Leading Indicators

Definition

Leading indicators are signs and data that a forex broker or trader will use in an effort to predict imminent changes in the current currency exchange market.

Leading indicators will occur before actual market changes, so they are considered to be important guidelines for investing. Anything that will allow traders to predict market conditions can be beneficial to successful forex trading.

Stock market returns, building permits, currency supply, unemployment claims, and production level changes are some examples of leading indicators that have been known to have an effect on exchange rates throughout forex trading platforms.

Forex Trading Importance

In many cases, leading indicators are used mainly as guidelines for possible, rather than assured, change in a market and don’t have much affect on FX trading. However, in other cases they have been known to change the market’s behavior.

The Fed watches indicators such as unemployment claims and currency supply in order to decide when to alter the interest rate. Consequently, many forex brokers and traders will keep an eye on the same leading indicators in order to prepare for, and take advantage of, such changes.

For more information on forex trading basics, check out our additional resource pages, including info on common FX trading indicators such as the New Home Sales report, Nonfarm Payroll Employment figures and the PCE Price Index.