Fundamental Analysis

Always perform a fundamental analysis
Do not lose what the fundamental analysis is able to bring into the table

Fundamental analysis is a wide approach to evaluate the performance of a business. When a trader wants to invest his capital in the long run, let’s say 3 up to 5 years, it is very important to know the company in detail and in different points of views. Anyone who has the determination to learn can be a fundamental trader, there is no need to have a strong background in accountability and other related fields. You need to have some fundamental skills: basic knowledge over financial statements, understanding how businesses inside an industry operate and basic mathematical operations.

There are some key factors which need to be analysed when deciding to go for a long term trading with stacks: earnings per share (EPS), price-to-earnings ratio (P/E), projected earnings growth (PEG), price-to-sales ratio (P/S), price-to-book ratio (P/B), book value, dividend payout ratio, dividend yield, return on equity. Fundamental analysis is referred to differently as trading the news. It is the study of financial events, news and statistics to find out trading opportunities. Traders who base their activity mostly in news and events, are called fundamentalist and they pay attention to interest rates, employment rates and inflation. There are two analyses, top down and bottom-up. The difference is that the top down analysis begins analysing from macroeconomic factors to end up to those currency pairs which represent potential profits. Button-up analysis starts from analysing the currency pairs to end up with analysing macroeconomic factors. 

Fundamental analysis is the method of measuring the value of an asset by counting on related economic and financial factors. Fundamental analysts’ study anything that can affect the asset’s value, from macroeconomic factors such as the state of the economy and industry conditions to microeconomic factors like the effectiveness of the company’s management. The final goal is to arrive at a number that an investor can compare with an asset’s current price in order to see whether the asset is undervalued or overvalued.

Defining prices based on future earnings- it is focused dominantly on factors such as the general state of the economy, interest rates, production, earnings, and management. Fundamental analysis is a way of evaluating an asset; it tries to measure price movements by examining the underlying forces that could affect the assets. Central Banks in each country have different tools with which they can influence the economic situation. Most Central Banks are worried about inflation and price stability. The paths which are used to achieve price stability and controlled inflation rates depend on the independence of these Central Banks. Main factors which influence the fundamental analysis:

Political News – In times of crisis or war, investors would usually buy a safe-haven currency (flight to quality) which has traditionally been the US Dollar. However, in recent years, the US Dollar seems to have lost its safe haven status and has been has been replaced by Gold and the Swiss Franc 

Market Expectations – “Buy the rumour, sell the fact” – It has been observed that prices tend to move primarily on expectations of certain events, economic data and political news rather than the actual data or news being released.

Unemployment & Non-farm Payroll – The number of people in employment in the US is perhaps the single most important economic variable the Federal Reserve base their interest rate policy on. It is also regarded as the most important monthly report about the status of the economy, released on the first Friday of every month.

Unemployment Rate – Unemployment Rate is the percentage of unemployed workers within the working population. High unemployment is a major social problem due to lessening of living standards and personal distress. When unemployment is very high, it is considered as the major social and political issue.

The range of financial instruments

FIAT CURRENCIES

STOCKS

ENERGY

METALS

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