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28 December 2020,08:19

Analysis

The Basics of the Fundamentals

28 December 2020, 08:19

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Fundamental analysis is a method of evaluating an asset; it attempts to measure its intrinsic value by examining the underlying forces that could affect the asset.

Fundamental Analysis includes;

  • Geo Political factors – such as interest rates and other government policies
  • Macroeconomic factors – such as the level of unemployment
  • Company or industry specific factors – such as mergers or acquisitions

Why is it useful?
So why is Fundamental Analysis used so widely, and what does it help us achieve and understand?

  • Through fundamental analysis we are able to determine the overall health of an economy to give us a mid to long term outlook as to the direction of the markets
  • Fundamental Analysis helps us to measure an asset’s intrinsic value. The idea behind fundamental analysis is that each asset has a “correct” price which means we can determine if the current market price is overvalued or undervalued. Keeping in mind that the price will always revert back to what is “correct”, knowing whether the asset is under or overvalued gives us an indication as to whether to buy or sell.

Major Industrialized Nations Central Banks
Below is a list of a few major industrialised nations, their central banks and the chairman or governor:

  • USA – The Federal Reserve [FOMC – Federal Open market Committee] – Chairman: Janet Yellen
  • Europe – European Central Bank [ECB] – Chairman: Mario Draghi
  • UK – Bank of England [BoE (MPC – Monetary Policy Committee)] – Governor: Mark Carney
  • Japan – Bank of Japan [BoJ] – Governor: Haruhiko Kuroda

Central banks make decisions that affect the economy, and decisions that affect the economy are decisions that will affect your trading so if you ever see any of these guys on TV listen closely to what they say, because odds are, it’s something pretty important.

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