Fundamental analysis is a widely used by traders to assess the technical exchange rates. It is based on the economic fundamentals of the forex market and the macro-economic situation of a company, region or country. Traders indeed take into account the economic, social and politics of a country to assess its currency while comparing it to others. If the economy of a country is in good health, it is likely that traders invest on its currency and that it positively influences its course. The purpose of this analysis is whether the organization or the country is economically viable.
Fundamental analysis is more complex than the technical analysis which is based on the evolution of graphics. This is also why it is used by professionals as by individuals.
The basis of fundamental analysis
Fundamental analysis is based on several macroeconomic factors, that is to say, the factors related to the economic health of business or a country. The most important are: the GDP , the rate of Central bank interest , consumer confidence, inflation and consumer spending, unemployment rates and fiscal and monetary policies of governments.
Depending on the context, some statistics are more important than others. That's why experts recommend to be based on the medium and long term rather than the short term. For example, quarterly data from a fundamental analysis will be more reliable than the weekly or monthly data.
Factors that influence the results of fundamental analysis are classified into two broad categories: quantitative and qualitative factors. Indeed, quantitative factors are the elements of the company or country can be encrypted. As part of a business, these factors account for the financial statements to evaluate profits, assets and results accurately. But in the context of a country, the analysis takes into account the economic health or the country's growth rate. As for qualitative factors, they represent the political situation of a region or country and intangible factors of a business (radiation of the brand, the management adopted, etc.).
Understanding the concept of intrinsic value fundamental analysis
In fundamental analysis, remember that the price of a share is not its real value. This hidden value is called "intrinsic value" by experts in finance. For example, if a stock is traded on the stock exchange at 40 €, the specialist can say that it has an intrinsic value of 47 € if it finishes doing its job. This is determining the intrinsic value of a share that the financial analyst can deduce its real value. This value is therefore of paramount importance in achieving the fundamental analysis.
To make a profit, it is advisable to buy shares traded at a lower price than its intrinsic value. The aim is to hope that the long-term stock trades to its intrinsic value on the stock markets. Since markets are volatile, the reverse can also be beneficial for the investor in binary options greatestbinaryoptions.com.
How to practice fundamental analysis?
Many periodic reports on economic indications from some countries (USA, Japan, England, France ...), whose currencies are traded in Forex, are published in newspapers and agencies such as Wall Street Journal and Bloomberg Reuters. Economic indicators identified in these reports weigh on market volatility and fluctuation of transactions. They influence the behavior of traders who tend to follow the conclusions of these reports.
Just like most traders, you can use these reports to get an idea of the socio-economic events that could influence the markets. Sometimes these reports soon to be published. In this case, the wait can create feelings of generalized fears and concerns on all financial markets. Apart from these reports, some websites relay information on cash outstanding. To be ahead of other traders, you must identify these sites and monitor in real time the information published there.
To use fundamental analysis, one must have some experience in the field of trading, as it is based on elements that do not meet a particular rule. It is by making a thorough study of the socio-economic elements that you can develop trends.