How to Use Fundamental Analysis to Improve Your Trading

There are many strategies that you can use to improve your trading. One of the most effective tools is fundamental analysis, as it can provide you with a broader view of the market. You can use this insight to make investment decisions.

In this guide, you will learn what fundamental analysis is and how you can use it to make more informed decisions, particularly in forex and CFD markets.

80% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money. *CFD trading via Plus500’s demo account.

What Is Fundamental Analysis in Trading?

Fundamental analysis is a strategy used by traders to inform decision-making. It involves looking at the data of an asset, such as a stock, commodity, or cryptocurrency, to analyze its value. With this information, traders can identify whether the asset is under or overvalued and likely price movements in the future.

To carry out a fundamental analysis, traders examine macroeconomic factors, company reports, interest and inflation rates, and other financial and geopolitical data.

They will also identify the financial health of the company and its competitors to determine if the asset’s value is accurate.

Key Sources Used for Fundamental Analysis

Company Filings

Public companies are required to file regular reports with the Securities and Exchange Commission.

These reports include details such as financial statements, management discussions, and other important company information

Financial Platforms

Sources such as Yahoo! Finance and MarketWatch provide financial news and analysis on publicly traded companies.

The data includes helpful details such as financial statements and analyst ratings.

Financial Data Providers

For even more comprehensive information, you can subscribe to providers such as Bloomberg, Morningstar, and FactSet. They offer extensive data and analysis on a wide range of companies, industries, and markets.

Fundamental Analysis vs Technical Analysis

Fundamental analysis differs from technical analysis, which is another analysis technique used by traders.

Whereas fundamental analysis examines a company’s operations to determine an asset’s value, technical analysis looks at value and market trends. Technical analysis is a shorter-term strategy that looks at the psychology within trading to make investment decisions.

Fundamental analysis is a strategy that can be used right across the market to make decisions on forex, stocks, indices, commodities, and crypto CFDs.

By using trading platform Plus500, you can access real-time news and economic calendars to track events that may influence an asset’s intrinsic value.

Why Fundamental Analysis Matters for CFD and Forex Traders

Fundamental analysis is one of the key strategies for trading with forex and CFDs. By evaluating the economic, social, and political factors that can influence the intrinsic value of a currency, you can make informed decisions that generate profit.

This strategy considers a wide range of indicators, including interest rates, inflation, GDP growth, and employment data. These factors can all drive the supply and demand of currency.

Using fundamental analysis helps traders understand long-term trends, allowing them to anticipate market moves before they happen. By gauging whether a currency is under- or overvalued, traders can predict whether it is likely to increase or decrease in value in the future.

Fundamental analysis is especially important for swing traders and position traders. Swing trading is a strategy that aims to profit from short and medium-term price movements in currency markets. By analyzing indicators such as interest rates and inflation, you can identify whether an asset is due to increase in value.

Using fundamental analysis can also keep you ahead of news and events that can impact the stock market. For example, if a US central bank announced a rise in interest rates, the USD is likely to go up in value. This is because a higher interest rate can attract overseas investors who are looking for a better return on their investment.

The opposite is also true: if interest rates are cut, the currency value will decrease as stakeholders invest their money elsewhere for a higher return. Accessing the latest market sentiment and data is a crucial part of fundamental analysis.

With Plus500, you can easily evaluate this data to inform your investment decisions. The platform also provides an economic calendar to display activities and corporate events around the world.

80% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money. *CFD trading via Plus500’s demo account.

Key Components of Fundamental Analysis

To carry out a fundamental analysis effectively, you need to understand which elements to monitor.

Economic Indicators

Understanding the economy is a must if you are to use fundamental analysis to influence your trading.

Some of the economic indicators you can evaluate are GDP, unemployment rates, inflation (CPI), retail sales, and inflation rates.

The data, which includes markers such as a country’s interest rates and retail sales, is released on set schedules. To ensure you can analyze the data at the right time, you can use Plus500’s economic calendar to track events.

Interest Rates and Central Bank Policy

To carry out an effective fundamental analysis, you should evaluate central bank policies from several countries. For forex traders, interest rates are one of the most influential factors to consider in fundamental analysis.

You should rate decisions from the Federal Reserve, European Central Bank, Bank of England, Bank of China, and the International Monetary Fund.

The interest rates set by central banks can significantly impact forex and indices. While interest rates can often be predicted using trends and economic models, unexpected changes can present traders with profit opportunities.

One of the many benefits of using Plus500 is that this trading platform lets you trade assets directly after central bank announcements. This will allow you to take full advantage of price changes following economic events.

Political and Geopolitical Events

Using fundamental analysis to identify the impact of political and geopolitical events can help you protect your portfolio.

Forex trading, in particular, can be heavily affected by events such as political instability and conflicts. Occurrences such as government collapses or political unrest can lead to a loss of confidence in a country’s economy.

In turn, this can cause its currency to depreciate. Similarly, wars and conflict create uncertainty for traders, who may decide to invest their capital elsewhere.

As the market can be heavily impacted by world events, you must diversify your portfolio by investing in various currencies and assets. This can help mitigate risk should a country experience a period of uncertainty.

By trading with Plus500, you can make use of stop-loss limits that will close a position if prices start to fall below your threshold. This will help minimize loss. What’s more, Plus500 offers news alerts to help you stay aware of events that can impact your investment.

Corporate Earnings (For Stocks/ETF/CFDs)

Understanding how much a company is earning can help you decide whether to buy, sell, or hold onto your stocks, ETFs, or CFDs.

Earnings reports are important in trading as a positive announcement indicates that the share price will rise. On the other hand, if a company delivers bad news, then confidence will dip, and so will stock prices.

You can anticipate price moves by using earnings calendars. You will be able to view upcoming and historical earnings dates and projected earnings moves to influence your decisions.

How to Use Fundamental Analysis on Plus500

Using Plus500 for fundamental analysis is simple. The platform provides a host of learning and training resources to guide you through your trading journey.

To access the Economic Calendar, log into your Plus500 account and head to the Learn tab. On the calendar, you can filter by date and expected impact.

You can use the key events on the Economic Calendar to place a trade by simply clicking on the financial instrument listed. You should use other analysis tools, such as indicators and historical charts, in conjunction with the Economic Calendar before placing a trade.

You can also view instrument-specific news and price movement on Plus500 via the News and Market Insights feature.

One of the most useful Plus500 features is the real-time alert function. You can opt in to receive notifications of price or percentage movements. Alerts can help you to stay informed without constantly watching the stock market.

If you are new to Plus500, you can practice your strategy with a free demo account. With unlimited virtual funds, you can gain real-world experience and test out the useful Plus500 tools risk-free.

80% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money. *CFD trading via Plus500’s demo account.

Combining Fundamental and Technical Analysis

There are some key differences between fundamental and technical analysis, but they can both be used to help you make informed trading decisions.

Technical analysis can help you enter and exit a trade at the optimum time. Fundamental analysis helps identify trends and key market drivers. Together, these strategies can track short-term movements and inform your trading.

Plus500 offers technical charts that feature a wide range of indicators to assist you in analyzing trends and anticipating market movements.

Frequently Asked Questions

Final Thoughts

Fundamental analysis is one of the most effective strategies for long-term trading. If you primarily use technical analysis, try fundamental or even a combination of the two.

Analyzing economic, political, and corporate factors is made simple, thanks to Plus500. This intuitive platform allows you to track market-moving events, apply insights, and manage trades every day of the week.

WikiJob does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.

80% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money. *CFD trading via Plus500’s demo account.