Discover Forex Trading in the news

Last updated: 28.02.2023
Tim Parker
Author:
Tim Parker
Adviser
CFD & Trading
Experience
25 years

For the longest time, trading the news in forex has been one of the most important tools in the forex trader’s arsenal. Not just about simple statistics, in 2021, global events have a greater impact on currencies than ever before.

Companies buying other companies, interest rate drops, political unrest, and trade wars – these are all predictable and impactful news events that forex traders can capitalise on. Through the use of market analysis, economic forex calendars, and global news, trading the news in forex can be a profitable strategy for both long-term and short-term traders alike.

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  • What is trading the news?
  • Why trade the news?
  • Scheduled news events
  • Unscheduled & unexpected
  • Social media influence
  • Pros and cons of trading the news
  • Conclusion

What is trading the news?

Trading the news the term used to describe the technique of using various news releases to trade financial instruments such as forex. The technique of trading the news allows forex traders to profit by making time-based decisions to capitalise on market movement caused by a news event.

Traders who heavily utilise this technique are known as News Traders and they aim to capitalise on high market volatility both leading up to a news event and directly after a news event – often when others are still reacting to the news event. Trying to profit on this precise trading has been coined ‘buy the rumour, sell the news’ – meaning to buy positions based on speculation and then subsequently selling those positions immediately after the speculative news event has been made public.

For example, a news trader may buy a currency based on the rumour of a central bank interest rate hike. That forex news trader would then sell the position when the interest rate rise is publicly announced and the currency’s value increases. You can imagine how political events such as Brexit could affect how people trade GBP/USD.

Why trade the news?

While technical analysis is a vital tool in the identification of market patterns can it reveal future price direction? Sure technical analysis will tell you who, be they retail traders or investment banks alike, is buying and selling currency pairs but it doesn’t ultimately give too much insight into the future. Economic and political news offers an expansive insight.

Preparing for a news event can make sure you don’t waste time understanding the news event instead of reacting to it. Studies suggest the forex market could take anywhere from several hours to several days to fully absorb an economic release – So imagine being ready for it, right at the start.

Ways to trade the news: There are different ways to trade the news based on whether a news event is scheduled or unscheduled. The forex calendar outlines scheduled events throughout the year while central banks and governments will announce an unscheduled news event, such as policy change or reaction to an event, making it a scheduled event.

Of course many events throughout the year may come as a complete surprise, there are still methods and techniques to trade the news when unscheduled events occur.

Scheduled news events

Forex trading news can be very predictable thanks to regular announcements and economic events that can be tracked with the economic calendar forex.

Economic data points

The economic calendar contains announcement dates that occur at the same time every month and contain information vital to forex trading. Interest rate changes, inflation reports, retail sales – these are all the types of information one can expect from such an announcement.

Following an economic forex calendar is a fantastic way to be ready for scheduled news and announcements. These announcements can provide a great deal of clues on future market prices – Imagine what a trade war announcement could do to a currency pair – such as when you trade GBP/USD.

Politics

Government politics plays a very large hand in the perceived strength of a nation’s currency – especially around elections. Election uncertainties and election announcements affect the decision-making process of forex traders. Some investors may wish to refrain from speculation until a new government official takes office, while others may wish to buy or sell in order to capitalise on a speculative winner.

A business-friendly government typically attracts much international investors due to economically beneficial policies. Take Donald Trump’s 2016 U.S election win for example, which saw a multi-year bull market almost immediately after taking office.

Conflict

The economic viability of a currency can be affected greatly by violent conflict, notably military engagements or war. War can cause significant damage to a nation’s infrastructure and is typically a very expensive endeavour – the cost of the Iraq war for the United States is estimated at around $2 trillion.

Environmental events

Environmental news events can certainly affect the forex markets. Changes in economic policy based on eco concerns or the aftermath of major environmental events such natural disasters, can often be predicted. A natural disaster can deplete resources, affect productivity, and damage infrastructure that can result in a decline in currency value. For example, the Fukushima disaster of 2011 had a dramatic effect on those looking to trade USD/JPY.

Unscheduled & unexpected

Forex trading news can sometimes come out of nowhere. Some news events actually catch forex traders completely off-guard and result in wild swings or even complete reversals of trends. There are a few of these types of unexpected news events.

Supply & demand

Supply and demand are an obvious key component of a balanced market but unpredictable events can dramatically affect this balance. Look to the 2020 coronavirus pandemic that significantly affects almost every economy and market in the world. Oil prices plummeted in 2020, due to the covid travel restrictions significantly reducing demand for oil.

A common forex trading strategy to take advantage of this unscheduled event is to focus on trading reversals when a price begins to reset. Trading reversals can provide a high probability of success.

Black swan events

A term coined by statistician and options trader, Nassim Nicholas Taleb, black swan events refer to unpredictable events that share the three characteristics of rarity, retrospective predictability, and dramatic impact.  The coronavirus pandemic is an excellent example of a black swan event.

Possibly the two most notable black swan events to drastically affect forex trading would be the 1987 stock market crash, commonly referred to as Black Monday, and the global financial crisis of 2008 that saw the U.S exchange rate soar unpredictably.

Trading during a black swan event can be troublesome. Forex traders during a black swan event have a tendency to make rash decisions or panicked decisions. Skilled traders can identify the short-term panic and the following long-term action by the central bank and government that typically helps the market recover.    

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Social media influence

In 2021, with so many ways to access the news, social media has risen as a powerful platform to give voice to those who hold influence over forex traders. No longer just a means for people to communicate with others, social media has become an information source for financial news and a means for individuals or groups to influence the markets.

Look back to 2013, when tweets on a single day, voicing the opinion that Apple Inc stock is undervalued resulted in a price surge of 5%. In 2021, entrepreneur Elon Musk, has caused the rise in market values of several stocks and cryptocurrencies through social media posts.

Social media can also provide fast access to new releases – Major real-time trading news platform, FXstreet news, even offers a Twitter account where analysis can be posted quickly and reach thousands of traders in an instant. The decision to trade EUR/USD could come down to a tweet.

Pros and cons of trading the news

Trading the news advantageously provides a clear enter and exit point of a trade based on the timing of the news and market reaction to a news event. This can all be clearly and confidently planned. Also, a quick look at the economic calendar will show you that there are many news events and economic releases that may provide profitable trading opportunities. The very existence of the economic calendar means planning for such events can be easily coordinated.

However, no technique or strategy is risk free. Trading the news can be risky to overnight risk when a position is held open over several days. An impactful news event may occur while you have ceased trading and are unable to react quickly. Trading the news also requires experience and skills. It is not a technique a new trader should rely on. A news trader needs to fully understand how particular announcements will affect positions and how the greater forex market will react. Inexperienced traders also may fail to understand news from a market perspective – Trading the news is not simply subjective.

Conclusion

Regular economic news from around the world ensures the forex currency market continues to be prone to short-term movements that can be predicted by experienced news traders. Trading the news is a way to successfully take advantage of market movements through analysis of scheduled news events.

Understanding of how the forex market will react to new events, coupled with the knowledge of when to expect reporting to occur can dramatically assist in knowing when to enter or exit a forex position to maximise profits. With experience and continued research, you can take advantage of trading the news.

Trading the news FAQ

📰 What is trading the news?

When it comes to forex trading there are many different ways to buy and sell a position. There are also many different ways to analyse the markets in order to determine market movement. Trading the news is a technique used by many experienced forex traders to take advantage of market opportunities.

✔ Can anyone trade the news?

Trading the news is a technique employed by many forex traders to take advantage of market opportunities. Many different tools, and methods of market analysis are available to forex traders. It is up to you as a trader to determine what trading style or strategy will suit your goals.

📆 How many news events occur each year?

It is a long year and many different scheduled and unscheduled news events may occur over the course of a calendar year. There are tools available to forex traders to determine how many news events are expected to occur and there are factors that can change scheduling or the type of news event.

👀 Where can I find the news?

There are many different platforms in which you can locate insightful and useful news that can influence your decisions when conducting forex trades. It’s not just about FXstreet news, as there are many publications that release economic reports and other important news.

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