Basics of Fundamental Analysis
Fundamental analysis is a method of analysing how political and macroeconomic factors can affect the future price of an asset. Traders normally evaluate geopolitical events, economic releases, and industry trends. Both macroeconomic and microeconomic statistics, including GDP, employment data, and company profits, are employed in the analysis. For example, the German economic slowdown of 2024, driven by mounting energy prices and decreasing industrial output, led to a reduced 2025 growth forecast of just 0.3%, and this affected German equities and investor sentiment.
Government policies and central bank actions have a strong impact on market sentiment. For instance, in 2025, fresh U.S. tariffs on Chinese imports fuelled stagflation concerns, leading to a rise in gold prices while weakening risk-sensitive currencies.
‘Another recent example of how policies impact markets is when, in February 2025, President Trump put a 25% tariff on imports of steel and aluminum starting from March 12. The policy was to protect domestic industry but created a threat of rising inflation and slowing economy’, shares Kar Yong Ang. ‘The market response was quick. By the end of February, CME Midwest Domestic hot-rolled coil steel costs has increased by more than 30% since Mr. Trump entered his office. American business activity dropped considerably, with the S&P Global Flash U.S. Composite PMI Output Index dropping to 50.4 in February from 52.7 in January, its lowest level since 17 months ago. The fall was attributed to increasing tariffs and federal government expenditure reductions that made financial conditions tighten across industries’.
How Fundamental Analysis Differs from Technical Analysis
While technical analysis focuses on price charts and trends, fundamental analysis considers broader economic and corporate financial factors to predict an asset’s value. Blending both methods enhances decision-making. Those who rely only on technical analysis risk ignoring some external factors that may drive price increases or drops, regardless of indicator-based insights. What is more, conducting both technical and fundamental analyses allows you to identify more facts to support your trading assumption or spot emerging facts that contradict your trading hypothesis. This reduces the risk of implementing speedy, chaotic decisions.
Client-focused brokers tend to include fundamental and technical analysis capabilities in their trading platforms’ toolkits. For example, Octa broker’s proprietary platform, OctaTrader, features Space, a feed of expert-curated insights embedded into the app. Space offers relevant and timely trading ideas anchored in fundamental and technical analysis and allows traders to copy these ideas to their charts in a couple of clicks, enhancing decision-making and driving more informed, precision-based trading.
Key Economic Indicators Every Trader Should Track
- Gross Domestic Product (GDP). A key measure of economic strength, GDP growth typically boosts investor confidence, leading to stock market gains and increased corporate investment. Conversely, a contracting GDP signals economic distress, often triggering market sell-offs, weaker consumer spending, and potential central bank interventions to stimulate growth. In 2024, the U.S. GDP grew by 2.8%, supporting stock market confidence.
- Inflation Rates. Inflation is a key indicator which erodes purchasing power of a consumer and shapes monetary policy. Almost all central banks in the world set inflation targets, typically around 2%. Stable inflation is essential for long-term economic growth. To meet the target, central banks adjust their monetary policies. If inflation rises too quickly, the monetary policy is tightened: interest rates are raised to slow down spending and borrowing. Conversely, deflation often leads to reduced interest rates or stimulus packages.
- Interest Rates. While central bank decisions on interest rates influence economic growth and exchange rates, investors’ expectations of the future rate changes have the greatest impact on financial markets. Traders watch closely for signals because differences in rate expectations between large economies are a key driver of currency value shifts.
- Unemployment and Labour Market Data. Labour market health influences consumer spending and economic stability. Essentially, all major central banks focus on both inflation and employment. Strong labour markets are typically supportive of economic growth and can lead to monetary policy tightening if rising wage pressures raise inflation. The most watched indicator is U.S. Non-Farm Payrolls (NFP), which traditionally has the biggest immediate impact on markets. A higher-than-expected NFP can harden the dollar and improve rate hike expectations, while a weak report might lead to dovish central bank warnings and low bond yields.
- Trade Balance and Current Account. A balance of trade—a country’s exports over its imports—has a direct impact on the currency value. When there is a trade surplus (exports outpacing imports), the country’s currency strengthens: foreign customers have to acquire the domestic currency to settle payments for products and services, pushing demand. A trade deficit (imports exceeding exports), on the other hand, weakens the domestic currency since more money is exported to buy foreign goods, increasing the supply of the local currency in foreign markets.
How Traders Use Economic Calendars
Economic calendars are essential resources for traders since they provide scheduled releases of important economic data, central bank statements, and geopolitical events.
Traders who follow the events can anticipate potential market fluctuation and prepare a potentially profitable trade or apply risk management. For example, set or adjust stop-loss, as well as close all the positions to hold out potential volatility. Itэs important to protect your funds, even if you strongly anticipate specific decisions on interest rate, inflation, and so on. From time to time, the market faces monetary policy surprises when a central bank takes an unexpected decision, urging market volatility: for example, ECB’s negative interest rates in 2014, Fed’s emergency rate cuts in 2020, or Bank of Canada’s rate hike pause in 2023.
Risk Management in Fundamental Analysis
Volatility is a natural сhallenge for any trader, especially during major economic events. Central bank decisions, inflation levels, and political tensions have a tendency to trigger aggressive price movements, which render risk management a core component of any strategy. Professional traders employ hedging instruments and prudent position sizing to contain potential losses in order to control these movements.
Geopolitical events are a great example of the impact of external forces on trading. The Russia-Ukraine war, for instance, disrupted energy supplies and increased oil prices, rewarding the traders who had anticipated these shortages in supply. Those who were closely monitoring geopolitical events and taking position adjustments were able to capitalise on such price fluctuations, validating the inclusion of geopolitical analysis in trading models. President elections are another event to watch. For instance, traders who followed the 2024 US elections could have prepared for market volatility by anticipating Trump’s tariffs and his more friendly stance on the crypto industry.
By tracking key economic indicators such as GDP growth, inflation, and interest rates, traders can make long-term forecasts and adjust their positions to take advantage. Coupling fundamental knowledge with technical analysis allows to make trading strategies stronger, enhancing the decision-making process. This approach also improves risk management as traders analyse more factors and can better identify potential price movements.
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Disclaimer: Trading involves risks and may not be suitable for all investors. Use your expertise wisely and evaluate all associated risks before making an investment decision.
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Octa
Octa is an international CFD broker that has been providing online trading services worldwide since 2011. It offers commission-free access to financial markets and various services used by clients from 180 countries who have opened more than 52 million trading accounts. To help its clients reach their investment goals, Octa offers free educational webinars, articles, and analytical tools.
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In Southeast Asia, Octa received the ‘Best Trading Platform Malaysia 2024’ and the ‘Most Reliable Broker Asia 2023’ awards from Brands and Business Magazine and International Global Forex Awards, respectively.
