Learn to Use the Economic Calendar: Binary Options Trading

Asset prices react to new information. If inflation is increasing, this affects what assets traders, investors, institutions, and hedge funds may want to own or sell.

Economic calendars aggregate information released by organizations and government agencies at regularly scheduled times throughout the week, month, and year. There are many different types of relevant economic events, such as interest rate announcements, inflation data, housing data, price of goods, and economic indicators such as GDP tracking.

By viewing the economic calendar, binary options traders can see which countries have economic data releases on a given day. The economic calendar provides the precise day and time of the data is released so traders know in advance and can prepare. Here’s an example of an economic calendar on a particular day:

You only need to review the economic calendar events that affect the market you are trading, and which will have a significant impact on prices. Most economic calendars tell you the expected impact of an event by ranking the events as low, medium, or high impact.

Traders use economic calendars in different ways. Some traders stop trading just before the news is released, then trade on the movement that follows. Other traders develop predictions of what the data will reveal and how it will affect price. They then place trades before the news to potentially profit from the news and ensuing price moves if they are correct.

News is only likely to affect markets associated with that news; for example, Canadian housing data is unlikely to affect the US stock market, but it will affect the USD/CAD forex pair. British GDP data that affects the UK stock market may not affect the US stock market, but it will affect all GDP-related currency pairs.

Therefore, if you trade US markets, pay attention to US economic data releases. If you trade European markets, pay attention to European economic data released. If you trade forex, pay attention to the economic news in both countries/zones in your currency pair.

For example, if you day trade the EUR/USD, monitor high-impact European and US economic data on the economic calendar. If you want to be thorough, you could also monitor medium impact news as it may result in significant price moves. Binary options brokers may also offer their own economic calendar for you to use. If not, the one on Investing.com works well.

It can be, but it can also be beneficial if you trade in a risk-controlled way. Using too much leverage will eventually result in a big loss if risk isn’t controlled. To prevent this, use a stop loss on each trade that exits the trade when a small percent of your personal capital is lost.

Not using a stop loss is a common mistake. This way, even with using leverage or margin, you are only risking a small percentage of your own capital.

These figures can help you assess how far the price may move and in what direction. The value itself isn’t so important. Rather, it is the value relative to the forecasted amount that you should focus on.

Assume you buy stocks because inflation is low and you expect stocks to rise. Analysts are predicting 1% inflation. The data comes in at 3%. That’s a big difference. Now, you personally may not care because you trade a strategy based on technical analysis, but a lot of investors and businesses do.

In that situation, investors may not be so sure if stock prices will rise because inflation is higher. Corporate costs are rising and could cut into corporate profits if companies are unable to sell as much as they raise their own prices to consumers to compensate.

The massive difference between the expected value and the actual value is likely to cause big price moves. If the expected value was 1% and the actual value is 1%, the reaction to the news is likely to be more muted since the data came in as expected.

This is just an example, but the same concept applies to all economic data. If the number released is close to expectations, the ensuing price move is usually less than if the actual number is very different from the forecasted number. The current number versus the previous values shows which way the data is trending.

Keep in mind, though, that the news is not the only factor that affects prices. Many traders rely on their own methods, independent of current market news. However, keeping your finger on the pulse of economic events can be a profitable dimension to add to your trading strategy.

As price moves, it creates technical patterns, crosses through moving averages, and these factors bring in other traders. Other factors start becoming more relevant hours, and even minutes, after the data is released. For short-term traders, after the news is released, it’s key to focus on price patterns and trend trades that develop and trade those.

Focusing too much on the news, and trying to predict where it will lead price isn’t always wise since other factors will start affecting the price more and more over time. A strangle binary option strategy can be employed profitably around high-impact news. Learn that strategy to take advantage.

Interest Rate Announcements

Central banks around the world set their interest rates for the country at regular intervals. The meetings are scheduled in advance, and then the rate which they decide (along with a press conference to follow) is released at a specific time. These are some of the biggest market-moving events, especially if the interest rate they decide on is different from what was predicted by analysts.

CPI and PPI

The Consumer Price Index and the Producer Price index provide information on rising or falling consumer and producer costs in the US. This is information that central bankers use to make interest rate decisions. Look for similar events in other countries if you are trading markets outside the US.

Gross Domestic Product

GDP is the goods and services that a country produces within a given time frame. This indicates the health of a country’s current economy. This will in turn affect money in the country, spending, inflation, and thus can have a large impact on financial market prices.

Employment Data

The unemployment rate, and how many workers a county’s workforce gained or lost, can cause large price swings.

In the US, the big monthly event is called the Non-Farm Payroll and is released the first Friday of the month. Other countries release similar figures under various employment-related names.

Where can I find an economic calendar?

Multiple financial websites offer an economic calendar free of charge. Investing.com offers a calendar ideal for forex traders because it covers all the countries around the globe. MarketWatch offers an economic calendar focused on major US economic events.

Trading.biz also provides its own economic calendar here. Many brokers, like JustMarkets, also offer economic calendars on their website.

Which country’s events are important on an economic calendar?

As a trader, the economic events that are important to you are the ones related to the country’s market you are trading. If you are trading US stocks, monitor high-impact US economic events. If you are trading a forex pair, monitor the high-impact economic events of both currencies in the pair.

Which news events are important on the economic calendar?

Economic data related to interest rates, employment, GDP, and/or inflation generally have the biggest impact on market prices. They will impact assets related to the country issuing the data. US employment data will affect US markets and currency pairs with the US dollar in them.

How can I filter the events on an economic calendar?

Some economic calendars allow you to filter which events you see based on country and expected impact, while other calendars do not. Investing.com provides an economic calendar that you can customize and save if you set up a free account.

Do I need an economic calendar for binary options trading?

With binary options, your risk is limited to the amount invested. That said, it is still worthwhile knowing when major economic data releases are scheduled. Since these events can cause large and sharp price moves, you can accommodate for this in your strategy, or potentially take advantage of it.

Do I need an economic calendar for trading stocks or forex?

If you are day trading, you’ll want to be aware of major news events because they can cause large and fast price moves. If you don’t know when these moves are coming, you can be caught off-guard and lose money. If you know when the events occur, you can adjust your plan accordingly.

Final Thoughts

Every trader should know how to read and use an economic calendar. I day traded at a prop firm for many years and learning how to use the economic calendar was one of the first things we were taught.

Knowing when the big news events are scheduled means knowing when volatility is likely to increase. This volatility can be used to your advantage if you have a trading strategy to capitalize.

To get a sense of how the news events on an economic calendar affect market prices, open a free demo trading account to get a feel for how the price moves around certain data releases.