What are Economic Indicators?
Economic indicators are scheduled economic data releases, declarations and announcements by leading factors in the financial arena. There are many indicators, and each of them differs from the other in their place of origin, target audience and effect on the various financial markets. For convenience purposes we separated the indicators by region – starting with the US indicators, followed by the European indicators and to the Asian indicators.
View our economic calendar to see upcoming economic events.
Types of Economic Indicators
The indicators’ frequencies vary from one indicator to the other; some are daily, others monthly and several are quarterly. Before the indicator occurs there are speculations made by leading financial figures, and traders base their moves on those speculations. An economic event has a double influence; first when announced, and second when compared to the speculations made before. A big difference between the speculation and the actual number can cause shifts in the market.
Examples of economic indicators can be unemployment rate of a country, interest rate, new building permits or federal funds rate. Each indicator can affect more than its own market. For instance, if a government issued a statement that more building permits were given, it will result with more jobs, lowering the unemployed rate and thus leading to higher consumption rate and ending with the strengthening of the local currency.
Economic Indicator Example
An example for an indicator with a major impact is the Non-Farm Payrolls (NFP), published on a month’s first Friday by the U.S. Bureau of Labor Statistics. This report reveals the unemployed rate in the US, except government, farm and non-profit workers. That covers some 80% of the US working force. A decrease in the unemployed rate, i.e. there are more people working, usually indicates the market is growing. As a result the American Dollar will grow stronger. If a trader speculated that beforehand, and opened buying positions prior to the announcement – the outcomes would be to his favour. Naturally, if the unemployed rate rises the Dollar will weaken. Either way, the NFP and the speculations beforehand will cause vibrations in different instruments.
Other types of Economic Indicator review market growth demand and supply figures and many other factors that impact markets, instruments, companies and traders as one.
How to use Economic Indicators?
In order to utilize the indicators to one’s advantage, a proper market analysis is required. Some traders prefer a more elementary research, while others choose a very thorough work and analyses. For all traders the indicators can be a very useful tool requiring close monitoring of the economic calendar. Once the trader knows that a certain event is due to take place, e.g. a country’s consumer supply and demand rate, he will prepare by making a speculation on the number that will be presented. Based on that speculation the trader will choose which instrument to trade and if he should open a buy or sell position. Should the trader be accurate the trade can result with substantial profits.
Speculation made on Economic Indicators should be done with a knowledge of relevant markets and financial occurrences, or general events that can affect the content of the indicator. Once knowing all the related factors, the speculation will be based on a firm ground of rational thinking.
Any trader, beginner or experienced, should familiarise himself with the economic calendar, and learn which indicators are relevant to his trades and how. Once this information is acquired traders will find out how their trades become more successful and their earnings can surpass their expectation.