What Is Forex Fundamental Analysis? In the Forex market, investors are most interested in predicting the future movements of the market. There are many methods for making this prediction. One of the most important of these is undoubtedly fundamental analysis. When analyzing the Forex market, it is possible to make estimates of different types of currencies in the short and long term. Using fundamental analysis, especially in daily trading, is a good way to predict the market. If you can apply the principles of this method correctly, you can get good results from the Forex market.
What Is Forex Fundamental Analysis?
There are many basic factors that determine or affect prices in all trading elements traded in financial markets. Since the Forex market is also a capital market based on foreign exchange trading, various currencies and commodities are traded through trading. As with other trades, prices in the forex market are determined by the supply-demand relationship. If demand is greater than supply, prices fall, and if demand is greater than supply, prices rise. Therefore, if we answer the question of what is fundamental analysis;
Fundamental analysis is a method of estimating the statistics of financial instruments that we will use in the Forex market that will affect future price movements, depending on economic, political and environmental factors. By using the fundamental analysis method, we make our decisions about the market based on the basic principles that guide exchange rates. Investors who will trade in the market using the fundamental analysis method will be able to access healthier information. They will determine the factors determining the value of the currency they have chosen in accordance with supply and demand. At the same time, fundamental analysis will ensure that the investor has a good idea of a smart investment. It will get precise and real results when trading in the market.
Fundamental analysis is indeed one of the essential tools for predicting the future of prices in the forex market. In addition, there is a subject of technical analysis, which I mentioned in my article What is technical analysis.
How Is Fundamental Analysis Done?
In order to be able to conduct fundamental analysis in Forex, it is necessary to be able to follow the latest developments, current news and economic calendar about currencies related to parity. Because in general, when investing in a currency or commodity, investors have some basic principles. However, fundamental analysis methods, which are generally accepted by all investors and experts, are carried out in three levels.
1) Economic and political analysis: analyses such as the economic situation in the world, the contraction or growth of the national economy, how healthy the economy is growing and how it will have a future are determined by economic analysis. Analysis of the outside world should never be ignored when analyzing the Forex market.
2) Sector Analysis: There is a sector in the market in which every firm is located. Some firms can also be found in multiple sectors. Attention should be paid to internal and external interactions when analyzing the sector. Because firms can be affected by the interactions in the sector and the policies of the sector. For this reason, sector analysis is one of the most important parts of the fundamental analysis method.
3) firm Analysis: a type of analysis in which the past and future financial situations of firms and companies are performed according to the company’s performance data. It is necessary to examine and monitor firms in the market and sector. For this reason, conducting firm analysis is very important in basic analysis methods. In this method, horizontal analysis, Vertical Analysis, trend Analysis, ratio analysis are also used when considering the size, location and partnership structure of the firm or company.
Advantages Of Fundamental Analysis
Fundamental analysis has some advantages over technical analysis. If I have to mention them;
Fundamental analysis is an older and more traditional method.
An effect-response is the type of analysis in which the cause-and-effect mechanism is operated.
It ensures accurate forecasting and positive results with wide-ranging results in the Forex market.
It is easier to detect market-related information than other methods. In this way, data can be easily accessed in a short time.
Disadvantages Of Fundamental Analysis
The information to be analyzed by the fundamental analysis method in the market is unlimited and will take a lot of time.
It is a little more difficult to determine the relationships between variables using the fundamental analysis method. Fundamental analysis is influenced by many economic and environmental factors. These factors cause analyses to take on a different dimension, and you may have difficulty analyzing due to the multiplicity of parameters.