This website uses cookies to provide you with full functionality and the best possible user experience. By continuing to use this website you agree to our cookies policy. Find out more.

 

  • Trading Around Company Earnings

    Spread Betting vs Shares TradingThrough your Finspreads Limited Risk or Standard Account, you can gain access to trade a range of UK, EU and US shares such as Vodafone, Deutsche Bank or Apple. 

    Spread betting shares offers multiple advantages over standard shares dealing such as the ability to go long or short and profit from share prices that are rising or falling, as well as commission free trading and Tax Free Gains*. 

    Trading around company earnings can be both lucrative and risky. Company earnings can create wide swings in the share prices of companies depending on how big companies outperform or underperform targets. 

    Typically when a company reports bigger than expected earnings, this would delight shareholders and increase demand for the company's shares, pushing prices higher. A weaker than expected earnings report typically disappoints shareholders who would have hoped for a better report, weakening demand and pushing the company’s shares price lower.

    Features to Consider  

    There are a number of features spread bettors need to consider when trading in and around company earnings.

    Extra Price Volatility

    Company earnings can trigger extra price volatility, increasing your trading risk when spread betting. This added price volatility can take place in the weeks running up to an earnings report but mostly occurs in the aftermath of earnings being released to the market. So consider risk management orders to help minimise your trading risk when choosing to trade around a company earnings report. 

    Timing

    Most companies report their earnings outside of trading hours for shares. For example, most UK companies report their earnings at 7am London time whilst US firms typically report either before the start of trading the US or after the US closing bell. This reduces your ability to react instantaneously to earnings updates as they are released. 

    For example, if Marks and Spencer’s releases better than expected earnings at 7am, the retailer's shares price will likely open higher when trading starts, meaning that you could have missed out on much of the rally already in the firm's shares price when you have an opportunity to trade it. Equally, if you are short Marks and Spencer’s shares before the earnings are released, the subsequent rally could put your open position in a loss as soon as trading opens, leaving you no time to react. This is why you should consider risk management orders when trading around company earnings. 

    Expectations

    Much of the price movements in shares in and around company earnings is all about expectations of the market on what that company is expected to report. Most firms report in previous earnings updates profit estimates for what they expect to report in future updates and investor reaction to earnings will depend on how much they deviate from these expectations. 

    For example, a bigger than expected profits report typically pushes share prices higher on stronger demand whilst a weaker than expected profits report can weigh on the company’s shares price. 

    Be Mindful of Previous Shares Price Performance

    Always be mindful of how a company’s shares price has performed in the run up to an earnings report. Investors typically buy shares on expectations of future performance. As such, if a company’s shares price has rallied 10% in the three weeks preceding an earnings report on expectations that they will report a strong set of earnings numbers, much of the good news may already be priced in to the market.

    A good earnings report therefore may not actually trigger a big shares price rally. In some instances, when earnings are reported in line with expectations, it can convince traders to lock in their gains and actually force prices lower.

    Next Step: Account Types 
  • Open an Account

    Spread bet from 10p per point with tight spreads and low margins

    Apply