What Is An Economic Calendar?
An economic calendar is a forex trading tool which includes important financial information like consumer prices index, insurance rates, employment reports, and non-farm payroll numbers. It also includes the purchasing managers index, GDP reports, inflation reports, confidence data, and speeches by central banks.
Many forex traders find economic calendars helpful. They use them to track key data releases and market-fluctuating events. By doing so, they can try to anticipate when major movements will take place, choose which forex pairs to focus on, and plan their trades accordingly.
Why Are Economic Calendars Important For Forex?
Economic news can drastically affect the financial market. This is because data releases often indicate how strong an economy is, whether or not specific markets are growing, and how much demand there is likely to be for specific assets. For example, when it comes to the forex market, economic news will often impact how people perceive the specific value of a currency.
What does this mean for forex traders? Well if a data release is considered to be good news (i.e. such as a sign of economic growth) then the perceived value of a currency will often go up. If it is considered to be bad news (i.e. such a sign of political risk or economic downturn) then the perceived value of a currency will often go down. Either way, a data release will often lead to periods of volatility. As a trader, it’s important to keep an eye on volatility, and manage your trades accordingly. Here’s why.
Planning
Economic news can affect your trading strategies. A calendar of economic data covers all economic events and indicators around the world. With this, forex traders decide what forex pairs to trade, when to trade them, and how to avoid major price fluctuations. As such, an economic calendar gives forex traders the information they need to develop an effective trading strategy.
Forex Spreads
Economic news can affect your spreads. This is because forex market spreads are variable and can change at any time. Economic news releases often cause an increase in volatility rates which in turn leads to periodic liquidity in the forex market, making the choice of entering or exiting a trade at the desired price difficult. This is where the importance of a forex economic calendar comes into play.
Risk Management
Economic news can affect your open positions. If you keep an eye out for major economic news, then you can prepare yourself for potential price volatility.
As you now know, the perceived value of a currency may change, depending on whether the data is released above, below or in line with forecasts and general market expectations. If the news is worse than expected, this can lead to panic selling, which is when investors dump an asset due to disappointing data. It can also lead to major market sell-offs across an entire asset class. When this happens, there can be very sudden price drops.
You can use the calendar to carry out fundamental analysis, anticipate significant price changes, and implement strategies to manage any increase in risk for your open trades. Remember – your risk is the difference between your entry price and stop loss price, multiplied by the position size.
How to Read an Economic Calendar
Timing
All the data enclosed in an economic calendar is displayed in chronological order. The news release dates are marked on the time column with a tick, with today’s events marked under the yellow bar showing today’s date. After a data release, the economic calendar is refreshed automatically.
Currencies
A flag icon in the economic calendar indicates the country of a particular data release, and the country’s currency is usually noted next to it. This feature gives forex traders the ability to determine which currency will be affected, and on what days.
Volatility
The volatility rate icon is the red, yellow or orange square shown in the table above. It is used as an indicator of the possible impact of a data release on various currencies. If a red square is shown in the economic calendar, then it indicates that the data release is likely to affect the financial market. If a yellow square is shown, then it is less likely to affect it.
Forex Economic Calendar Data Releases
There are a vast number of economic indicators available, and each country has a slightly different set. That said, there are a few economic indicators that are considered market-movers for most major currencies. Here are some examples.
Gross Domestic Production (GDP)
One example is Gross Domestic Production (GDP). It looks at the value of all the goods and services that were provided within a specific time period, usually three months or a year. It is generally considered a good indication of the health of an economy. If a country’s GDP increases from one period to the next, that country’s currency could strengthen against others.
Consumer Price Index (CPI)
Another key indicator is the Consumer Price Index (CPI). This is used to measure inflation. The CPI looks at buying power and the general cost of purchasing goods and services within a country. It is measured by monitoring the price of a set list of things. If inflation rises from one period to the next, it could be a sign of a weakening economy and the country’s currency could weaken against others.
Unemployment Rates
A third example is unemployment rates. The figures are usually reported on a monthly or a quarterly basis, depending on the market in question. If unemployment rates are rising, this can be a sign of a weakening economy and the country’s currency could weaken against others. However if unemployment rates are falling, and other indicators also suggest that the country’s economy is strengthening, this might lead the country’s currency to strengthen against others.
How To Trade The Forex Economic Calendar
There are many popular strategies for trading the news.
There are many short-term trading strategies. An example of this is pre-trading. This is when you trade before the data release. For some assets, you may find that there is market volatility before the event. And in these cases, you can study data forecasts, read analyst predictions, and then try to take advantage of the pre-event price movements. Another example of a short-term strategy is scalping. Scalping is where you open and close trades within a few minutes. You can use this approach when important data comes out to take advantage of sudden price fluctuations.. The idea is to open trades as volatility intensifies and to try to profit from the immediate reaction to market news.
There are also many long-term trading trading options. You can use the economic calendar to help plan long positions. For example, the economic calendar can help you track major central bank statements. You can use the statements to determine what long-term monetary policies are likely to be and how they could impact the price outlook of the forex pairs you want to trade.
Where Can You Find Economic Calendars
There are many forex brokers with free market analysis. They often offer a free economic calendar as part of your account package, to help you better manage your trades. If you’re looking for the best forex brokers with economic calendars, we recommend looking at HotForex and FXPrimus. There are also many other companies that provide a calendar of economic events, but it is worth nothing that some of them charge fees.
Final Thoughts
In conclusion, an economic calendar indicates more than 1000 events from various countries, as well as related news and reports. It automatically refreshes when data is released and provides a countdown for future releases. It is mobile friendly, it provides forex traders with historical graphs, and it includes a sound notification whenever a new release is out. As such, it is a very helpful trading tool.
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