Fundamental analysis for forex and stock market, similarities and differences
In stock trading, two types of price analysis are used - technical, which analyzes the history of the trend, and fundamental, built on the analysis of financial indicators and news.
If technical analysis is inherently a fairly universal method of market research, then with fundamental analysis it is not so simple.
When using fundamental analysis, you should consider which market you are trading in and, depending on this, use methods appropriate to this market.
Today we will compare fundamental analysis for the currency and stock markets, or more precisely, how the same research method is used on different assets.
Trading currencies on Forex
Due to the predominance of speculative players, recently all fundamental analysis on Forex has been reduced to trading on news. The main tools for this are:
Economic calendar – in which information about the time of release of information messages is published. These are mainly economic indicators such as the inflation rate, trade balance, business activity index, interest rates :
News feeds – news appears here that directly or indirectly relate to a specific currency. If the economic calendar publishes the release time of the news and the forecast, then the news itself displays information about the event that has already happened.
Fundamental analysis in Forex is mainly used for short-term trading on news, when trades are opened immediately after the publication of certain news.
In rare cases, medium-term transactions can also be opened if forecasts in the economic calendar have already begun to influence the price, but the event has not yet occurred.
Trading shares on the stock exchange
Here everything is a little more complicated; the sources of information for the stock market are:
Financial statements – about the activities of companies, which display profits and losses for the reporting period, sales volumes, information on the distribution of profits and other important financial indicators:
News feeds - financial reports are published on company websites, which to some extent can also be classified as news channels. In addition, the stock price is also affected by other events that are reflected in the news.
There are two options for using fundamental analysis when trading shares on the stock exchange.
In the first case, the same trading strategy on news , the essence of which is that after the news is released, short-term transactions are opened.
The second option involves long-term investment, while carefully studying the company’s financial statements and the state of affairs of the economy to which it belongs. Only after this is a long-term deal opened, usually a buy deal.