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Home» Binary Options School » Fundamental Analysis » Fundamental Analysis: What & Why

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Fundamental Analysis: What & Why

Written by: Sophie May

Consider your education in financial analysis a high return investment.

It is vital for any binary options trader to understand and appreciate market movements in order to make serious profits. Taking an abstract guess about whether the markets will go up or down will leave you with about 50% winnings. Conducting proper analysis will allow you to make highly informed decisions about the market direction, and it then becomes reasonable to expect around 70% to 80% of your trades to expire in-the-money.

There are two key methods of financial analysis: technical analysis, which is concerned with the past price movements of assets, as we will cover in the next section, and fundamental analysis, which is concerned with market data and economic reports. Both are used to predict future market activity.

Fundamental analysts are interested in the economic well-being of a financial entity. They monitor live events and reports, with the conviction that various economic factors such as the Gross Domestic Product and (un)employment impact on a country’s economy and currency. In a similar manner, the performance statistics of a company will affect its related stocks and indices.

The reasoning behind fundamental analysis is that the market price of an asset does not fully reflect its real, intrinsic value. In the long run the market will reflect the intrinsic value and so traders can expect the asset to move in that direction and trade accordingly. For example, a US employment report will impact on the price of the dollar, and traders can therefore bet on the dollar’s direction as the asset’s market value moves towards the intrinsic value which encompasses the effects of the employment report.

Fundamentals can be split into two categories and it is important to account for both. Quantitative factors are the measurable and numeric statistics about a business or economy, including revenue, profit and expenses. Qualitative factors are the less tangible characteristics, including brand recognition and the quality of key executives.

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