Forex News Trading - How to trade News in Forex?

Different traders have different trading strategies and styles based on their needs and appetite for risks.

One of the most common and interesting strategies in the Forex world is trading on economic news releases. Aside from economic news, there is also geopolitical news, but we are going to focus more on economic news.

News trading is a strategy that enables traders to use the news in their trading. This kind of trader is called a news trader. To make sure that your trades are successful and earn profits, it is important to know why economic news releases are important and how traders can trade using this news.

Why are economic news releases important for news trading?

Economic news releases are important catalysts for short-term movements in the Forex market. Some of the most anticipated releases include the U.S. Non-Farm Payrolls (NFP), Gross Domestic Product (GDP), Consumer Price Index (CPI), FED decisions, and Purchasing Managers’ Index (PMI).

Each of the above releases will create a big movement in the Forex market because traders will adjust their trades based on the news content.

When the news hits, there are two possible outcomes:

Prices spike in one direction
The market does not react to the data

The first outcome happens when traders have finished their analyses and made their moves, while the second one happens when traders are still analyzing the news – so no moves yet. The initial reaction usually lasts for 30 minutes up to 2 hours, and the follow-up reaction usually lasts for 1-2 days. However, in some cases, the Forex market can experience the effects for several days depending on the news release.

Since economic news releases can bring about huge changes in the Forex market, Forex traders will experience high price volatility within this period. Trading opportunities with high price volatility can lead to higher returns, but also higher risks. That is why news traders should carefully plan their trades to avoid huge losses.

All traders interested in news trading, must keep an eye on all upcoming news events via Forex economic calendar on a daily basis.

What currencies should you focus on?

There are many currency pairs and instruments that you can trade in the Forex market. However, the following eight major currencies will be most likely affected by economic news releases:

1. U.S. Dollar (USD)
2. Euro (EUR)
3. British Pound (GBP)
4. Japanese Yen (JPY)
5. Swiss Franc (CHF)
6. Canadian Dollar (CAD)
7. Australian Dollar (AUD)
8. New Zealand Dollar (NZD)

News traders are advised to trade in major currency pairs with the tightest spreads, such as EUR/USD, GBP/USD, USD/JPY, and USD/CHF to minimize their risks. Please note that other currencies may also be affected by the news. Aside from currency pairs, other instruments such as commodities (e.g., WTI crude oil and metals) can be affected as well.

Moreover, U.S. economic releases usually have the most impact since 90% of all currency transactions involve the U.S. dollar. So, the most liquid instruments are usually U.S. dollars and instruments related to this currency.

How does news trading work?

We already know that news releases will have two possible outcomes. With that in mind, news traders should choose the most suitable trading strategy within this period.
To understand how news trading works, you need to take into account three determining factors:

Figures of the previous months
Forecast of the current month (aka consensus)
Actual release figure

There are two trading strategies that news traders use:

🟢 1. Directional bias

In this trading strategy, news traders expect the market to move in a certain direction once the news report is released. So, they have already made their predictions and entered their trades before the release and are now waiting for the results.

To use this strategy, you need to find out all relevant information before the release, including what news will cause your trading instruments to move, and the forecasts from experts and economists that were released a few days or weeks before the actual release.

Let’s use the U.S. NFP report as an example. A few weeks before the NFP release, trader A read some experts’ forecasts stating that the U.S. employment rate is expected to decrease, i.e., a weaker U.S. economy and thereby a weaker dollar. That is why trader A decided to sell his dollars and exchange them for other currencies a few hours before the NFP report release.

This would result in either a profit or a loss. If the NFP report states a decrease in the employment rate, trader A will earn profits from his trade. However, if the NFP report states the opposite, in that case, trader A will suffer a financial loss.

That is why it is important to keep track of the market consensus and the actual figure. You will also need experience and knowledge to analyze the information. Therefore, the directional bias strategy is more suitable for experienced and professional traders.

🟢 2. Non-directional bias

Contrary to the directional bias, this strategy can be used by all traders. Put simply, the non-directional bias strategy encourages news traders to “go with the flow.”

We know that a big news report is coming, so we know that there will be a big movement after the news release. That is why we prepare to find and follow that big trend. You do not care about the movement itself, but you will follow the movement when it happens, by entering the trade after the news is released.

To use this strategy, you do not need to find and analyze the experts’ forecasts; however, you need to find the trend and follow it in your trading. It may look simple, but it is not. Traders should be experienced enough to find and follow the big trend before it changes.

Tips about news trading

You can never be 100% sure about how the market will move even though you have the forecasts. However, you can minimize the risks by observing the market. Here are some practical tips you can use for news trading.

👌 Pay attention to when most major news releases occur and adjust your trading time

It is important to know when the market is most active and volatile for your trading pairs. Traders can find the news release time in their economic calendar or by visiting the relevant websites. In addition, different countries usually have specific time ranges for the news release. By using this table, you can anticipate the news releases and plan your trades accordingly.

👌 Know what the key releases are and how they will affect your trading

There are various key points in different releases, and a few of them may not affect your trading pairs, even though most of them are correlated. Some important key releases that may cause a huge movement include interest rate decisions, retail sales, inflation, unemployment rate, trade balance, and industrial production.

That is why if you decide to use the directional bias strategy, you need to find out the relations between these key points and your trades to successfully plan your trades.

👌 Have proper risk control and money management

Given the fact that in news trading one has to take advantage of a volatile period, the possibilities of profits and losses are very high. It is very risky, so traders need to make sure that they can manage their investments to avoid losses.

The consensus and the actual figure may differ, so carefully decide on your risk appetite and only risk what you can afford to lose.

During this volatile period, many traders experience an emotional roller-coaster. Not every trader is experienced enough to analyze the news or trends quickly and accurately using various tools. Therefore, you need to have a grip on your emotions so you will not lose more money after a huge loss.

👌 Make sure to get the relevant and accurate information on time

You can get different information from official websites, Forex brokers, and even TV and radio news, such as whisper numbers (unofficial and unpublished forecasts), reported consensus figures, and revisions to previous reports. Nonetheless, sometimes these forecasts are inaccurate. If you are confused about all the information, you can focus on the most important news that may have a greater impact on the market.

Best brokers for news trading

The most important thing you need to remember is to choose the best Forex broker that offers news trading services. Not all Forex brokers provide such services, and even a smaller number of them provide decent new trading services. In addition, every broker has different policies for trading during volatile news time.

There are two important things you need to consider in choosing the best Forex broker for news trading:

🔸 Trading tools

Make sure that the broker provides various trading tools and resources suitable for news trading, such as an economic calendar, up-to-date news coverage, analytical reports, and news trading signals. The economic calendar is essential for news traders because it lists all the economic news events of the day. Some brokers even provide ratings (high, medium, or low impact) for the economic news and reminders via notifications.

🔸 Trading conditions

Since time is of the essence during the news trading period, you must ensure that your broker provides instant execution times, little or no re-quotes and slippages, real-time charts and feeds, guaranteed execution of pending and stop orders, as well as reasonable low spreads that will not widen within this period.

For example, in volatile times, variable spreads may widen quickly while fixed spreads may result in a price slippage or re-quote. Slippage happens when you enter the market at a certain price, but it is executed at a worse price due to extreme volatility. Re-quote happens when the broker refuses or is not able to execute your trade based on your entered price. If your orders get re-quoted frequently during the news releases, then it may be a good indication that your broker is not the best for news trading.

But, do not worry! We have chosen some of the best brokers for trading news that offer good trading conditions to news traders:

FBS Malaysia

Traders can trade in 35 currency pairs, 4 metals, 11 indices, 3 energies, 66 stocks, and cryptocurrencies using MT4, MT5, and FBS Trader platforms. FBS offers spread starting from 1 pip, leverage as high as 1:3000, and no re-quotes. News traders can make use of FBS trading tools and resources, such as Forex news, daily market analysis, an economic calendar, and Forex TV.

Deposit and Withdrawal: Bank Wire, Credit Cards, PerfectMoney, FasaPay, Skrill, Neteller, Local Malaysian Banks

Regulations: CySEC, IFSC, ASIC, FSCA
Country: Cyprus
Malaysian Support Desk: Yes (Email, Live chat, Phone)

www.FBS.com

FBS Review

XM Malaysia

XM offers 4 types of accounts, namely Micro, Standard, Ultra Low, and Shares, with leverage up to 1:3000 and spread as low as 0.6 pip on MT4, MT5, and XM WebTrader trading platforms. XM allows all strategies, including news trading, with no re-quotes or rejections. Various trading tools and resources are available, including market overview, news, technical summaries, and an economic calendar.

Deposit and Withdrawal: Bank Wire, Credit Cards, PerfectMoney, FasaPay, Skrill, Neteller, Local Malaysian Banks

Regulations: CySEC, IFSC, ASIC, FCA
Country: Cyprus
Malaysian Support Desk: Yes (Email, Live chat, Phone)

www.XM.com

XM Review

RoboForex Malaysia

At RoboForex, four account types (Pro, Pro-Cent, ECN, and Prime) are available with spread starting from 0 pip and leverage up to 1:2000 on MetaTrader 4, MetaTrader 5, cTrader, WebTrader, and R StocksTrader platforms. RoboForex offers news trading services with no re-quotes and instant market execution from 0.1 seconds in fractional pip pricing. Some of the offered trading tools and resources are market analytics, forecast, Forex analysis, an economic calendar, and financial charts.

Deposit and Withdrawal: Bank Wire, Credit Cards, FasaPay, Skrill, Neteller, PerfectMoney, Bitcoin, Webmoney, Local Malaysian Banks

Regulations: CySEC, IFSC
Country: Cyprus
Malaysian Support Desk: Yes (Email, Live chat, Phone)

www.RoboForex.my

RoboForex Review

Tickmill Malaysia

TickMill accepts all strategies, including news trading. News traders can make use of spread as low as 0 pip, maximum leverage of 1:500, and various beneficial tools, such as market insights, an economic calendar, fundamental and technical analysis on MT4 and MT5 platforms.

Deposit and Withdrawal: Bank Wire, Credit Cards, FasaPay, Skrill, Neteller, UnionPay, Local Malaysian Banks

Regulations: CySEC, FCA, FSA
Country: Cyprus
Malaysian Support Desk: Yes (Email, Live chat, Phone)

www.Tickmill.com

Tickmill Review