Reading time: 8 min
What is fundamental analysis?
Fundamental analysis is an essential analysis that helps traders understand what’s happening with the assets’ supply and demand. Fundamental analysis is primary toward the technical analysis. Why so? The point is that traders use technical analysis to analyze the existing trends, while fundamental factors create these trends.
If you understand how fundamental factors work, you can forecast the long-term trends. Also, you may use fundamental analysis by trading on the news released. Unfortunately, fundamental analysis is useless in the short-term timeframes without crucial events. But Binomo analysts strongly recommend you to learn about this type more. It’s easier than you think. Let us prove it.
In this review, we will discuss fundamental factors influencing three types of assets on the Binomo platform: currencies, stocks, and commodities. Here are some fundamentals of trade.
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Currencies fundamental analysis
Fundamental analysis of currencies is mostly the analysis of central bank key rates. The central bank – is the leading bank of the country. It controls all commercial banks in the country. The central bank may give credit to these commercial banks. The key rate is the rate of this credit, and it’s a benchmark for all credits in the country. If the key rate rises – all rates in the country are rising. It means that money becomes more expensive for companies and ordinary people. Just imagine – recently, you could take a mortgage by 1% and buy a big flat. But if the rate is 5% now this mortgage becomes more expensive. Now, you have only two options – borrow less money and buy a smaller flat or borrow the same amount but pay higher interest. If you pay more for your credit, you’ll have less money to spend. Fewer goods will be sold, fewer companies will earn money, fewer goods will be produced, and so on.
The central bank slows down the economy by hiking the rate, but the national currency may start rising against other currencies from other countries. If you want to know the long-term currency trends – pay attention to the central bank key rates. The currency of the country with the higher rate usually strengthens against the currency with the lower rate.
To change the rate, central banks provide special meetings. Before the meeting, economists may speculate where the rate will be. Some central bank officials may also comment on the key rate’s possible future. Such talks are usually called verbal interventions. The currency’s price in the market reacts to the central bank meeting and verbal interventions.
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Stocks fundamental analysis
The stock price depends on the key rate, too. The higher the rate – the lower the stock markets. We’ve already discussed that companies start getting less revenue with the rate hike. As a result, their stocks start falling in price.
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The fundamental stock analysis depends on the companies’ financial results. Once a quarter, all the companies should reveal their financial statement, where traders may find out how these companies work. Traders usually pay attention to the revenue (the bigger, the better), the net profit (the more significant, the better), and the Earnings-per-share ratio (EPS), which is calculated as the net profit divided by the number of stocks. The bigger the EPS – the better.
It’s usually called an earnings season when several big companies start revealing their reports. It’s a good time to trade on stocks – the volatility increases, and new trends may appear in the markets.
Commodities fundamental analysis
Commodity prices depend on supply and demand in the global markets. Say, if we take the oil price – the demand will grow if the global economy starts rising and countries start consuming oil more. Gold, vice versa, is considered to be a safe haven asset. It means that the demand will grow if traders feel that the global economy is falling into slowing down (recession).
Economic calendar
All traders use economic calendars to follow the leading news and sometimes to trade on them. If you use Binomo, you’ll find an excellent economic calendar and several reviews in our blog about crucial news you must pay attention to.
Conclusion
Traders who use both fundamental and technical analysis may reach extraordinary results. Do not ignore fundamental analysis; read more about it in Binomo’s blog.
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