Gross Domestic Products

The GDP, or Gross Domestic Product, is the sum of the market value of goods and services produced within a country during a particular period. Growth in output is measured in real terms that do not account for inflation. This figure is one of the most comprehensive measures of a country’s economy and a huge indicator for standard of living. As such, the GDP is crucial for forex trading. Observing changes in a country’s GDP could mean a similar change in their currency, creating opportunities for the savvy forex broker or trader.

FX Trading Importance

Policymakers observe how the GDP shifts and use that information to make decisions about whether they should intervene in order to fix the economy. In the US, the Federal Reserve attempts to have continued economic growth, full employment, and price stability. By monitoring the GDP, inflation rates, and unemployment, the Fed works to achieve this goal.

The general equation for GDP, and the most popular for calculating it, is the expenditure method: GDP = consumption + investment + government spending + (exports – imports).

Another way to figure out a country’s GDP is to compare its worth in national currency with that of another country. Forex trading actually helps calculate what the GDP of a particular country is valued at.

A third means of comparison is to use the Purchasing Power Parity (PPP) exchange rate, which shows how much the country could actually purchase compared to a selected standard, such as the US dollar or Euro. This helps determine the actual standard of living for poorer, underdeveloped countries.

Using annual data regarding a country’s GDP, one can safely invest in currencies he or she sees as having a potential to raise in the FX trading market.

Check out more of our dedicated resource pages for more general info on forex trading indicators, including the Housing Starts and Building Permits report, the Industrial Production and Capacity Utilization report and theInitial Jobless Claims report.