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Earnings Surprise - Consensus Estimate

What Is an Earnings Surprise

In the world of trading, nothing is guaranteed. However, if there is one thing you can count on, it is that high-impact macroeconomic events will have an effect on your assets. Unfortunately, accurately determining the direction and nature of these movements is often down to chance.

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An earnings surprise happens when a company's reported quarterly or annual earnings are above or below analysts' expectations.

Analysts base their expectations on various sources, including previous quarterly or annual reports and current market conditions, as well as projections of the company's own earnings.

To create an accurate forecast, an analyst must collect information from several sources.

  • They need to talk to the management of the company, visit this company, study its products and keep a close eye on the industry in which it operates.
  • The analyst will then create a mathematical model that incorporates what they have learned and reflects their opinion or expectations about that company's earnings in the coming quarter. Expectations may be published by the company on its website and sent to the analyst's clients.

The surprise comes when the company reports numbers that deviate from those estimates.

Earnings surprises can have a huge impact on a company's share price. Research shows that unexpected positive results not only lead to an immediate jump in the stock price, but also to a gradual increase over time.

Hence, it is not surprising that some companies are known for regularly beating earnings forecasts. An unexpected negative result usually leads to a decrease in the share price.

Consensus Estimate

The magnitude of the effect that macroeconomic events have on financial instruments depends on what is commonly called the “surprise factor”. The surprise factor is the difference between the value expected by the market, called “consensus”, and the actual number released during the event.

Understanding Consensus Estimates

For example, let’s say that the common consensus is that there will be no interest rate increase by a central bank. But on the day of the event, the central bank announces a 1% increase in rates. The difference between no change, and 1% change is huge. Therefore the surprise factor is large and has a big effect on financial systems around the world. The difference between the consensus and the actual values is called “delta”.

Autochartist’s News Events Trading Service analyzes how each financial instrument was affected by different values of delta over the last 12 months. This results in many noticeable correlations which are delivered to you through this tool.

NETS has 2 types of forecasts it provides:

  • “On-event” alerts provide forecasts as soon as a macroeconomic value is released. Autochartist immediately calculates the delta, and then looks back over the last 12 months checking for any correlations between the value of delta and the movement of all financial instruments. While we cannot promise that the trend will stay true to history, having access to this information could help you shift the odds and guide you to a more informed trading decision.
  • “Pre-event” alerts provide forecasts before an event release. But because the actual macroeconomic number has not yet been released, Autochartist provides you with 3 scenarios - if the delta is negative, if the delta is positive, and if the delta is zero.

While no amount of analysis or research could ever produce 100% odds, Autochartist’s NETS help you make an informed decision by giving an indication of which direction a chart may move immediately after a high-impact event.


How does Forex Work?

Forex (Foreign Exchange) is a huge network of currency traders, who sell and buy currencies at determined prices, and this kind of transfer requires converting the currency of one country to another. Forex trading is performed electronically over-the-counter (OTC), which means the FX market is decentralized and all trades are conducted via computer networks.

What is Forex Market?

The Forex market is the largest and most traded market in the world. Its average daily turnover amounted to $6,6 trillion in 2019 ($1.9 trillion in 2004). Forex is based on free currency conversion, which means there is no government interference in exchange operations.

What is Forex Trading?

Forex trading is the process of buying and selling currencies at agreed prices. Most currency conversion operations are carried out for profit.

What is The Best Forex Trading Platform?

IFC Markets offers 3 trading platforms: MetaTrader4, MetaTrader5, NetTradeX. MT 4 Forex trading platform is one of the most downloaded platforms which is available on PC, iOS, Mac OS and Android. It has different indicators necessary for making accurate technical analysis. NetTradeX is another trading platform offered by IFC Markets and designed for CFD and Forex trading. NTTX is known for its user-friendly interface, reliability, valuable tools for technical analysis, distinguished functionality and the opportunity to create Personal Composite Instruments (PCI) which is available specifically on NetTradeX.

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Marisha Movsesyan
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