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What is Fundamental Analysis?


Sam Waterson

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Fundamental analysis refers to the comprehensive analysis typically performed by investors of the underlying entity of a security in order to make an informed and rational decision on the merits of an investment. Fundamental data is published periodically as opposed to daily or in real-time. Consequently, fundamental analysis is typically used to analyze the long-term outlook of a traded security.

In the case of a stock, investors analyze a corporation’s fundamental data including earnings-per-share, profitability ratios, revenues, costs, market share, etc. in order to find securities that are priced below market value, and therefore perceived to be a sound investment.

In the case of the forex market, investors analyze the fundamental data metrics of the underlying economies of the currency pair being considered for a long-perm position. These metrics analyzed may include Gross Domestic Product (GDP), interest rates, unemployment rates, trade deficits, budget deficits, political factors, etc. A forex investor will take a long or short position based on the long-term outlook derived from the economy’s fundamentals.

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