Economic news has a big impact on currency prices, from major to minor pairs, and often increases volatility in the forex market over the short term. News forex trading is essentially placing trades on specific currencies based around news events which affect their price, whether it’s political, economical or other such events. This can be a popular strategy for both new and experienced traders who constantly keep their eye on the latest developments around the world, with many ways to benefit from this method.
Important news events
There are a range of important news releases and events which will impact currency prices. Some of these will have specific release dates so can be scheduled in advance and trading strategies adapted accordingly, based on their predicted outcomes. A few important economic news releases to follow include:
Interest rate adjustments
Unemployment figure releases
Industrial/manufacturing sector surveys
Other political events such as the announcement of a general election will also have an impact. According to research, the forex market will still be absorbing and reacting to news releases hours and sometimes days after they are released, though making your move early on should lead to greater profits.
How to trade news
Trading the news is risky as it is usually pre-empted and followed by large price movements, so if you get it wrong this can result in big losses. Those well prepared should have fewer worries here and make sure they put in place stop losses and limit orders to minimise risk, whichever way the market swings.
When trading forex with an ECN broker this is possible. If the news release meets your expectations, then find the best entry points for a trade. Pivot prices and trendlines can offer an objective way to discover the best point.
Short and long-term strategies can use news releases and events to their advantage. Using an economic calendar is essential to plan in advance for such events and high levels of volatility in either case. This can help you decide what volume to trade and where to set stop losses.
Short-term trading styles such as day trading are popular, as many news forex trades only are impacted for a few hours, so it’s best to close trades sooner rather than later. Scalping can miss out on much of the volatility, as can some longer-term strategies.
News forex trading can be an exciting and successful way to enter the forex market for beginners and advanced traders, as long as you arrive well prepared.