Since fundamental analysis is about reviewing a range of historical and current information of an asset, it is important for traders to understand how to conduct this analysis as they trade with binary options. Most commonly used for trading on the price movements of stocks, fundamental analysis helps a trader gain a better understanding of the overall financial stability of a firm, thus establishing his opinion on the asset.

For example, if a trader was looking to trade binary options on a stock such as Nike and wanted to use fundamental analysis they would perform a thorough review of Nike’s financial statements, its management, competitive advantages, competitors and any other relevant market information. The trader would do this analysis on both historical and current information to determine the financial stability of the firm. The thought behind fundamental analysis is that gaining this knowledge would help him to make a better informed prediction on the price movement of Nike’s stock.

The following steps will provide more information on fundamental analysis and how it is applied to placing binary options trades:

Step 1 – Review of financial statements

Arguably the most important part of fundamental analysis is in the review of the asset’s financial statements. This involves looking at revenue, expenses, assets, liabilities and all other financial aspects of the asset. For an index, this would mean a review of the financial performance of the major components of the index. From this, the fundamental analysis would gain insight on how well positioned an asset would be in the future considering their historical and current stability. Often this information can be obtained through online research or by obtaining a company’s annual report.

Step 2 – Review overall market sentiment of the asset

It is also important for traders using fundamental analysis to review market commentary on the asset. This will help them understand what the current thoughts are on the asset and will help to form their predictions for their binary options trades. This information can be obtained through online research as well as through the financial press.

When conducting fundamental analysis on stocks, a trader is trying to understand the stability of a company to help him predict future price directions. Essential to this, is to gain an understanding of where the company stands versus its competitors in the market. This information can also be obtained through online research, annual reports and other corporate documents.

Using information gained in fundamental analysis doesn’t guarantee a successful binary options outcome. However, it is a tool that traders can use to gain an understanding of their selected assets as they place their binary options trades. Using an analysis technique such as fundamental analysis will assist in executing a knowledgeable trade, which can improve the trader’s chances of a successful outcome.