Broker to Trading

News enters the Forex market on an ongoing basis. However news can affect different pairs in different ways. For example Central Bank interest rates decisions can have an effect focused on those pairs with one currency from that country. As many pairs are based on USD, then Federal Reserve decisions on interest rates can affect many pairs. Given the size of the US economy and its importance in financial markets, US interest rate decisions can affect any pair as a general market news event. So there is a specific effect, which can itself be relatively general and potentially a more general market effect. Typically though, interest rate decisions will be limited to those currencies which are based on the economy making those decisions.

Thus if the trader is interested in particular currency, then they can keep an eye out for news events specific for the currency in question, with the caveat that US data can affect pairs. The trader can find out which news events are coming up by examining an economic calendar. This can be found on a broker's website, or sometimes from the trading platform as well. The calendar will show upcoming data and normally the past figure for the data, and a projected figure for the data. When the news happens, then the actual figure will appear afterwards. The projections can be wrong and this disparity between expectation and what happens can itself be a basis for news trading, as the market may react sharply when there is a significant disparity.

Highly liquid major pairs such as EUR/USD and USD/JPY can be significantly affected by major US news releases, such as the FOMC interest rate decisions and the NFP monthly jobs report release. The interest rate decisions happen throughout the year on a pre-specified basis (but in extraordinary situations can happen at other times), while the NFP figure is released on the first Friday of each month.

Trading the news is not easy. The market can react in unexpected ways, even if there is a disparity. And to trade a disparity, the trader needs to trade against the expectation. If the move has been more or less expected and priced in, then the market may not react much at all. However this is not always the case, as for example a significant interest rate change, even if expected can still move the market when it happens.

To use an analogy, news trading seeks to capture an elastic reaction in the market, which does not generally behave this way. That is the news pulls the market in an unusual way. The market can in some cases be pulled into a direction it stays in, but often times it will simply pull back. The times it may stay can be when there has been a major news release which changes the way the pair is to be valued.

Placing a trade is no easy matter either, as there can be intense volatility around the news release, which can take out positions. But it is possible to place a trade in the sometimes quiet time close to release and ride the move (if the trader guessed direction correctly). The trader then needs to know when to exit, which may be a market driven event, when the move pauses. All this assumes the market does not simply oscillate in an untradable volatile move (up or down and back again very quickly).

The ideal news trade is arguably one which a) the trader has guessed the direction and b) it moves strongly in that direction very quickly and c) it may pause but then continues in the direction chosen and more gradually enters more stable patterns. But these are not that common at all. However that type of news reaction is perhaps the 'best' news for Forex trading.

What kind of broker can the trader trade on the news ? The trader can in general trade with most brokers, as news trading is not normally a trading technique which is banned (for example some brokers do not allow scalping). If the trader trades into very volatile conditions, for example directly into the news release, they may experience issues getting the order through, if the broker requotes orders. Some brokers do not and will fill the order. However trading directly into the news may not be an optimal approach, as this is trading into volatility. In general the trader may wish to avoid trading into volatility, as it makes trading problematic and spreads can widen.

Volatility can provide trading possibilities, but it needs to appreciated that strong volatility is not itself generally a tradable event. While news reactions are themselves volatile, the idea is that factors can help align money flow in a given direction if only for a short while, but often times the volatility itself comes into play, producing volatile patterns. A possible solution then is to trade before release or after release, or take a position in the quiet time just before release, if this is possible without getting the position taken out.

The trader can trade with an ECN broker and this is discussed on this site on the ECN brokers and news trading page, but they may wish to consider trading with a broker which is not an ECN broker, provides a user friendly platform and supports news trading. Plus500 is a broker which has fundamental news data attached to market information on its user friendly platform. For some strategies, the trader though may wish to consider an ECN broker as well. However the trader can sign up for a demo at Plus500 and practice news trading, if they are not that familiar with this technique.