rises, this indicates slow economic growth. Fed may ease credit-causing rates to drop. Market Impact: US Dollar Index DOWN

Fed Repurchase Agreements: Fed puts money into the banking system to purchase collateral and agree to resell it later. This helps bring interest rates down. Market Impact: US Dollar Index UP

Fed Reserves of Matched Sales: Fed takes money from the system by selling collateral and agreeing to repurchase some at later dates. This decrease in the money supply generally raises interest rates. Market Impact: US Dollar Index DOWN

Money Supply Increase (M2,M2,M3): Excess money supply growth can cause inflation and generate fears that the Fed may tighten money growth by allowing the Fed funds rates to rise. which in turn, lowers future prices. Market Impact: US Dollar Index UP

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Balance of Payments: A statement in which all the revenues and expenditures of a country with the rest of the world are recorded. Non-Farm Payroll: The figure is the amount of employed overall and reflects the health of the commercial and industrial sector of an economy. The size of this figure is beneficial to the currency of a country. Market Impact: US Dollar Index UP

Capital Utilization: This figure is high when an economy is strong. A high figure is beneficial to the currency of a country. Market Impact: US Dollar Index UP

To Your Success,

ForexSuccessfulTraders

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