Trading forex news is an integral part of the market activity of trading participants. Forex news refers to the economic and socio-political events and data that are released periodically to market and economic watchers. These events or data typically affect the investment climate in a country or region as well as the world over. This is why forex news affects the currency markets to a very large degree.
Forex news can be of low impact, medium impact or high impact, depending on how market watchers typically react to the numbers that they are presented with. Before deciding to trade forex news, traders should be familiar with the following concepts that pertain to news trading activity:
- Know the numbers and what they mean
- Know which assets respond to certain news events
- Understand the behavior of currency assets to news events
- Understand the forex news economic calendar
- Learn how to put it all together to trade the news.
Trading the news can be very profitable. Why not take advantage of news trading services to make your forex news trading worthwhile?
Knowing the Numbers
What makes up the forex news numbers? We have the following:
a) Consensus/expected: This is what a pool of economists feel the numbers will be when the news is released.
b) Actual: These are the actual released figures.
c) Previous number: The last released figure for the news item.
d) Revision: A revision to the previous released news item.
These numbers are important. What makes forex news tradable is the extent to which the actual number deviates from the expected/consensus number, and also by what margin this differential is when compared to the difference between the actual and previous (or revised) numbers.
The greater the margins, the more volatile the currency pair and the greater will be its range of movement in one or the other direction.
Selecting the Right Asset
Each currency is paired with several other currencies. Even if a news item is released out of a certain country, the pairings of that currency with others will not all respond appropriately or in the same manner. The trader must therefore know the right currency pair to trade. For instance, the USDJPY responds in a better and more direct way to the Non-Farm Payrolls report than the EURUSD.
Understanding Currency Response to the News
Currencies respond to news in different ways. For instance, the response of the US dollar to Housing Stats is usually more muted than its response to GDP data. Understanding how a currency responds to news enables the trader to decide which news to trade and which to avoid.
The Forex News Calendar
This is a schedule of forex news releases. A full schedule for a whole year is available. Typically, traders can select the schedule for the current month to see when each news event will be released.
Putting it All Together
News trading is not for beginners. This is because it takes practice to understand how to use the four factors described above to fashion out a profitable news trade. Traders must therefore do a lot of forex news trading practice on demo before going live.