Consumer Price Index (CPI)

A Consumer Price Index (CPI) examines the weighted average of prices of a basket of consumer goods and services purchased by households, such as transportation, food and medical care. The Consumer Price Index in the United States is defined by the Bureau of Labor Statistic as a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Changes in Consumer Price Index are used to assess price changes associated with the cost of living.

The annual percentage change in a Consumer Price Index is used as a measure of inflation.

A Consumer Price Index can be used to index (i.e., adjust for the effect of inflation) the real value of wages, salaries, pensions, for regulating prices and for deflating monetary magnitudes to show changes in real values. In most countries, the Consumer Price Index is one of the most closely watched national economic statistics.

Gross Domestic Product (GDP)

Gross Domestic Product (GDP) is the primary economic indicators used to gauge the health of a country's economy over a specific time period, as well as to gauge a country's standard of living, you can think of it as the size of the economy. Usually, GDP is calculated on an quarterly or annual basis. It includes all of the private and public consumption, government outlays, investments and exports less imports that occur within a defined territory. For examples, if compared to the previous calculated GDP and it is up 2%, which mean that the economy has grown by 2%.

GDP = C + G + I + (EXP - IMP)

Here is a description of each GDP component:

C (Consumption) - largest GDP component in the economy, consisting all private consumption, or consumer spending, in a nation's economy
G (Government) - the total of the government spending
I (Investment) - the total of all the country's business spending on capital
EXP (Export) - the nation's total net exports
IMP (Import) - the nation's total net imports

Basics of FOREX Theory

Disclaimer: Trading leveraged products such as Forex and CFDs may not be suitable for all investors as they carry a high degree of risk to your capital. Please ensure you fully understand the risks involved before trading, and if necessary seek independent advice.

Foreign Exchange Definition

Foreign exchange (Forex) is the cross-country exchange of currencies and is, single handedly, the largest and most liquid financial market in the world. With an estimated $1.5 trillion in currencies traded in a single day, it eclipses the trading of other types of commodities. Unlike other commodity trading, Forex has no centralized exchange and is traded primarily through banks, brokers, dealers, financial institutions and private individuals. Due to this ability for financial institutions to trade Forex, the Forex market is open 24 hours, 5 days a week (closes Saturday morning).

Prior to the late 1990's, Forex trading was only the practice for institutional traders and even though retail traders had access to trade the Forex market, only recently has it become popular and more common for individuals to trade Forex for profit. Most of the world's different country currencies are free floating; meaning they retain an individual value and will appreciate and depreciate against other currencies. Currencies are always listed in pairs as they need another currency to benchmark against.

Reasons for Trading Forex

Trading Forex has many purposes and you'll be surprised of the many levels traded that impact you and you're not even be aware of it. For every purchase you make, the contents, ingredients, by-products, parts or materials may not necessarily be from a domestic source. It could have been bought internationally and as such the exchange of foreign currency would have had to be taken place.

From a financial perspective, some people may trade the Forex market for profit. By taking a cross currency pair, they may exchange currency to a foreign designation hoping for domestic currency values to depreciate, thus when you convert it back you will receive more than you initially started.

For international importer or exporter of goods and services, there are great opportunities by having access to the international market. However, with fluctuating international currency rates, payment can sometimes be difficult. Initially companies make a sale for an agreed price, then on the day of payment the agreed value is significantly less than agreed to, due to a currency fluctuation is known as "foreign exchange risk".

You will find all types of businesses, from large financial institutions to small retail freight forwarders will practice foreign exchange hedging. Simply put, these companies will put in place measure to ensure that their agreed payment value will represent the same value at the day of payment regardless of currency value fluctuations.

The Eight (8) Major Currencies

Internationally, there are eight (8) currencies that are traded more than other currencies. These are often referred to as "Majors". These currencies are as follows:

1. USD - Unites States Dollar
2. JPY - Japanese Yen
3. GBP - British Pound
4. CAD - Canadian Dollar
5. EUR - European Currency Unit
6. CHF - Switzerland Dollar
7. AUD - Australian Dollar
8. NZD - New Zealand Dollar.

Certain parts of the world have part of their Saturday to trade, as it's still Friday in other markets.
Financial institution in these countries may be dealing with the Forex market during their work hours, the Forex market is open and trading 24 hours, 5 days a week. For someone living in the East Coast of Australia, the market hours for the corresponding markets are outlined below:

• New York session opens at 8:00pm and ends around 6:00am
• Sydney session starts at 6:00am and ends around 4:00pm
• Tokyo session begins at 7:00am and ends around 5:00pm
• Europe opens at 2:00pm and ends around 11:00pm.
• London opens at 3:00pm and ends around 12:00am.