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Level: Beginner

Contributed By: CME Group

Fundamental analysis is the process of determining the model price of a futures contract, now and in the future, using factors like micro economic data, macro-economic data, and industry financial conditions.

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Many traders are familiar with fundamental analysis when trading stocks, but fundamental analysis can also be applied to the pricing of futures contracts.

There are many factors that traders look at and analyze when choosing a futures contract to trade. Some traders might look for trends on a chart while other traders might look to see if demand might be increasing for a commodity.

Supply and demand is a key economic concept that attempts to explain what the market is willing to pay for a given product, where the quantity produced is equal to the quantity demanded. This interaction is key to the analysis of the price of a futures contract.

Fundamentals are important in the analysis of a futures contract price. Each futures market will have unique fundamental factors that will affect price.

Energy products are varied and have many end-uses. Crude oil, for example, can be used to make gasoline or as a raw material in the manufacturing of plastics. Natural gas can be used for heating applications as well as a feedstock for plastics, chemicals and other applications.

When it comes to trading Interest Rate futures, traders have a variety of products to choose from. Short-term products, like Eurodollar and Fed Fund futures, and extending along the yield curve to longer maturity products like 5-year and 10-year Treasury Notes as well as 30-year Treasury Bonds.

Market participants can trade futures contracts that represent the relationship between two currencies, also known as the foreign exchange (Forex, FX) market.

Traders can use Agricultural futures to represent commodities, such as cattle, grains, corn or soy. The fundamental analyst will look at certain factors to help determine where the price of these commodities might move in the future.

The fundamental analyst will look at certain factors to determine where the price of metals like gold and silver might move in the future.

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