IB/MIB Application

Trading The News

The Forex markets are a 24/7 six days a week market. There is constantly news being announced which effects the currency markets. The forex market reacts rapidly to any news that is announced and for the trader that can get out ahead of the rest of the market there are large profits to be made. This guide will explain what exactly trading the news is and how you can use it to maximise your trading profits.

The forex market is being constantly bombarded with pertinent news data which effects the price of the currency. There are eight major currencies and it is estimated that each trading day there are about seven important pieces of news data released which effects the prices of those currencies. These eight major currencies are the Japanese Yen (JPY), U.S dollar (USD), Euro (EUR), Canadian dollar (CAD), New Zealand Dollar (NZD), Swiss Franc (CHF), New Zealand Dollar (NZD) and the British Pound (GBP). With all this news information being released trading the news is a viable as a stand along strategy. If you can master trading the news you may not need to adopt any other trading strategy.

The difference between being successful trading the news and being a failure often comes down to the speed of the information that you receive. It is important that you are receiving data at the exact moment that it is issued. The quality of the news is also very important. When you are trading the news you need unbiased facts. News media will often color the facts in attempt to sway public opinion one way or the other. The may also release unfounded rumours. The key pieces of news data are as follows unemployment figures, inflation whether it is the consumer price index or the producer price index, unemployment figures which may include payroll statistics, decisions about interest rates, retail spending figures, business sentiment surveys, consumer confidence surveys, the state of the trade balance and manufacturing sector surveys.

When trading the news it is best to concentrate on either a single pair of currencies or at the most only two or three. There is plenty of information being released every day and so you will not lack for opportunities to trade. By concentrating on only a small number of pairs you will be better placed to understand how those currencies will react to certain news data. Also you will not be distracted by other news releases. Trading the news is not only about the news that is being released right now. It is also about forecasts that may have already been made and other factors that impact on the news release. If the market has already made assumptions about what the news data will state then the if the news data differs from this the results can be hard to predict. There is also a lot of volatility running up to the release of the news data. This can make it difficult to place a trade. If you have a stop loss in place, the volatility may move you out of the trade before you can profit from the news release. Another thing to look out for is an increase in trading costs due to a widen spread caused by the volatility. This can undermine any trading profit you would otherwise make.

The size and near constant action of the currency markets make it perfect for trading the news. Given the almost immediate reaction to any news and the amount of important news released everyday there is always opportunity for traders to profit.