Major economic data has the potential to drastically move the forex market. It is this very movement, or volatility, that most newer traders seek when learning how to trade forex news. This article covers the major news releases, when they occur, and presents the various ways traders can trade the news.
Why Trade the News on Forex?
Traders are drawn to forex news trading for different reasons but the biggest reason is volatility. Simply put, forex traders are drawn to news releases for their ability to move forex markets. ‘News’ refers to economic data releases such as GDP and inflation, and forex traders tend to monitor such releases considered to be of ‘high importance’.
The largest moves tend to follow a ‘surprise’ in the data - where the actual data contrasts what was expected by the market - the good news here is that you don’t have to hold a PhD in Economics because our economic calendar[1] already provides economist expectations.
Furthermore, news releases are set at pre-determined dates and times allowing traders enough time to prepare a solid strategy.
Traders that can effectively manage the risks of volatility, at the predetermined time of the news release, are well on their way to becoming consistent traders.
The Impact of Major News Releases on the Forex market
Just before a major news release, it is common to witness lower trading volumes, lower liquidity and higher spreads, often resulting in big jumps in price. This is because large liquidity providers, much like retail traders, do not know the outcome of news events prior to their release and look to offset some of this risk by widening spreads.
While large price movements can make trading major news releases exciting, it can also be risky. Due to the lack of liquidity, traders could experience erratic
