Many forex traders who prefer day trading tactics try to profit from the significant forex market volatility that often occurs when major economic data or large news events are released. In terms of time horizon, such forex news trading methods are typically quite short term.
Furthermore, forex traders that use online forex brokers to execute news trading techniques tend to trade in smaller deal sizes to account for the significantly higher risk associated in dealing in more turbulent market conditions.
Another factor to consider is that executing news trading tactics can cause a lot of stress and risk to a trader's online trading account. As a result, news trading is not for the faint of heart, and many experienced traders square trading positions with their currency brokers before of major news releases.
News Trading Strategies Examples
1. Trading Range Breakouts Seen After News Releases
This technique is looking for currency pairs that are trading in a range ahead of a major announcement. When the anticipated news is released, the trader looks for a breakout of the range and opens a small position with their online forex broker in that direction.
2. Speculating on the News Event’s Outcome
If a trader believes they know what the outcome of a given event will be better than the market — and it is significantly different from what the market expects — they might position themselves accordingly. If their predictions are true, such traders frequently try to exit their positions as soon as the market's knee-jerk reaction has moved the exchange rate sufficiently in the desired direction.
3. Buy Options
When a trader has a directional opinion, directional option or binary option methods like purchased puts or calls can be employed as a low-risk way to trade the news. When a trader's outlook on the market is more neutral but they still want to benefit from more volatility, straddles and strangles might be used.
4. Placing orders
Even in the quick markets surrounding important news releases, many online forex brokers instantly process modest orders for their retail forex customers at their order rate. Small currency traders may be able to use their online forex broker to set both a buy and sell stop in a range around the rather stable pre-release market. They'd then take the new position matching to the executed order, cancel the other order, and try to profit from their new position before the market retraces part or all of its post-release movement.
Major Economic Data Releases and News Events
Many online forex brokers will provide a calender of key economic data releases for the upcoming day, week, or month to help forex news traders choose when to use their news strategy.
The following are some of the significant data releases that forex traders monitor for major market volatility:
- Benchmark Interest Rate Decisions - Central banks declare their benchmark interest rate decisions on a regular basis, usually with a press conference or a written rate statement. Unexpected rate adjustments or statements implying a future change might result in large capital flows and corresponding foreign currency rate movements.
- Employment Statistics – On a monthly basis, the labor ministries of the world's main economies provide employment reports that typically represent the number of employed individuals added or deleted from the workforce, as well as the country's unemployment rate. These reports produce a lot of volatility in the FX market. Numbers that represent the current level of inflation in a country, such as the Consumer and Producer Price Indexes, are frequently used to predict how the local central bank will modify monetary policy. Unexpected outcomes can result in substantial fluctuations in the affected currency pairs.
- Gross Domestic Product (GDP) - A country's GDP reveals how its economy is growing and, as a result, can have a significant impact on the value of its currency.
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