Have you ever heard the term economic calendar? People who are not traders or not involved in regular market investments may not be aware of this term.
For traders, this term is like their best friend. They only spend one to two minutes a day, but for them that one minute is very important and they start their day by going through the economic calendar.
The economic calendar makes you aware of the important dates of any event or release that may affect the economic situation of the market. The financial sectors are a news-driven market interest vehicle. Thus, the arrival of significant news or financial events will drive price growth in the market.
If you are new to this world of trading and investing or have not much experience in day trading or stock investment then, all you have to do is to give a few minutes of your day in watching an economic calendar and you can even trade like an experienced trader.
Recommended read: An introduction to financial analysis
Defining Economic Calendar
An economic calendar indicates the planned news events or data releases identified with the economy and financial markets. New GDP development rate figures and interest rate decisions are examples of what you may discover on an economic calendar.
There are heaps of these economic information releases, at least once per week overall, and sometimes consistently, during especially busy weeks. These events are recorded on the economic calendar, alongside the planned time of the release.
In simple language, we can define an economic calendar as the scheduled dates of huge releases, or events that may influence the development of individual security costs or markets in general.
The economic calendar for different nations is accessible for free on numerous monetary and market sites. Numerous investors and traders will use the economic calendar to deliberately design their exchanges and portfolio rebalancing.
Traders and financial specialists depend on the economic calendar to give them data and to give exchanging openings. Merchants frequently time development into or out of positions to relate either with a declaration of some event or with the hefty trading volume that regularly goes before a planned declaration.
(Also read: What is Inflation?)
Following the economic calendar can be particularly valuable for a trader who needs to take a short position. If the trader surmises effectively about the idea of the declaration, she can open the position preceding the planned declaration and afterwards close it promptly after the declaration.
An economic calendar incorporates a timetable of released economic reports and data for specific countries.
The nations will release what are called indicators that are basically data points that identify with the economy and data points are factors that are identified with the monetary cycle.
The types of indicators comprise:
1. Lagging Indicators
A lagging indicator is a detectable financial variable that alters its course and development after the change has happened in the target variable (economic cycle). Lagging indicators are used to check the trend of the general economy, and speculators, organizations, and government elements use them as signs for their methodologies and activities.
Examples of economic lagging indicators are:
2. Leading Indicators
A leading indicator is a discernible financial variable that alters its course and development before the change has happened in the target variable (economic cycle). Leading indicators are used to foresee when changes in the economic cycle will happen, and to anticipate other huge changes in the economy.
But, leading indicators are not generally precise, they are used by speculators, organizations, and government elements to design their systems and tasks.
Examples of economic leading indicators are:
Navigating Economic Calendars
From financial and economic websites, economic calendars are accessible for free. These calendars fluctuate from web page to website, nevertheless, and even though it is alluded to as "the economic calendar," the real calendar postings rely upon the focal point of the site and the events the clients of the site are probably going to be keen on.
Example of Economic Calendar; Source: Investing.com
For instance, the economic calendar on numerous sites records just events in the United States as these events have a huge market sway. Also, different locales permit the user to fabricate their economic calendar by using filters to show or conceal events.
While these free calendars can be a valuable beginning stage, most traders tweak a calendar dependent on the kinds of exchanges they like and the resource classes and districts they are satisfied with.
Also, a customized economic calendar shouldn't be restricted to government and Central bank releases.
A trader may, for instance, make an economic calendar around the significant releases from oil-producing areas while additionally consolidating the U.S. Energy Information Administration weekly oil status report and the quarterly documenting dates of the oil area organizations, he follows.
So, in this manner, an economic calendar turns into an adaptable trading instrument like an indicator alert.
(Recommended blog: Capital in Economics)
How to reduce risk with the Economic Calendar?
If you are a person who invests in the stock market then you should be aware of the risks involved in every trade. The easy and important idea to avoid risks is to check your economic calendar every morning before you start trading, and write down the times of the crucial information releases.
You can exchange stock with a tight offer or ask for the spread and imperative liquidity at each value level to assimilate orders. Along these lines, expressing the conspicuous yet your stop-loss request will get you out of the exchange at the value you anticipate.
(Related blog: Introduction to Investment Banking)
However, when high effect information is released, though, things can radically change. You may confront the odds of disappointment in meeting a cutoff time, which is the point at which you deteriorate cost more than you expected on a request.
This is the motivation behind why the economic calendar is so significant for anyone who puts or exchanges the monetary market. Because of this flightiness, we can't be so certain about what significant declaration or financial event will be disclosed.
This is the reason numerous expert dealers try not to take new exchanges until after the information has been delivered. After getting the most recent data on critical indicators and trending declarations, the economic calendar can help in planning how to avoid risks.
Who are the Users of the Economic Calendar?
Economic calendars are generally used by traders and investors. But, it is useful for all participants in the financial markets and regulators. If we take an example then we will see that long-term investors will use the indicators to measure whether or not they should explore their asset allotment.
If leading indicators are giving indications of a financial withdrawal, at that point an investor might need to redistribute their portfolio towards more low-risk, fixed-income securities.
On the other hand, if leading indicators give indications of a monetary extension, an investor might need to redistribute their portfolio towards high-risk equity securities.
Furthermore, traders might need to time their entrance and leave the focus on specific ventures with the arrival of financial events. Traders can make stakes on the effect of the declarations and endeavour to benefit by entering certain exchanges.
For instance, if a trader envisions in a way that is better than anticipated financial news, the trader can take long positions (buying securities) to profit by value appreciation. Alternatively, if a trader accepts that there will be more regrettable than anticipated monetary news, the trader can take short positions (selling protections).
Once more, it relies upon the proficient market hypothesis, which is basically the way that markets are news-driven, and that new data is priced into securities.
So, in conclusion, we can say that the economic calendar explains the stature of the economy of a country in terms of stability and deficiencies. Thus, traders and investors expect to use the economic calendar to make sharp verdicts.