Financial and securities markets analysis

Financial Market Analysis

Financial markets are marketplaces where entities buy or sell financial securities like stocks, bonds, currencies, derivatives, etc.

Financial market analysis then, like any type of analysis, is concerned with trying to understand what has happened, what is currently happening, and what will happen in that marketplace to better understand what positions that entity should take.

The formal definition of ‘analysis’ is the separation of something into its constituent parts. We see this with financial market analysis. Analysts typically break apart financial markets by the type of security they are trading – like stocks, bonds, commodities, etc.

Some of the most common types of securities are:

  • Equities – Marketplaces include the New York Stock Exchange, NASDAQ, London Stock Exchange, Tokyo Stock Exchange
  • Bonds – traded over-the-counter (OTC, i.e. dealer to dealer). Marketplaces include some OTC exchanges like OTC Markets Group
  • Derivatives – Marketplaces include the Chicago Mercantile Exchange, Chicago Board Options Exchange
  • Currencies – Traded over-the-counter.

Within each group, the analysis can be put in one of two camps.

Two Types of Financial Market Analysis

There are two broad types of financial market analysis. It is worth noting however, these two types are not all-encompassing.

  1. Technical analysis – the study of security price movements and the volume of trading. The purpose is to calculate things like relative strength, moving averages, or regressions to predict the future price movements of the securities.

    This type of analysis has grown in popularity as market participants are inundated with daily, hourly, minute-by-minute pricing information.

  2. Fundamental analysis – the study of the company’s financial strength, position in its industry, competition, etc. As an example, when considering a potential investment in a stock, a fundamental analyst will analyze the company’s current financial position. They’ll gauge market demand for their products/services, assess the threat of competition, or the potential power entities have in the supply chain, etc.

    All this effort is so the analyst can then have an idea of what that company’s intrinsic value is. The fundamental analyst then compares their assessment of that value with the current price in the market to determine whether or not they should buy, sell or do nothing with the stock.