Before an investor starts investing in different stocks, either in cryptocurrencies, commodities, or digital assets, he should first understand the basics of the business, which is investment. The process of understanding those basics, is called fundamental analysis, and this is a key factor in the financial system. What is fundamental analysis all about? As mentioned above, it's all about understanding how a business performs, to get insight on how improvements can be made, or on how it works. How can you do this? It's simple, if a person wants to understand a business properly, then he should look at its fundamental indicators, the pros and cons, or even its parameters. When an individual understands the fundamental analysis of any business, it means he has knowledge concerning the root supporting that business. Fundamental analysis has a good relationship with stocks and investment, it's like compulsory factor to consider before investing funds in any stock.
Traders don't really know much about fundamental analysis, that's why they always make that mistake of buying commodities above its original price. That's a problem of overpaying, you don't just start by buying a stock when you haven't check its price in the market. All commodities have different price and value. The value of every asset changes within time, just like Bitcoin, which was less than a dollar in year 2009, but now it's worth over 37, 000 dollars. If you want to determine the true value of a stock, let's say Bitcoin, which is 37, 000 dollars, will you be paying more or less for purchasing one Bitcoin? This situation can only be solved with fundamental analysis. When approaching this method of evaluation, an investor can examine the financial system of a company's shares, digital assets, cryptocurrencies, etc. He can later know if he was cheated, by analyzing if the commodity was worth more, or worth less, depending on his analysis.
How those this system help investors? People who invest in stocks can trade without having any worries of overspending for a stock, so the right amount of money is used for purchases. Don't forget that when an investor purchases stocks for a lower amount, the stocks can be sold to other investors who will be willing to buy at a higher value. A stocks' value can also be checked in online markets, traders should buy with the initial market price, instead of buying from other traders, who might sell for higher amounts. Investors should also know that there are 3 types of data, which can be used for fundamental analysis. First is historical data, which is used to know things like prices of stocks in previous weeks, months, or years, publicly known information, this is the information about a company or commodity, then private information.
Finally, this is a good example to show you the importance of fundamental analysis. If John wants to buy Bitcoin from an exchange like Binance, a seller can ask for 40, 000 dollars, and John might think that it is the correct price. However, if John knows that Bitcoin is worth 37, 000 dollars because he has done his analysis, then John won't make a mistake of buying expensive. Traders should not forget the goal of trading, it's all about buying cheap and selling expensive.