Fundamental Analysis

Fundamental analysis finds the intrinsic value of an asset, by studying different factors and events that can have an influence on its price, using tools like economic calendars and by analysing economic data. The data analysed can range from company data to major global events like wars. Many of the factors are interconnected and can affect different asset classes as well as different assets.

There are a number of various tools and techniques that can be used when performing fundamental analysis and have been categorized into 2 types, a Top-down analysis which takes a broader view of the starting with the entire market before it narrows down. While a bottom-up analysis starts with a specific asset and widens out considering all of its factors that impact its price. It is important to follow general worldwide and financial headlines, so that the information is put into a larger context.

Some factors considered in fundamental analysis:

  • Economic data – the release of economic data like; unemployment rates, and interest rates, can play a big role in price fluctuation.
  • Weather and natural events – these factors can have a major impacts on the supply and demand of specific assets.
  • Politics – many political events can have a significant impact on the price of certain assets.
Fundamental analysis helps traders gather the correct information, needed to make a rational decision and to understand the value of the asset, anticipate and predict future price trends in order to take a longer view of the market. While using fundamental analysis, it is important to keep in mind that factors causing a shift in the fundamentals of these assets can vary between asset classes.

For example, if you are using fundamental analysis to look at a stock, the trader should consider factors like mergers and acquisitions, company news, earning reports etc.

Currencies can be most affected by changes to interest rates, geopolitical events and world economies.

Some of the factors that has the biggest effect on agricultural commodities is natural events and major weather events, like extreme heat or cold, parasites or floods.