Fundamental Analysis

Forex and CFD traders must understand the difference between fundamental analysis and technical analysis. Traders always argue about the best schools. This article will look at the basics of Forex / CFD fundamental analysis and how to use this form of market analysis. Most brokers try to sell Forex and CFD trading by throwing terms like economic calendar, NFP, trading events, and fundamental analysis at prospective clients. They make it seem like trading is as straightforward as checking the calendar for notable announcements. However, trading on events and following the economic calendar is not easy and should not be confused with fundamental analysis.

Fundamental analysis is the study of events and factors that affect the price of financial instruments, such as stocks, commodities, indices and currencies. Unlike technical analysis, fundamental analysis involves analyzing financial and economic data to measure the intrinsic value of the underlying asset. This data can range from major global events to company data. Many events are interconnected, affecting the prices of different asset classes and different assets.

Assets always have intrinsic value and market value. When intrinsic and market values ​​diverge, there is an opening for a correction when an important news item is announced. This news can trigger changes to the intrinsic value or basis of the asset, leading to certain reactions from traders and other market participants following the asset. Their response forces the value of the asset to oscillate towards the intrinsic value of the asset. Comparing the intrinsic value of an asset with its market value to buy or sell is the basis of fundamental analysis.

It is impossible to understand every piece of information that is released. Fortunately, traders can choose several assets to trade and focus their attention on those assets, and on the fundamental events and factors that affect them. This is made possible by the advent of the internet. However, it is also important to follow more general global and financial headlines to put the information into a larger context.

Some factors to consider when using fundamental analysis include:

• Natural events that can affect power supply and demand
• Political events that can have a significant impact on the prices of different assets
• Financial market sentiment
• The release of economic data such as GDP, interest rates, retail sales, and unemployment

Conducting fundamental analysis is the same for every currency pair or underlying asset, but traders should be aware that the factors that cause shifts in the fundamentals of these assets can vary with each asset class. For example, agricultural commodity prices will be affected by natural events such as weather patterns and disease. For stocks, traders should look at factors such as mergers and acquisitions, earnings reports, company news, etc. Currencies are most affected by changes in interest rates, growth rates in the world economy, and geopolitical events.

Fundamental analysis is a useful tool, designed to give traders a better view of the market. It also allows them to anticipate and predict future price trends to help increase success in the market.