Fundamental analysis is one of the ways to analyse financial markets and identify the best time to open a trade. Unlike technical analysis, which evaluates past price movements, fundamental analysis focuses on current and upcoming economic and political events that affect price movements.To get more news about bullion by post review, you can visit wikifx.com official website.
The main purpose of fundamental analysis is to determine whether the current market price of an asset reflects its real value. The discrepancies between the two numbers provide buy and sell signals:The asset's real value also referred to as true or intrinsic value, can be influenced by many factors, both local (microeconomic) and international (macroeconomic). Fundamental analysis takes into account all these factors and combines the findings to predict market price movements.
Microeconomic analysis studies factors that affect the performance of businesses and companies. Macroeconomic analysis, by contrast, examines broader factors that affect the national, regional, or international economy as a whole.
Fundamental analysis is especially popular among stock traders because publicly traded companies have a lot of information easily accessible to anyone, making market evaluation much easier. However, you can also perform fundamental analysis on all the other financial markets using data from different sources.
One of the most important documents to study when evaluating individual stocks is a company’s balance sheet – a summary of the company’s financial activities.The other 2 important documents that can supplement the balance sheet analysis are the income and cash flow statements.
Once a company is studied internally, it's important to compare it with its competitors and evaluate the entire industry's health and the country's economy. This will give you a complete overview of the stock’s real value.
Fundamental analysis of stock indices
As a stock index represents a collection of individual stocks, the first step in analysing an index is to evaluate each stock individually. Once you have an overview of each stock, the next step is to compare it with a whole index.
This will give you a chance to identify the top-performing stocks you need to pay close attention to and the stocks that don’t play a significant role in the index.
The last step is to evaluate the industry or the country’s economic situation, depending on the index you analyse. The fundamental analysis of forex pairs measures the strength of a currency, so the main data to analyse is the country’s economic state. Numbers such as GDP (gross domestic product), inflation, and the central bank's interest rate are important indicators of the economy's health.
In addition, it’s crucial to keep abreast of political and social events that may influence the currency’s price movement. For example, Brexit caused a significant fall of the GBP, and mass demonstrations in the US in May-June 2021 resulted in the drop of the USD’s value.
Since the commodity market is primarily made of natural resources, its prices are driven by physical supply and demand. This means the price movements are influenced not only by political and economic events but also by natural disasters.
For example, droughts and floods have a significant effect on agricultural resources, causing shortages and decreasing supply, which leads to increasing prices.
One of the main sources of information about the supply and demand of commodity assets is the Commitments of Traders (COT) report, published by the Commodity Futures Trading Commission. This report provides weekly updates on the state of the commodity market, offering a valuable indication of the upcoming price movements.
