Forex Trading on News Releases

Forex Trading

If you are interested in forex trading, then it is important to know how volatile the market is at any given moment and how fast it moves and changes directions. This is why it is crucial to stay updated with the events in the forex market news. As a trader, you must acquaint yourself with main event risks that may affect the prices of the major currencies.

Now, you may wonder, what kind of news you should look forward to. Remember that the importance of news lies in how able it is in increasing short-term volatility. So, generally, you need to pay attention to news that has high market-moving potential. The news that has the potential to drive price action and produce volatility usually involves shifts in government policy, changes in central bank policy, unexpected results in economic data releases, tweets from a world leader, etc. By being aware of forthcoming major event risks, you can avoid being on the wrong side of the market. 

What Should You Look For And Where?

There are websites that highlight significant occasions, market news, and pecuniary data that are being released by countries all over the world. News involving the most popularly dealt with currencies is always vital. However, the number of events scheduled can go over a hundred on any given week and it can be difficult to find out the important ones from them. The solution here is the economic calendar released by various websites that can help you in identifying the relative importance of each specific event. 

You can also filter news and event listing on an economic calendar to make news browsing easy. By spending some time exploring it, you will notice that the most crucial events typically relate to ups and downs in interest rates, price increases, and economic growth, like producing, merchandising, and consumer sentiment. Some crucial events are interest rate decisions by central banks, inflation, employment data, economic growth, retail sales, industrial production, business sentiment surveys, manufacturing sector surveys, consumer confidence surveys, housing data, and trade balance. Similar data may have different names in different countries but that is pointed out in the economic calendar. 

Based on what is trending around the world, the relative importance of event changes. For example, interest rate decisions may be the main focus at a specific time, while it may seem irrelevant during a different time and nobody may care. This is why it is important for you to be updated and informed to know which event is in focus at this moment. 

Pay Special Attention to News From The U.S. 

Although the markets are affected by most economic news from several countries, the biggest news comes from the U.S. and you must pay attention to it. The U.S. is still considered the most powerful country in the world, whether it is in the domain of industry, geopolitics, science, energy, technology, military affairs, and culture. Even if the position of the US dollar has been eroded by setbacks and imbalances, its strength and influence are still unmatched. Thus, the U.S. still has the biggest economy in the world and the USD is the reserve currency of the world. As a result, the USD takes part in almost 90% of all forex transactions, and it makes the U.S. news and data important. 

Selecting Currency Pairs To Trade The News

After monitoring an event, you would want to trade the currency that is associated with that particular event’s economy. Selecting the right currency pair is a vital decision when it comes to trading. As a trader, your job is to take advantage of the short-term spike in volatility while keeping your transaction costs as low as possible. Since news can increase the volatility in the forex market, it is important to trade currencies that are highly liquid. 

Currencies with high liquidity have the tightest spreads which is the main reason you can keep your transaction costs low. Liquid currency pairs also assure that your orders would be executed smoothly without trouble. Usually, major pairs have the most liquidity, hence the tightest spreads. 

Now that you know how to look for important news and how to use it for trading, you may start your career. 

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.