There are various ways to trade the foreign exchange market with one of them being via forex news. Forex news releases report on the different global events that impact on the foreign exchange market. To use this method effectively you must have a strong understanding of the market, global influences and the forex news trading system itself. You must understand the different types of news releases and how to distinguish between relevant and irrelevant items.
Identifying relevant forex news
One of the first steps in trading on forex news is identifying what is important. There are numerous releases each day and you may assume that all items will affect the market, but this is untrue. There are various methods of identifying what is relevant and influential, and what is not.
The first method is by using a forex calendar. This trading tool lists all news items that have an impact on the market. The items will be categorised into the amount of influence they have on the market allowing you to note which pieces are most important. There are three types of information that will appear regularly on the calendar, these are: a country’s employment figures, the retail sales figures and the interest rates.
Reactive and proactive forex news trading
Forex news can be traded into two separate ways, proactively and reactively. Proactive trades will begin trades based on what they predict the outcome will be. Whereas reactive traders will wait until the news item is released to all trades and they can observe what the market movements are. These traders generally trade with the crowd instead of against it. Proactive trading is far riskier and much more difficult than reactive trading; however it does offer higher profits if the trade is advantageous.
Employment figures and the forex market
The movement of employment figures can have a great impact on the economic stability of a country. If the employment figures are strong the country’s economy will remain stable. However, if the country’s employment rate declines and there is a rise in unemployment some instability will be seen in the country’s economy. This warble in a country’s economy causes their currency to weaken on the foreign exchange market. A drop in employment figures is often due to companies being unable to keep staff or hire new staff.
Retail sales and the forex market
The level of retail sales is often linked to employment figures. Sales figures generally drop when people are unemployed as there is no money to be spent on retail. Furthermore, those who are employed are less willing to spend money due to the employment sector’s instability. However, when employment figures are high the retails sales levels are high as individuals are able to spend earnings. A high retail sales figure means the country is economically stable. A low retail sales figure is indicative of a bad economy and declining currency value on the forex market.
Interest rates and the forex market
Potentially the most important rate to review is the country’s interest rate. When the interest rate is high the currency is strong. This is due to investors wanting to invest money into the country. However, if the interest rate drops then investors will remove their funds. This leads to a negative economy and a decline in currency value.