Lesson 5 -- Fundamental Analysis

Fundamental analysis is the study of the factors that effect supply and demand. The key to fundamental analysis is to gather and interpret this information and then to act before this information is incorporated into the futures price. This lag time between an event and its resulting market response presents a trading opportunity for the fundamentalist.

Agricultural Fundamentals

For livestock, the fundamental trader studies both supply and demand. The U.S. Department of Agriculture releases several monthly and quarterly reports that supply statistics. Inflation, consumer tastes, consumption patterns and population numbers all affect the demand for meat. The fundamental trader puts all these factors into sophisticated models to try to determine where livestock prices are going.

Financial Fundamentals

As you would expect, trading financial futures calls for a study of entirely different supply and demand factors. The overall health of the economy is a key factor to watch. Economic reports such as the Leading Indicator Index, Consumer Price Index, Gross National Product and the Employment Situation are only a few of the reports providing information.

For example, changes in the economy’s direction normally signals major interest rate turning points. This is obviously important to anyone trading interest rate futures such as U.S. Treasury Bills. The demand for money rises during economic expansion, causing interest rates to rise. Likewise, the demand for money falls during economic recession, causing interest rates to fall. The fundamentalist can also study the relationship of long-term and short-term interest rates to predict the direction of interest rate movement.



On-Line Trading Lessons -- Courtesy of the Chicago Mercantile Exchange

Futures trading is highly speculative, and can involve the loss of some or all of any monies you may commit to such trading.

No responsibility is assumed for the use of material available at this web site, and no express or implied warranties are made. Futures trading is highly speculative, and can involve the loss of some or all of any monies you may commit to such trading.