How to trade Forex successfully on economic news releases

How to trade Forex successfully on economic news releases

Forex is the market that “never sleeps”. You can trade 24 hours day (from Sunday evening to Friday afternoon). This gives you plenty of opportunities to find profitable trade setups and to apply any imaginary strategy. We all know, that Economic data is the main driver of this exciting market. Currencies become highly volatile during economic news releases, but are especially sensitive to news that come out of the United States. The US-Dollar is still the World reserve currency and over 70% of the worlds transactions are Dollar-based. This is good news, if you plan to trade anything related to the US-Dollar.

Traders need to be aware of the economic news calendar for the trading week. Many traders are caught by surprise, because some piece of economic data comes out and in result, profitable trades become losses. There are plenty of good economic calendars online – you will find one at Reuters or at Bloomberg.

In average there are seven daily news releases for the 8 major currency pairs. Some of these have almost no impact and others can move the price hundreds of pips in either direction. One example is the famous Non-farm payroll statistic. Every first Friday of the month, the US reports how many jobs have been created during the previous month. The job report is an important piece of data, that shows how the US-economy is doing and this influences Federal Interest rate decisions. Interest rates are the most important economic news that you could trade. Most Central banks have release dates and fixed dates, in which they consider a rate hike or a rate cut. Currency pairs can become very flat several hours before the announcement, because banks and traders around the world are awaiting the decision. Volatility can last hours and even several days after such an announcement (depending on the information and how traders and banks around the world interpret this data).

How to trade economic news events:

One way to trade is to place trades before the data is released. You either place orders, based on a specific sentiment or you can place orders in both directions, trying to “catch or box” the trade. One possibility is to place a pending buy order above the current price (or some pips further up) and a pending sell order below the current price. Once the data is released, the price will move in one of this directions and trigger one of the trades (you can close the other pending order, once you are in a trade). It is important to know, that brokers will have different spreads and filling of trade orders could become difficult. You should also have Stop-Loss orders and Take-Profit orders in place, as there will be no time to close the trades because of the volatility.

If you are confident, that a certain financial instrument will move in a certain direction, than you could enter the trade even before the announcement is released. It is imperative to have a Stop-Loss order AND a Take-Profit order. Price movements can be quite “violent” and fast and you will need measures to protect your account.

We don’t recommend “live trades” during the event. Oftentimes the execution of the trade will be very difficult and your trade could be opened at an undesired level, because of the fulfillment rules of the broker.

Another way to trade economic news in relation to Currency Pairs are Digital Options. Here you have a fixed time period (expiry date) and this will protect your account balance. Either the trade becomes profitable or it doesn’t. The risk is lower with Digital Options, because of the fixed term values. You invest a certain amount of money and this value is fixed. There is no way, that you could lose the remainder of your account. Trading economic data with digital options is a very good solution to the slippage and volatility problem, which you will encounter with Spot Forex market options.

Another option is to setup a managed account. This gives you the best of both worlds: a professional that trades with your money and access to your funds and account at any time you want. A managed account solution is different than a deposit with your local Bank. Your local bank manager will invest your money in time bound investment vehicles and you don’t have much control over the funds and how they are invested. A managed account gives you more power over your investments and more flexibility.

Try some of our managed account solutions. We have tested many managed account options and are able to recommend only the best.