The author is an expert in the field of multi-asset trading.
How to Use an Economic Calendar in Forex Trading
An economic calendar is an integral tool in fundamental analysis, and an inseparable part of a modern trader’s toolkit. If you decide to trade around news, an economic calendar becomes an indispensable tool in your trading arsenal, and should be consulted on a daily basis. Among other things, the calendar data can help you anticipate market moves and identify trading opportunities. Studying an economic calendar usually fits into your larger fundamental analysis strategy.
As we know fundamental analysis is the study of news and economic announcements that have an impact on the markets, and this could include anything from economic factors such as interest rates and unemployment figures, to current affairs such as elections or conflicts. You can use this information to make better-informed decisions on whether to buy or sell. Essentially, an economic calendar lets you know when these things will happen, and what their expected effect will be.
What is an Economic Calendar
An ‘Economic Calendar’ is a calendar used by traders to track market-moving events such as economic indicators and monetary policy decisions. Forex traders pay especially close attention to worldwide economic events and developments, as these can have an immediate impact on market movement and currency rates. By using an economic calendar, traders have a release schedule for all the important economic indicators, and can thus anticipate when major movements will happen.
Why Use an Economic Calendar
Being able to correctly read and interpret economic data is paramount to keeping your trading on the upswing, and an economic calendar aids you in identifying economic events that affect the price of currencies. Traders will research the date and time of a specific event and pay close attention to the announcement given its potential to affect the direction of the market. An economic calendar can also help you organize your upcoming week and identify trading opportunities.
How to Use an Economic Calendar
The economic calendar covers all important financial events and indicators that affect the forex market, and is usually displayed as a chart showing the upcoming period. Each day details several market-moving events in chronological order, thus giving traders the chance to study and anticipate the releases that are of interest. These are usually categorized as economic indicators or monetary policy announcements.
An economic indicator is a statistical figure that relays information about a certain economic activity. Traders use economic indicators to analyse a country’s economic performance and predict future performance. For example, quarterly US GDP figures are an economic indicator that allow traders to review the performance of the economy over the past three months and compare it to previous years. US economic growth or decline can have a significant impact on market behaviour.
Monetary Policy is a process by which central banks or other authorities control the money supply. One of the ways to do this is by adjusting interest rates. Central banks or monetary authorities meet several times each year to review market conditions and adjust monetary policy accordingly. These important decisions are announced after the scheduled meetings, which are outlined in the economic calendar. You can learn more about monetary policy here.
What Economic Events to Looks Out for
The most influential events on an economic calendar include interest rate decisions, non-farm payroll numbers, and changes in gross domestic product (GDP), Consumer Price Index (CPI) and Purchasing Managers' Index (PMI). When using the calendar, traders should be aware of the volatile nature of these events that can cause upward, as well as downward, movement. An economic calendar not only lists daily events, but also the volatility levels attached to them.
A volatility level demonstrates the likelihood of an event’s impact on the markets. Equiti’s economic calendar features a three-scale volatility gauge. An event with a low volatility level is not expected to significantly affect the markets. A moderate volatility event is expected to impact the markets moderately, depending on other factors. While an event with high volatility is expected to have a significant impact on the markets. These are often the most closely followed events.
Traders should note that large and economically powerful countries usually carry a bigger impact on the markets, and thus economic indicators released by smaller countries may not have the same impact. Countries and economic regions that usually have the largest impact on the markets are the United States, the Eurozone, Japan, and the United Kingdom.
Equiti’s real-time Economic Calendar covers financial events and indicators from all over the world, and allows you to filter based in a number of parameters. It's automatically updated when new data is released and is always up-to-date with the latest developments. Keep in mind, however, that the calendar only provides general information and is not meant to be a trading guide. We suggest you also monitor our Newsroom for the latest developments.
Margined Forex and CFD trading are leveraged products and can result in losses that exceed deposits. The value of your contract can fall as well as rise, which could result in receiving back less than you originally deposited. Please ensure you understand the risks and be sure to manage your risk exposure effectively. Equiti does not provide any investment advice.