Macroeconomics in Futures Trading

The futures market is a responsive and dynamic environment, interacting with the wider spheres of politics, business and finance. For futures traders, the reliance of markets and futures pricing on wider factors gives rise to a number of opportunities for profiting out of forecast market movements, and provided you understand the relation borne by economics to market movements, the benefits this can have on your trading outcomes are significant.

Macroeconomics is a term used to describe economics that relate to the bigger picture – that is, on a countrywide, continent-wide or even global level (as opposed to microeconomics). Macroeconomics deals with issues such as inflation, unemployment, output, trade deficits – all the kinds of economic factors that play a direct role in the lives of populations more generally, and their impact on deriving future prices for commodities, shares and other instruments is vast.

As such, macroeconomic trading signals can be read in order to give you an idea of the types of trades to place. For example, a new tax on airlines might be a good cue to sell 6-month airline futures, in the anticipation that the economic response to the decision might be to suppress airline profits. Or, a cut in interest rates might be seen as a positive step for the German economy, which could in turn lead to a surge in the DAX and could inspire traders to go long on DAX futures.

Remember, at its core economics is a simple business, working on universal principles that can be rationed by most people independent of any formal economics background. Being able to read and interpret these clues can provide a wealth of opportunities for identifying under-pricing and future asset price outlook, which for futures traders is a critical and indeed extremely useful skill to master.

Many traders build their strategy around the simple concept that world affairs and, in particular, economic developments will cause prices to respond to the outlook posed by the given situation. Moreover most economic announcements have already been forecast previously, thus the difference between forecast and actual outcomes can give rise to a trading opportunity, even where the results out of context wouldn’t imply their perception of the actual outcome.

This means for traders wishing to implement this kind of strategy that they should keep abreast of developments in the world that are likely to bear upon the financial markets, and requires a both a devotion to reading and keeping on top of world news and a calendarization of events in order to gain a better understanding of the timetable of different organisations and their economic announcements.

The intersection between futures trading and economic goings on is a fascinating area, and one that you will no doubt encounter in more depth over your time trading futures contracts. Provided you have the inclination (and an interest in the subject matter), investing time in studying the economic dimensions of trading can pay real dividends in your trading portfolio, leading to a more rounded understanding of how the markets work and the factors that drive them.

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