Fundamental analysts focus on information and macroeconomic factors that are affecting the true value of a financial security.


Fundamental analysis is a commonly used method for measuring the intrinsic value of a financial-traded asset based on the observation of economic and other 'hard' data.

1. Learn the Basics of Fundamental Analysis

Investment Analysis Framework

There are two forces forming an overall framework of investment analysis:

(i) Technical Analysis, and

(ii) Fundamental Analysis

The Goals of Fundamental Analysis

The main goals of fundamental analysis are:

(a) to identify the fair market value of a financial-traded security

(b) to identify and measure the impact of risks associated with an investment decision (risk identification is essential for managing your portfolio in an efficient way)

Fundamental Analysis Framework

A fundamental analysis framework consists of all major internal and external factors that can affect the future cash-flows of your investment.

(1) Internal fundamental factors

(2) External factors (business, macroeconomic, etc.)

Major Categories of Financial Ratios4 Major Categories of Financial Ratios


The financial ratios are used for the evaluation of companies or industries. Usually, financial ratios are used as a tool for comparing different companies and industries in several aspects. These financial aspects include profitability, debt, dividends, book value, and many others.

-In the case of analyzing a company, the financial ratios are usually based on an individual share price

-In the case of analyzing industries, the ratios are based on the aggregate market value {computed for each company, by multiplying the current share price to the total number of shares outstanding}


Major Ratio Categories


1) Balance Sheet RatiosMeasuring Financial Stability

Balance sheet ratios deriving from a company’s balance sheet and mainly deal with the financial stability of a company over time. The most important Balance Sheet Ratios are:

i) Debt-Equity Ratio

It values the debt exposure of a company by measuring the correlation between the company’s liabilities (debt) to what the shareholders have invested in the past in the form of capital (equity).


ii) Current Ratio

It values the ability of a company to meet its short-term obligations deriving from its liabilities. The current ratio is formulated by dividing Currents Assets to Current Liabilities. The higher the Current Ratio is -the higher is the ability of the company to pay off its current and future liabilities.

Treasury Bills (T-Bills) and their Correlation with Equity and Forex Markets

All investors must keep a close eye to what happens in the bonds market. Significant changes in the pricing of government and/or corporate bonds can be used as an indicator of upcoming economic transitions. In this context, significant changes in the yield of government bonds or changes in the spread between different-maturity bonds may forecast what is about to happen in the real economy, in the equity markets, and in the Forex markets. Actually, there is an important factor linking every financial market and that factor is the level of interest rates.

Government Bonds Classification

Government bonds, in general, are classified according to their maturity. There are three (3) main categories:

■ Bills –Maturing in less than one year

■ Notes –Maturity in 1 to 10 years

■ Bonds -Maturing in 10 years, or more

The marketable securities are issued as Treasury Bonds. Based on the length of their maturity they are called Treasury Bonds, Treasury Notes or Treasury bills (T-bills).

Commitments of Traders (COT)

The Commitments of Traders (COT) is an important report issued by the CFTC that shows the aggregated long and short positions in the futures market regarding all major asset classes including Forex currency pairs. The COT is considered an important indicator for analyzing market sentiment and future market conditions, especially as concerns the positions of non-commercial traders.

What is the COT (Commitments of Traders (COT) Report?

The Commitments of Traders or COT is a weekly report which measures total holdings of commercial and non-commercial participants in the US futures market. The COT report was firstly issued in 1962 incorporating 13 popular agricultural commodities. Originally the report was released on a monthly basis bust starting from the year 2000 it is released on a weekly basis. The COT report is available for all actively traded Futures contracts such is stock indices, interest rates, and currencies.

The Commitments of Traders includes a breakdown of the total futures positions of 3 different market participants:

(1) Non-Commercial traders / large speculators

(2) Commercial Forex traders / hedgers

(3) Small speculators (too small to be reported)

There are COT reports for many different asset classes including:

(a) Stock Futures (equity investors)

(b) Commodity Futures (precious metals, energy, etc)

(c) Currency Futures (including US Dollar against Euro, Japanese Yen, British Pound, Canadian Dollar, Swiss Franc, Australian Dollar, Mexican Peso, Russian Ruble)


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