A look at forex news trading
The Forex market is one that is hugely driven by leverage and this is why the impact of any bit of forex related news is usually magnified for traders. Forex news releases serve as a window into how well an economy is doing and depending on the magnitude of the markets’ surprise at the news, the effects could either last a few hours or a few days. Trading forex news is exciting and rewarding but often the volatility that comes with it can lead to large swings in prices within minutes, and this is why it is difficult for even the most experienced traders, let alone newbies, to trade solely off of the news.
You need to know the different types of forex news
The key to having any sort of consistency trading the news is in knowing which ones move the markets the most. For example, wholesale inventories from the U.S qualifies as news report but it does not have any effect on the markets, as the numbers do not have any impact on the US economy.
On the other hand the employment number data, or Non-Farm Payrolls as it is referred to, is a piece of news that is closely watched every month. The reason for this is that job growth directly affects consumer spending and this is key in determining if an economy is viable or not. In fact apart from central bank interventions, the NFP is the economic data that moves the markets the most and thus traders who do not know their way around this would do well to stay away from the market at the expected release time.
Employment numbers from other countries do not move the markets as much as this and instead of affecting the whole market in general, the numbers will only affect pairs that have the underlying currency as counter, or base currency.
Trading forex news
Trading forex news can be done in a proactive or in a reactive manner.
To trade the news in a proactive manner, the trader needs to take an educated guess as to where the market is likely headed after the news and place a trade in that direction minutes before the news is released. On the surface, this looks really hard but it is not if the trader knows the proper way to go about it. To make educated guesses, you can look around online for thoughts of analysts regarding what is expected with the release.
Traders, who are not able to do this normally end up trading reactively. When trading the news in a proactive manner it is advised that the trader gets into a trade as early as twenty minutes before the impact time. This prevents the trader from falling prey to broker antics, and also keeps the trader in pole position to benefit from the usual kneejerk reactions that follow release of heavily anticipated news.
Trading reactively involves waiting for news to be released and entering the trade. This works sometimes but often traders get their fingers burnt. For example, brokers widen spreads during news periods and this eats into any potential profits the trader might make. Also, the market reaction to news could change in an instant leaving the trader with huge losses.
Forex news trading is profitable but it is surely not for the faint hearted. It’s always good to stay away from the markets when in any kind of doubt.