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Basics of Fundamental Analysis

Razvan Mihai

Analyst

The Fundamental Analysis of a business involves analyzing its financial statements and health, management and competitive advantages. It is a technique that attempts to determine a security’s value by focusing on underlying factors that affect the business (or company) and its future prospects.

Often, fundamental analysis is used instead of macroeconomic analysis, when analyzing Forex. This type of fundamental analysis focuses on the overall state of the economy, and considers factors including manufacturing, management, employment, interest rates, production, inflation, earnings, housing and GDP.

Many investors use fundamental analysis alone or in combination with other tools to evaluate an economy or a financial instrument for investment purposes. The goal is to determine the current worth and, more importantly, how the market values the financial instrument.

This type of analysis was usually used for medium and long term investing. Nowadays, it is also used for short and very short term trading. Unexpected events are triggering high volatility which gives traders opportunities to speculate on the most affected financial instrument.

E.g. 1) Investor 1 is waiting for Apple Inc. to post its Q3 earnings. Estimations are that the EPS will be $2.5 per share. If the company will report a $5 profit per share, the probability for its price to rally is very big, so investor 1 could profit from the move.

E.g. 2) Investor 2 was expecting the release of the United States GDP for the previous quarter. The analysts were expecting a 2.2% growth, but the actual publication is 4.1% growth. Investor 2 will most likely speculate an appreciation for the US dollar for a short term period.

The Information or materials published or submitted by Forex Rally are exclusively for educational, informative or analysis purposes and cannot be considered recommendations to purchasing/selling/keeping of a particular financial instruments. They are not and should not be treated as indications or tips on trading strategies for real or demo accounts. Forex Rally warns the Users/Clients that past performance of Financial Instruments is not an indicator of future performance. Forex Rally assumes no responsibility for the outcome of transactions based on or influenced by any of the above-mentioned information. Forex Rally warns that Financial Derivative Instruments are complex instruments and leveraged products that involve a high level of risk which can result in high losses, including the risk of losing the entire capital invested by the Client. Such instruments might not be suitable for all Clients. The Client should not engage in transactions with such Financial Instruments unless he/she understands and accepts the risks involved by trading Financial Instruments, taking into account his/her investment objectives and level of experience.

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