(MENAFN – DailyFX)

Major economic data has the potential to shift the forex market dramatically. It is this movement, or volatility, that most new traders look for when learning to trade forex information. This article covers major news releases, when they happen, and outlines the different ways traders can trade the news.

Why Trade Forex News?

Traders are attracted to forex news trading for different reasons, but the main reason is volatility. Simply put, forex traders are attracted to news releases for their ability to move the forex markets. “News” refers to economic data releases such as GDP and inflation, and traders tend to watch those releases that are considered “highly important.”

The biggest moves tend to follow a ‘surprise’ in the data – where the actual data contrasts with what was expected by the market – the good news here is that you don’t need to hold a doctorate in economics because we already provide the expectations of economists.

Moreover, press releases are set at pre-determined dates and times, which gives traders plenty of time to prepare a solid strategy.

Traders who can manage volatility risk effectively, at the predetermined time of the news release, are well on their way to becoming consistent traders.

The impact of major press releases on the Forex market

Right before a major news release, it is common to witness lower trading volumes, lower liquidity and higher spreads, often leading to large price increases. This is because large liquidity providers, much like retail traders, do not know the outcome of news events before they are released and seek to offset some of this risk by widening spreads.

While large price movements can make trading large news releases exciting, it can also be risky. Due to lack of liquidity, traders might experience erratic prices. Such erratic pricing has the potential to cause a huge price spike that spreads in the blink of an eye, dragging .

Additionally, the wider spread could put traders on margin call if there is not enough free margin to meet it. These realities surrounding major news releases could result in a short trading career if not handled properly through careful money management, such as incorporating stop losses or guaranteed stop losses (if applicable).

In general, major currency pairs will have lower spreads than less traded and minor currency pairs. Therefore, traders can look to trade the majors , , , and to name a few.

Traders should be well prepared in advance – with a clear idea of ​​what events they want to trade and when they will occur. It is also important to have a solid in place.

“Don’t think about what the market is going to do; you have absolutely no control over it. Think about what you’ll do if he does. In particular, you shouldn’t waste time thinking about those bullish scenarios in which the market goes your way, because in those situations you don’t have to do anything anymore. Instead, focus on the things you least want to happen and what your response will be. –William Eckhardt

What major Forex trader press releases?

When learning to trade news, traders should be aware of major news events affecting the forex market, which can be closely monitored using a .

US economic data is so influential in global currency markets that it is generally considered the most important news. It is important to note that not all press releases lead to increased volatility. On the contrary, there are a limited number of major news releases that have previously produced the greatest potential to move the market.

The table below summarizes the major US economic releases as well as some of the most important non-US data releases from around the world.

Main press releases (US and rest of the world):

Economic Data ReleaseTime (EST)Description
8:30 am – monthly outing (first Friday after the end of the month) Represents net job changes
WE 8:30 a.m. – quarterly outing Estimates the monetary value of all goods and services produced in the United States over a given period
Federal funds rate 1:00 p.m. – scheduled 8 times a year Interest rate at which deposit-taking institutions lend and borrow from other institutions, overnight
Australian exchange rate 10:30 p.m. (First Tuesday of the month except January) Interest rate applied to overnight loans between financial intermediaries
Changing jobs in Australia 7:30 p.m. – monthly outing (about 15 days after the end of the month) Change in the number of persons employed during the previous month
refinance rate 7:45 a.m. – 8 times a year Interest rates of the main refinancing operations providing liquidity to the financial system
official bank rate 7:00 a.m. – monthly outing Interest rate that the BOE lends to financial institutions (overnight)
Bank of Canada Overnight Rate 10:00 a.m. – 8 times a year Overnight rates that major financial institutions borrow and lend to each other
Evolution of employment in Canada 8:30 a.m. – monthly (approximately 8 days after the end of the month) Measures the change in the number of people employed over the previous month
Reserve Bank of New Zealand official exchange rate 9:00 p.m. – scheduled 7 times a year Interest rate at which banks borrow and lend to other banks, overnight

Key tools and resources for trading Forex

DailyFX provides a one-stop-shop for all your forex-related data and news releases:

  • : Know when key data such as US Nonfarm Payrolls, GDP, ISM, PPI and CPI numbers are due out.

  • : Central bank decisions on interest rates can have a profound effect on financial markets. Know when they are scheduled.

  • : Stay on top of the latest news, in real time, with updates from our top analysts. Likewise, get all the top stories of the day along with analysis by following our market updates.

Managing risk when trading news and events

The importance of caution cannot be overemphasized during volatile times following a news release.

The use of stops is highly recommended, but in this case traders may consider using guaranteed stops (if available) rather than normal stops. Guaranteed stops carry a fee, so be sure to check this with your broker; however, these fees can often end up being insignificant compared to the amount of slippage that can occur during such volatile times.

Additionally, traders should also look to reduce their normal trade size. Volatile markets can be a trader’s best friend, but also have the potential to significantly reduce account equity if left unmanaged. Therefore, in addition to placing guaranteed stops, traders can look to reduce their trade sizes to .

3 Approaches to Forex News Trading

There are a number of approaches traders can take when developing a forex news trading strategy that depend on the timing of the trade relative to the news release.

Many traders like to trade in the moment and make decisions as an announcement happens – using an economic calendar to plan ahead. Others prefer to enter the market in less volatile conditions before a release or announcement. To summarize, forex news trading falls into one of the categories below:

  • 1. Trading before the press release

    Trading forex news before the release is beneficial for traders looking to enter the market in less volatile conditions. Typically, traders who are more risk averse gravitate towards this approach looking to capitalize on the calmer periods before the news release by trading ranges or simply trading with the trend. Discover strategies on how to .

    2. Trading on an exit

    These forex news trading strategies are not for the faint-hearted as they involve entering a trade as the news breaks or in the moments immediately following. This is when the market is most volatile, which underlines the importance of having a clear strategy and well-defined risk management. Equip yourself with strategies to navigate the volatility associated with .

    3. Trading after the press release

    Post-exit trading involves entering the trade after the market has had some time to digest the news. Often the market, through price action, provides clues to its future direction, presenting traders with great opportunities. Learn how to trade the news when the market is in transition with our article on .

    Top 3 things to remember when negotiating press releases

  • Preparation is key: don’t be lured into the sudden exchange of information with bid and ask prices flashing rapidly across the screen. Be disciplined enough to pull back, reevaluate, and develop a strategy to implement in time for the next major press release.

  • Wider gaps: It is completely normal for gaps to widen during important press releases. Make sure there is enough free margin available to absorb this temporary spread widening which will require a larger margin.

  • Volatility: is a central factor to consider when trading news. Traders should consider reducing trade sizes and ensuring stop distances are sufficient to account for anticipated volatility, while protecting against further declines. News Trading FAQ

    How will high profile press releases affect my existing business?

    This will mainly depend on the currency pair and the actual data/figures released. The data will impact the currency that is directly involved, i.e. a change in the interest rate by the will affect the crosses you hold.

    However, currencies trade in pairs, so it is important to keep in mind the strength/weakness of the associated currency. Data that comes out contrary to estimates tends to have the biggest impact on the market and these can affect your open trades (good or bad) the most.

    Looking at this from a swing trader’s perspective, you might want to consider how close the market is to your stop or limit before the news release. If the market is near either of these levels, it may be best to close the trade right away. When the market is close to the target, it is better not to risk much to gain a little and when the current price is close to your stop loss, you may want to cut your losses before they potentially increase further of a slip.