Trading global currencies is not for the weak at heart. There are so many variables with each currency and then on top of that, any event can affect the price.
We don’t have a lot of control over what happens around the world and whether currencies will respond by rising or flailing, but we can try to keep abreast of what might be triggering financial events. That is why new traders are always advised to check the news first, before beginning a trading session.
You can have a specific currency pair in mind and open up your laptop to enter a trade, but first go into current news accounts to make sure that currency is still stable, or if there are upcoming events that might affect it.
1] Tracking Financial Reports
Find the statistics that are relevant to the currency you plan to trade. Every country will publish statistics regarding its gross domestic product, its labor market, inflation and retail sales. These are all vital to understanding that country’s currency.
These are the factors that determine how that country’s economy is holding up and what factors might influence it. Keep in mind that with any sort of news release, the forex market can suddenly take off in a direction that was not anticipated. While volatile, you can be set to use this information to place trades that will yield high profits.
2] How to Trade Forex on the News
First you need to know when statistics will be released concerning the currency you are planning to trade. Wait for those releases to appear before taking a step. After the information has been released, you can observe how it will affect the market.
Will the economic forecast stay steady or is this new information going to throw it into a tailwind. There are traders who decidedly do not wait for the news reports but try to get ahead by guessing what it will be and where the market will head. Of course, if their predictions are correct they can stand to make good profits.
Another way of trading with the news is by looking at prior prices. In this strategy you can trade breakouts from their earlier levels. This can be done on a daily basis or very short term.
3] Risks to Consider When Trading the News
One of the risks to take into account is slippage. Slippage happens when you place a trade with the market going in a certain direction, but then some vital news is released that changes the price. In this scenario, you can actually get your order placed at a different price than you were hoping for.
If there is extreme market volatility, the prices can fluctuate so wildly that you are stopped from your position. This can happen even if you guess the market direction correctly.
Also, keep in mind that bid – offer spreads can widen just before a major news release. This can make it more expensive for you to enter and exit the market.