As an experienced trader, there are many strategies you can employ to inform your trading decisions, which can include fundamental and technical analysis.
Fundamental analysis looks at a variety of economic variables which can determine the value of an asset in the financial market. Part of this technique involves the use of an economic calendar, allowing traders to understand and predict the impact an event will have on the relevant instrument.
Read on to find out more about what an economic calendar is, how it works, and how it can help you in your trading strategy.
What is an economic calendar?
In simple terms, an economic calendar is a schedule of upcoming events that can affect the financial market. These are usually occasions or public releases that happen on a regular basis, and can include announcements of economic data, such as national interest rates or inflation levels.
It can also include the release of monthly job reports, or the supply level of oil and natural gas — which can have an impact on a particular sector or industry.
Using an economic calendar is an integral part of many traders’ strategies, and helps to plan trades and future orders, predicting the impact of the event on the market.
For example, an experienced trader may include contracts for difference (CFDs) to diversify their portfolio. According to Skilling:
“CFD trading offers traders and investors an opportunity to speculate on the price movement of the assets, without owning the underlying asset itself.”
Part of this speculation will likely involve well-informed trading decisions based on an economic calendar, in order to potentially profit.
If trading index CFDs on a popular stock market, such as the UK 100 or S&P 500, you’ll need to monitor any factors that could impact the percentage changes in the value of stock which makes up a significant part of the index, or the average percentage chance of a group of shares in a particular sector.
Knowing and understanding the impact of the Bank of England’s (BoE) quarterly inflation report, for instance, can influence the trading conditions of index CFDs, in relation to the UK 100.
How does an economic calendar work?
An economic calendar is a key tool in online trading, especially for CFD trading. Their style and layout may vary between different trading platforms, but they are usually easy to understand and evaluate.
There are common elements you’ll find when using an economic calendar, and these are:
- Country and time
This is pretty self-explanatory, but an economic calendar will display the exact time of the event taking place, so that traders can plan their position accordingly and predict the timing of the impact. It will also display the country that the event relates to, which could imply the sector, industry or market that will be affected by the event.
- Event name and description
The calendar will detail the name of the event and provide some information of what the event will entail. This defines the topic of the event, and again, can imply the market or assets that it will likely impact.
- Impact
This shows the expected impact the event will have on the financial market, and is displayed in a variety of ways, depending on the trading platform. For example, it could take the form of three coloured circles, with the number of circles determining if there is a low, medium or high level of impact predicted. On the other hand, it could be a gradient-coloured rectangle, with the colours varying from yellow to red, implying the level of impact.
An economic calendar is just one tool that you can include in your trading strategy, and provides data that can be used as part of your fundamental analysis. Evaluating the range of events scheduled can inform your predictions and speculation of the relevant financial market.
