Earning season: how does it affect trading and investing?

When trading in the financial markets, there are a multitude of factors that can affect your investments. The market is inherently volatile, closely affected by both planned and unprecedented events. As an investor, volatility can present you with opportunities to profit, as you can take advantage of short-term price swings, opening and closing a position swiftly to make gains on your investment. Of course, this volatility also puts your capital at risk, so it’s important that you understand the factors that can cause prices to fluctuate.

Some of the events that can affect the financial market take place annually. You can therefore plan ahead and act accordingly, to best capitalise on price movements that could occur. One such event that could affect trading and investing is earning season. This is a regular release of data that takes place over the course of the year.

You could speculate on price movements of an asset during this period on an online trading platform like Skilling, for example, where you could employ a contract for difference (CFD) and open a position without owning the underlying asset.

Read on to find out more information on how earning season could impact your trades and investments in the financial market.

What is earning season?

Earning season is a period in which companies release reports, containing their financial results from each quarter. This happens periodically, lasting for several weeks and usually takes place in the month that falls directly after a fiscal quarter has drawn to a close.

Before releasing the report, companies need to have collected enough data to give a complete overview of their performance. This includes their earnings per share (EPS), net income, revenue and their predictions for the future, along with various additional data.

Since earning season sees some of the world’s largest companies reveal their quarterly performance, it can have a significant impact on the financial markets, particularly stocks. This is because strong earnings could cause a stock’s value to increase and vice versa for the alternate result.

How does earning season affect trading and investing?

As we previously mentioned, earning season can affect the market, especially stocks in particular. A positive or negative report could cause prices of a stock to rise or fall, to reflect the company’s quarterly performance.

However, it’s not always this straightforward. Often a stock’s price can rise even if their earning report reflects a weak quarter. This is because of market sentiment — if multiple investors predicted that the stock would perform better than it actually did, their actions could cause the price to rise in the future.

Many stock’s values have a reputation for being closely affected by earnings season and you could use previous data, along with fundamental and technical analysis, to plan ahead for surprises in the market that could occur.

By planning thoroughly for earning season, you could ensure that you’re best prepared to take advantage of any short-term reactionary price swings that could occur, to attempt to make a healthy return on your investment during this period.

In addition, if you’re looking to open a position in the market, an earning report can be a useful and informative resource, since it will show you, which stocks are performing best, or are in prime positions for future growth.

Earning season is just one event that can affect the financial markets and there are a multitude of other factors that can affect your investments. Many of these take place annually and are plotted in an economic calendar, which you can easily access online and use to help you to plan ahead and anticipate future price movements.