The Red Flags of Forex

Any person who trades on the forex market will tell you that there is no clear cut way of telling which currency will be the next big thing on the foreign exchange. You see, there are many indicators that forex investors and forex brokers have to consider when they're trying to predict the direction of a country's currency. Almost all of them are one or another kind of report that is based on the economic activity in the country.

A country's gross domestic product (GDP) is one of the primary forex indicators that investors and brokers monitor. A country's GDP is basically the sum of all products and services sold within its borders or territories, using that country's currency. Unemployment, consumer spending and many other factors contribute to the rise or decline of the GDP, so it's basically a melting pot of several other foreign exchange indicators. A low GDP can potentially hurt (read: lower the international price) of a country's economy. It's seen as one of the primary indicators not only of the value of a country's currency but also of its overall economic state and development.

Retail sales reports make up another major forex indicator. As the name would imply, a retail sales report is the total amount of money spent in retail stores. It directly reflects patterns and fluctuations in consumer spending and could help one tell the overall direction of the country's economy. It also shows the effects of any previous event, such as a dip in the price of a certain currency, on the consumer market.

Closely related to the retail sales report is the consumer price index (CPI). It's a report on the changes and fluctuations in the prices of consumer goods in many categories. Like the retail sales report, a country's CPI can and will most probably reflect previous economic events and activities like a dip in the foreign exchange value of that country's currency. It's closely connected to reports on the same country's exports because a comparison would show the prices of consumer market goods react to changes in the forex market (and vice versa).

If and should you ever make a forex investment, make sure to consider several factors carefully. The ones above are a mere fraction of the actual number of factors you could actually use to formulate your decision. You can ask your broker for access to certain less publicized reports like the ones on housing. With the sheer amount of money at risk in a foreign exchange investment, it should be one decision that is neither rushed nor taken lightly.