Trading financial markets is a complex business that involves multiple levels of knowledge, including fundamentals of the financial markets and technical analysis of the price charts with various tools. As we can see, this can be very tricky and lead to many challenges. Some traders solely rely upon the technical analysis in their trading but incorporating the fundamentals can amplify the decision accuracy several times. In fact, it is a very bad idea to trade without an economic calendar where important macroeconomic indicators can be monitored. In this guide, we will discuss why fundamentals are important in trading and which ones to look closely at.
Fundamentals can create new millionaires?
When trading stock markets, fundamentals are even more important than in Forex. Checking the critical news and macroeconomic indicators can be a challenging task. To track every single important news about companies and their announcements, a corporate event calendar can be a great aid. The corporate event calendar by myFXchoice offers listings for dividend announcements, earning calls, IPOs, and many other news events that can move certain stocks or a sector of the markets. Earning reports are known to instantly make stock prices move. If Earnings were positive and more than inventors were expecting, then price usually rises, while negative earnings cause prices to fall. IPOs are a great way to invest in companies before their price jumps so high it is no longer profitable. Great startups are known to make new millionaires, and monitoring news in this regard can be a life-changing opportunity.
Fundamentals to watch before any trading decision
The fundamentals listed below can be monitored with an Economic calendar and offer the ability to stay informed and analyze fundamental factors behind major price trends.
Nonfarm Payrolls (NFP)
NFP routinely makes EUR/USD prices move in both directions great distances at high speeds. Nonfarm Payroll is an important US economic indicator that measures the number of paid employees who are not working in certain areas like farms, government structures, nonprofit organizations, and private households. This data shows the health of the US labor market and instantly affects the EUR/USD prices when released on the first Friday of each month. Because of its potential to radically move markets, any Forex trader must watch this news release very carefully and if it’s possible, close all open positions before the indicator is released to avoid losses caused by violent price movements. Generally, higher-than-expected NFP causes EUR/USD prices to fall as USD is strengthened by the positive NFP numbers.
Gross Domestic Product (GDP)
GDP release is another indicator that shows the health of the entire country’s economy and can have a tremendous impact on almost every asset class. Gross Domestic Product numbers are released every quarter. GDP can affect both stock markets and Forex markets as it is a very important fundamental indicator. Higher than expected GDP in the Forex market can increase the value of a country’s currency, as a stronger economy means stronger currency. On stock markets, higher GDP numbers increase investors’ confidence in the country’s economy and can lead to increased prices on stocks. Conversely, lower GDP prices have a negative effect on both Forex and the stock market.
Central bank interest rates
Interest rates have a major impact on inflation and Forex markets. Higher interest rates make it harder for investors to borrow money from commercial banks, and this lowers the rate of new money printing, reduces the currency supply in circulation, and lowers inflation. Lower inflation makes currency stronger and in the case of EUR/USD, the price will fall as USD gets stronger versus Euro in this scenario.
Higher interest rates also make demand higher from foreign investors as they see an opportunity to make more money on their deposits. But, interest rates hike slows the economy down and can potentially lead to a recession. The current FED’s interest rates policy is a good example of this phenomenon of how lowering the inflation hurts the economy and makes it harder to borrow money and invest in high-revenue assets. It is a great challenge for central banks to balance interest rates so that their potential to hurt the economy is countered by the positive effects of lower inflation levels.
- Fundamental data is important in both stock trading and Forex trading as it involves macroeconomic indicators that can tremendously affect prices and trends.
- The corporate event calendar offers listings for dividend announcements, earning calls, IPOs, and others that will help stock traders and investors buy stocks that have the potential to make massive profits.
- Earnings reports directly affect the prices of stocks, and IPOs are a great way to invest in startups with high potential.
- An economic calendar is the best way to monitor important fundamental indicators that are released routinely.
- GDP can affect both stock markets and Forex currency pairs as it measures the health of the entire country’s economy.
- Nonfarm Payrolls or NFP indicator is released on the first Friday of each month and has a track record of constantly shaking the Forex markets.
- Interest rates released by central banks affect inflation and directly impact the Fore prices as it affects the strength of the fiat currency.