GDP

GDP

GDP

GDP is one of the most important, if not the most important release you as a trader can get your hands on when looking for information about an economy. It will show you how much all goods and services in an economy are worth and from that you can get a very good idea of the economy’s health. This release also influences monetary policies and the market’s behaviour, so it’s very important to interpret it correctly in order to stay one step ahead of market changes. This is what we are going to show you in this article, so stick around and gain some valuable information, especially if you’re still new in the world of finance.

GDP | Central banks

As we’ve already said, GDP is the total value of all products and services in an economy. However, its release usually sets off a chain reaction on the market because various institutions have to react once the data is released. This, in turn, affects the country’s currency because, depending if a country’s GDP is positive or negative, the central bank will raise (when the number is positive) or cut (when negative) its interest rates. Central banks always want to prevent their economies from entering a recession, which is why these rates have to be adjusted on regular basis. When you know that and when you know the GDP, it becomes fairly easy to predict the outcome of the next central bank meeting and you can invest accordingly.

GDP | Types of releases

GDP releases can differ from economy to economy. Some countries publish them on monthly, while others publish them on quarterly basis. Also, there can be different versions of the same GDP, as is the case in the United Kingdom. There, a so called Preliminary release is issued first and that is what affects the market the most because it is very rare that the last release will differ significantly. A similar thing also happens in the United States, for example. So, generally, waiting for the last release is not a good idea because you will lose valuable time. Find out when the first GDP estimates will be released and use them to figure out How to choose your strategy. If you know the GDP, you know how the central bank will react and, consequently, how the currency will behave. That’s why this number is so important.

GDP | Conclusion

And that’s about everything you need to know about the basics of using GDP as a trader. This number shows you the overall health of an economy and can help you predict market events with a high degree of certainty. That is why this is one of the most important indicators you can find, so you should always keep track of its new releases. Do that and the rest becomes fairly easy. Good luck!

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FURTHER READING:

1. Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets (N. Taleb, 2005)
2. The Ultimate Trading Guide (J. Hill, G. Pruitt, L. Hill, 2010)
3. Market Wizards (J. D. Schwager, 1989)
4. Common Stocks And Uncommon Profits (P. Fisher, 2003)
5. The Mathematics Of Money Management: Risk Analysis Techniques For Traders (R. Vince, 1992)

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Author: Ben Prescott
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