The financial markets are hugely volatile, presenting great opportunities to profit, and the foreign exchange (forex) market is no exception.
Forex is one of the most actively traded assets globally, and the market saw $6.6 trillion worth of trades in 2019 alone.
Hearing this, you might be wondering — what is forex trading and how does it work? Forex trading is the process of buying and selling the world’s currencies on the financial market. Currencies are traded in pairs, known as currency pairs. This enables them to be directly compared against one another, in order to deduce their value.
There are many factors that can affect the value of a currency and thus, affect your position in the forex market. Since a country’s economic health is a primary contributor to its currency’s exchange rate, events and data releases that take place within a calendar year, regarding a country’s financial well-being, can alter the landscape of the financial markets dramatically.
Thankfully, many of these events are periodic and are plotted in an economic calendar, which will help you to plan ahead, to best circumnavigate the effects of each event.
In this article we will give you some examples of the types of events found in the economic calendar that affect the forex market, so keep reading to find out more.
Elections
Some of the events found in an economic calendar are political, since changes in government and policies can affect the value of a currency.
Elections are just one of those political events. Their unpredictability generally causes mass uncertainty, which can affect the volatility of the forex market, especially if the vote is contested or delayed.
In the weeks before the election, the market can experience short term changes. However, using an economic calendar, you can plan ahead and use fundamental analysis, in order to maximise the chances of profiting from these fluctuations in value.
Employment rates
One of the best indicators of a country’s economic health, is its employment rate, and this data is released on a monthly basis, charted in an economic calendar. A nation’s employment data shows how many individuals are in work and thus, receiving a stable, reliable income source.
The higher the unemployment rate, the less surplus capital that individuals have to spend, meaning living costs may have to be lowered, weakening the economy.
One of the most significant releases of employment rates is the US’ non-farm payrolls, since the US dollar acts as the base currency in the forex market. This data release covers the employment of 80% of the country’s workforce, so it is worth planning your movements in the forex market around this event, especially if you trade in a currency pair that involves the US dollar.
Gross Domestic Product release
On an annual basis, each nation will release an overview of their total gross domestic product (GDP). This is the collective value of a country’s goods and services, and is a major economic indicator.
The GDP will inform you of the value of a nation’s goods, and also tell you how much the country has spent on goods and services, giving you an insight into their economic activity.
No matter your approach or strategy to the forex market, you could benefit significantly from using an economic calendar. It will inform you of all the impending events that could affect your position, giving you time to plan ahead for any increased volatility that could occur. Additionally, you can also use risk management tools on an online trading platform, to minimise the losses that you could incur in the market.
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Events in the economic calendar that affect the forex market
