Important Economic Data CFD Traders Need
Like any other financial investment, trading in CFDs comes with its risks. Any CFD trader should be able to gather economic data to enable them to make profitable CFD trades.
Therefore, for anyone in the forex trading business looking to boost their output via learning new strategies and skills, this post is for you. By the end of this post, you will be in a position to know the different economic data available for use in trading sessions and how they can affect the forex calendar.
Such data will be vital in delivering profitable insights to enable you to gain the most of your positions in stock markets and CFD trading. Read on to learn more.
What is economic data? Why it is important
Economic data, or otherwise referred to as economic indicators, is essentially a set of data released by expert traders to ensure that other CFD traders have deeper insights into a country’s economic performance.
These data sets are significant because they are used to analyse current and future economic trends. It could be for judging the health of an economy or for investment purposes. In most cases, the data is released by non-profits or governments; thus, they are official.
Furthermore, they ensure that traders understand the state of an economy, which means that they are crucial in providing information that enables expert traders to discover new trading positions and at the same time guide them in adjusting their portfolios.
Since markets can fluctuate dramatically, these data sets are widely followed. It ensures that CFD traders don’t miss any profitable trading signals. Therefore, traders must always keep their eyes peeled for any predictions to guide their trading strategies.
The common types of economic data
There are essentially three broad groups of data:
- Coincident indicators: You can get this data from specific economic activities and are ideal for regional traders.
- Leading indicators: They are ideal for predicting the future trends and movements of an economy. Therefore, you should expect a change in these figures even before the economy does. This makes them ideal for identifying new opportunities. However, since they are not 100% accurate, they could be risky to rely on every time.
- Lagging indicators: These come after an economic activity; thus, trailing the economy. They aren’t as useful for identifying new trading opportunities but are equally as important in providing insights into how healthy an economy is at the time.
Key economic data CFD traders need to watch
There are several data releases that traders can take advantage of to analyse and understand any change in the economy’s trajectory, hence their level of profitability. However, here are some of the most important ones.
1. Gross domestic product (GDP)
A country's GDP is essentially the market value of all the services and goods produced in the country for a certain period. Inasmuch as it is a lagging indicator, it is a great gauge of an economy’s health.
It is an ideal data release because it can provide an accurate measure of an economy’s size. At the same time, the GDP per capita has a close link with the standard of living over time.
Any shifts in how markets respond to shifts in GDP will be evident in indices and stock trading, which directly affects CDF traders.
2. Interest rates
These are the percentage charged paid to savings accounts owners or loads issued. The country’s central bank is in charge of setting the interest rates, which trickles down to the commercial banks and eventually the consumers.
Therefore, interest rates will be increased to curb the rate of inflation or lowered to elevate growth.
Data on interest rates is important, especially for shares markets, because of their impact on the value of currencies. Therefore, they are both useful as lagging and leading indicators because they lag behind any shift in interest rates in the recent economic period.
At the same time, when the change of interest rate decision is made, it is a leading indicator for the upcoming trading calendar.
4. Currency markets
Any national currency is a vital benchmark of a country’s economic health because the value of these currencies will be a reflection of how much sellers and buyers think it is worth.
Any strong economy encourages investments. Therefore, buyers become more willing to pay more than the national currency, boosting the economy.
This increases the country’s purchasing power, enabling them to import products and services at cheaper rates and sell them at higher rates. The vice versa is also true.
As a CFD trader, understanding the currency markets will be ideal in incorporating this knowledge to understand the movements in the economy because it relies on events that have already happened to predict the future.
5. Stock markets
The analysis of stock prices provides insights into how a company is performing and its outlook. Therefore, it is easier to tell the direction of the stock market, and at the same time, use this information to predict the direction of the economy.
Inasmuch as this economic data includes a lot of speculation, which can easily manipulate the market, it remains an ideal indicator that CFD traders can use to make their decisions regarding the positions they can take for higher margins.
The important events on an economic calendar that you should know
Different activities on an economic calendar are crucial drivers of volatility, especially in trading hours. Most trading sessions rely on non-farm payroll data (NFP), which comes every first Friday monthly. Apart from the NFPs, there are other important events, including:
- Central Bank rate decisions
- OPEC Meetings
- Retail Sales
- EIA Crude Oil Inventory
- Employment indicators like payroll, labour force and unemployment data estimate
- Gross Domestic Product (GDP)
- Trade Balance
- ISM Data
Since CFD traders take advantage of price changes to make profits without necessarily having to invest in CFDs, it is important to have the knowledge the read the economic calendar and keep an eye out for the crucial data to inform their decisions.
Therefore, when traders do this, they essentially become able to trade on margins without owning any asset outright. At the same time, they acquire new skills and strategies to help them remain profitable in the long term.
If you want to learn more about the economic calendar, economic indicators and trading signals, feel free to check out Xosignals.com for more information.
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