Fundamental Analysisadmin 8 August 2021
what you read here:
- 1 What is fundamental analysis?
- 2 The basics of fundamental analysis
- 3 The advantages of using this analysis
- 4 Application of fundamental analysis in different markets
- 5 The purpose of fundamental analysis in the markets
- 6 Influential factors of fundamental analysis in the Forex market
- 7 Fundamental analysis vs technical analysis
- 8 Conclusion
Fundamental analysis is one of the most necessary analytic methods for entering financial markets. Due to the daily expansion of global markets and transactions that are worth billions of dollars, the necessity of using different methods to increase each investor’s share in the market is highlighted more than before.
Making profits from the short fluctuations of the market or long-term investment is the goal of almost all investors who join the biggest financial market in the world. But some may ask how to make a profit from the market fluctuations? Or what’s the difference between technical or fundamental analysis? We will talk about them in the following.
What is fundamental analysis?
Fundamental analysis is a method to analyze the markets by considering the social, economic, and political conditions which directly affected supply and demand levels. This type of analysis is an approach that focuses on the real value of the investment. Understanding this analysis can significantly help to identify real value and pricing. In addition, this analysis in the forex markets requires analyzing various economical indices.
The basics of fundamental analysis
The good news is that you don’t need a college degree to understand the basics of this analysis. However, having primary information can help you understand the effects of this analysis in a better way.
One of the easiest ways for learning fundamental analysis is following economic news. Different events are mentioned in the forex economic calendar with their exact times in daily, weekly or monthly forms. Follow DeltaFX forex broker to see the latest news and important economic events. The economic calendar also shows you more details such as the effects of news on different currencies, the exact time of issuing news, predictions and old figures.
Considering the published data, you can have a broader view and a more accurate judgment of future market movements. For example, according to the monthly market reports, a fall in the unemployment rate of the United States indicates an improvement in market conditions. So, according to forecasts and previous rates, you can expect an upward movement in the markets when this rate rises. Considering the above, if you look at the USD/CAD chart, you will see that the US dollar value is rising against the Canadian dollar. In other words, USD is experiencing an uptrend against every other currency.
The fundamental analysis basics are effective about long-term trends, and their effect is low for day trading or short-term trades. However, if you’re a day trader or swing trader, paying attention to fundamental news in markets is crucial.
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The advantages of using this analysis
Fundamental analysis is one of the two basic and important parts of analyzing foreign exchange markets and other financial markets. Using this analysis in trading will help you to be aware of the factors influencing pricing. Yet, by combining technical analysis and fundamental analysis, you will better understand the markets.
Application of fundamental analysis in different markets
Given the great diversity of financial markets globally and the popularity of trading in markets such as the world stock exchange, Forex, cryptocurrencies, and the gold market, it is essential to know that fundamental analysis in each market has different influential factors.
For example, in the fundamental analysis of international stock exchanges and the Forex market, economic and political news, financial reports, the list of imports and exports of different countries, and relations between two or more countries directly impact prices, especially the value of the currency.
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Furthermore, this analysis can identify companies that have valuable stocks. For example, by determining the earnings per share (EPS), price to earnings ratio (P/E), or the price/earnings to growth ratio (PEG) and other factors, fundamental analysis tries to present a complete and accurate picture of a company’s activities and its profitability trend.
The purpose of fundamental analysis in the markets
The ultimate goal of this analysis is to determine the real value of an asset to be compared with the current price to determine whether the asset is suitable for investment. By knowing the real value of an asset, you can decide if its price will increase or decrease.
Influential factors of fundamental analysis in the Forex market
You have already known that the Forex market is a currency pair market. In this market is the value of one country’s currency is evaluated against another. To provide an accurate fundamental analysis, you need to look at the economy and its influential factors in each country. For example, by reviewing factors such as unemployment, inflation, interest rates, budget balance, and other economic indicators mentioned above, you will be able to evaluate the economy of a region as closely as possible.
Fundamental analysis vs technical analysis
As mentioned in previous articles, technical analysis tries to predict the future of any asset by considering factors such as price and trading volume. Therefore, we can conclude that technical analysis focuses on the trend formation process.
However, the fundamental analysis evaluates the factors and events that play an important role in buying and selling assets. In other words, fundamental analysis tries to explain the reason for each event. You can evaluate or predict the value of an asset using this type of analysis.
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If you decide to use short-term trades, using technical analysis will be a good option for you. However, if you prefer long-term investments, fundamental analysis is a better option for you. It is best to keep in mind that there is another type of analysis called sentiment analysis. This type of analysis evaluates the dominant feelings of individuals and traders towards a particular asset and the related transactions. That is why this analysis is very similar to fundamental analysis.
Fundamental analysis is one of the most important and main methods for predicting the price of stocks or securities or any other asset that has been created for the use of investors in financial markets. This analysis evaluates the factors that fundamentally affect the price of an asset. It would be best to do a fundamental analysis for anything you want to buy or sell to make sure your investment is profitable.
❓What factors are important in the fundamental analysis of cryptocurrencies?
✅In general, you should first pay attention to the supply and demand levels of the intended cryptocurrency. Then you should research the future of that cryptocurrency and gain enough information before trading it. You should check if mining that cryptocurrency is worth your time and money. Mining expenses can be very high, and if the price of that cryptocurrency falls, you may lose a lot of money.
Another effective factor that you should keep in mind is the trading volume in long periods, such as one month. The high trading volume in a specific period shows the high demand for that currency and, ultimately, its value. Finally, you should calculate the market cap with the following formula: the number of cryptocurrencies in circulation * the price of each unit. The higher the market cap, the more valuable that cryptocurrency is.