In other words, forex traders are attracted to information releases for their ability to maneuver forex markets. 'News' refers to economic data releases such as GDP and inflation, and forex traders often track such releases believed to be of'high importance'.
The biggest moves tend to follow a'surprise' in the data - where the actual data contrasts what was anticipated by the marketplace - the good news here is that you don't have to maintain a PhD in Economics because our economic calendar already supplies economist expectations.
Furthermore, news releases are set at predetermined dates and occasions allowing traders sufficient time to prepare a solid plan.
Dealers that could efficiently handle the risks of volatility, at the predetermined period of their news release, are well on their way to becoming consistent traders.
Just before a major news release, it is normal to see lower trading volumes, lower liquidity and greater spreads, often leading to big jumps in cost. This is because large liquidity providers, similar to retail traders, do not understand the outcome of news events before their release and look to cancel some of this danger by broadening spreads.
Due to this absence of liquidity, traders may undergo erratic pricing. Such fickle pricing has the potential to cause a huge spike in price that shoots through a stop loss in the blink of an eye, leading to slippage.
Moreover, the wider spread can place dealers on margin call when there's not enough free margin to accommodate this. These realities surrounding important news releases could result in a short trading profession if not handled properly through prudent money management such as integrating stop losses or guaranteed stop losses (where available).
Generally, major currency pairs will have lower spreads compared to traded emerging market currencies and minor currency pairs.
Dealers need to be well prepared beforehand -- with a transparent idea about what events they would like to trade and if they occur. It's also important to have a good trading strategy in place.
"Do not think of what the market's likely to do; you have absolutely no control over that. Think about what you are going to do when it gets there. In particular, you need to spend no time at all thinking about these rosy scenarios in which the market goes your way, because in these situations, there is nothing more that you do. Focus instead on those items you need least to happen and also on what your response is." -- William Eckhardt
WHICH MAJOR FOREX NEWS RELEASES TO TRADE?
When studying how to trade news, traders must be conscious of the significant news events that affect the foreign exchange market, that can be monitored closely with an economic calendar.
US economic information is so powerful within global currency markets that it is usually seen as the most important news. It's necessary to note that not all information releases lead to increased volatility. Instead, there are a limited number of big news releases which have produced the greatest potential to move the market.
The table below summarizes the major US economic releases alongside some of the most important non-US data releases from all over the world.
DailyFX provides a one-stop-shop for all your forex associated info and information releases:
Economic calendar: Know when important data such as the US Non-Farm-Payroll, GDP, ISM, PPI and CPI figures are due to be released.
Central Bank Calendar: Central Bank interest rate choices can have profound influence on the financial markets. Get to know when they are scheduled.
Real time news feed: Stay up to date with breaking news, as it happens, with upgrades from our top analysts. Similarly, get all the major reports of the day plus analysis by after our marketplace news.
The importance of sensible risk management cannot be overstated during volatile periods that follow a news release.
The use of stops is highly recommended but in this situation, dealers might wish to think about using guaranteed stops (where accessible ) over regular stops. Guaranteed stops do include a fee so be sure to check that with your agent ; however, this fee can oftentimes end up being insignificant in relation to the amount of slippage that can happen in such volatile intervals.
Additionally, traders should also look to lower their regular trade size. Volatile markets can be a dealer's best friend but also possess the potential to decrease account fairness considerably if left unmanaged. Accordingly, in addition to putting guaranteed stops, traders may look to lower their transaction sizes to handle the emotions of trading.
There are quite a few approaches traders may adopt when creating a forex news trading plan which are based on the time of the trade relative to the information release.
Many dealers like to exchange in the moment and make decisions as and when an announcement happens -- using an economical calendar to plan beforehand. Other people prefer to go into the marketplace in less volatile conditions before a release or statement. To summarize, forex trading matches into one of the categories below:
Trading before the information release
trading on the news release
Trading after the information release
1. Trading ahead of the news release
Trading forex news before the release is beneficial for traders seeking to enter the market under less explosive conditions. Generally, traders that are more risk averse gravitate towards this approach looking to capitalize on the more extended periods ahead of the news release by trading ranges or trading with this trend. Discover strategies about the way best to trade ahead of the information release.
2. Trading during a release
These forex news trading strategies are not for the faint hearted as it involves entering a trade as the news breaks or at the minutes that immediately follow. This is at a time once the marketplace is in its most explosive which underscores the importance of having a clear strategy and well-defined risk management. Familiarize yourself with strategies to browse the volatility associated with forex news trading at the launch .
3. Trading following the news release
Trading post-release entails entering the transaction after the market has had some time to digest the news. Frequently the current market, through cost actions, provides hints on its future leadership -- presenting traders with fantastic prospect. Find out to exchange the news once the market is in transition using our post on trading following the news release.
Be disciplined enough to walk away, reassess and create a plan to be implemented in time for your upcoming significant news release.
Wider spreads: It's perfectly normal for spreads to expand during important news releases. Ensure there is sufficient free margin available to absorb this temporary Growing in spread that will require a larger margin.
Volatility: Money market volatility is a central element to consider when trading the information. Traders should consider reducing trade dimensions and make sure that stop distances are adequate to allow for the expected volatility, while at exactly the same time, protecting form any further negative.
TRADING THE NEWS FAQS
How will high importance news releases affect my current trade?
This will depend mainly on the currency pair and also the actual data/figures released. The information will impact the currency that is directly involved i.e. a shift in the interest rate by the European Central Bank (ECB) will influence any Euro crosses that you hold.
But, currencies trade in pairs therefore that it's essential to be mindful of the strength/weakness of this accompanying currency. Info that comes out contrary to estimations, tend to make the largest impact on the sector and these can affect your open transactions the maximum (good or bad).
Considering this in the swing trader perspective, you might choose to consider how close the market is for your stop or limit prior to the news release. If the sector is near either of these levels it may be best to shut out the trade, there and then. When the market is near the goal, it's much better to not risk a whole lot to gain a little and as soon as the present cost is close to your stop, you might want to cut your losses until they potentially increase because of slippage.
