Fundamental Analysis

Fundamental Analysis is the study of any data that might be expected to impact the price or perceived value of an investment product, other than analyzing the trading patterns of that stock itself.

Fundamental analysis is the examination of the underlying forces that affect the well being of the economy, industry groups, and companies. As with most analysis, the goal is to derive a forecast and profit from future price movements.

At the company level, fundamental analysis may involve examination of financial data, management, business concept and competition.

At the industry level, there might be an examination of supply and demand forces for the products offered. For the national economy, fundamental analysis might focus on economic data to assess the present and future growth of the economy. By believing that prices do not accurately reflect all available information, fundamental analysts look to capitalize on perceived price discrepancies.

Interest rates for example, are considered the single most important economic factor determining the exchange rates of currencies. One reason for this is that large multinational investors would prefer to hold a bank account in the currency that yields the highest return in terms of interest, all other things being equal. Inflation is one of the key factors in deciding the level of interest rates. For this reason any financial data released that will affect interest rates or inflation is of great importance to a trader, as it will offer trading opportunities as the market re-values itself.