Trading During Earnings Season Explained

As an investor, there are a multitude of factors that can affect your trades on the financial market. Many of these factors are macroeconomic, influenced by a nation’s economic health, which the markets will consequently respond to, with prices increasing or decreasing as a result. In addition, there are many events that are plotted in the economic calendar and take place periodically that can impact the financial markets. These events include planned changes to interest rates, releases of reports from central banks and many other critical, planned occurrences.

Earnings season is one such event that takes place on a periodic basis and can directly impact trade on the financial market. Because of this, it’s important that you understand what earnings season is and how it can affect your investments, so that you can plan accordingly. With Plus500 for example, you can speculate on fluctuations in the market and implement a range of tools to your trade which can help you to make informed decisions. In this article, we will explain what earnings season is and the best practice for trading during this period.

What is earnings season?

The period of the year where companies release financial results reports from that quarter is known as earnings season. This event typically follows the month after the fiscal quarter has ended, usually occurring in January, April, July and October, since the companies need to collect sufficient data to form the report.

This can last for several weeks and involves some of the largest companies in the world, who are big economic contributors and therefore have a significant influence over the conditions in the financial market. The earnings reports released detail the various company’s earnings per share (EPS), revenue, net income and also their predictions for the future, including other pieces of instrumental data.

How to trade during earning season

Since earnings season involves companies that have a significant influence over the financial market, this release of data can drive market prices and in turn, completely change the landscape of the market. As an investor, you may have to adapt your strategy depending on the health of the earnings reports, since a strong report can drive prices up and vice versa in the case of a weak report.

The reports themselves are not the only factor that can impact the financial market, since market sentiment can also affect rates of financial instruments. Market sentiment is the effect that other investor’s predictions and beliefs can have on the outlook of the market. For example, if enough people believe that the price of a specific stock will rise and act accordingly, this could drive the price up of that stock.

As a trader, you can utilise earnings reports to help you to decide what to invest in, since they can provide a useful insight into how the stock is likely to perform in the future. Prior to earnings season, companies will have released earnings estimates, which are what they expect to achieve in that quarter. These estimates are based upon previous performances and data, management guidance and the company’s net income. Should the company hit or exceed these predictions then its share price should increase. On the other hand, should they fail to hit their estimates, the price could fall dramatically.

Financial markets are extremely volatile and can be impacted greatly by scheduled events, like the release of earnings reports. As a result, it’s important that you understand the risks involved and implement tools that can reduce the risks of making losses. One such tool is a stop loss, which is a specific level which you can choose for your trade to end once you’ve lost a specific amount.

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