There are many ways to trade in the forex market, including event-driven trading or event news trading. Trading on the news is a strategy whereby traders speculate on price movements that come about because of economic, political, or environmental events.
These events can range from central bank announcements to inflation increases. In addition, employment rates and investor sentiment, geopolitical tensions and war, and even natural disasters. The key task of an event trader is to monitor the news and speculate how these events will impact the market, and subsequently their trades.
Monitoring the news
Information is what drives an event trader’s decision-making process. Data is typically sourced from news outlets, economic calendars, and even peer-to-peer community forums. This data could include central bank policy decisions, unemployment figures, announcements on interest rates and inflation, retail sales, changes in manufacturing and industrial production, etc. An events trader is required to have a robust understanding of how to analyze this information and its potential impact on currency pairs.
Strategies used by events traders
The process of engaging in events or news trading is relatively straightforward. In the first instance, the trader must assess how a particular event or news announcement will impact a trade. While this is largely speculatory, the assessment should consider previous trends, market sentiment, and common consensus. What does this mean? Well, if for instance a central bank is expected to announce interest rate hikes, traders may anticipate a bullish move in the currency associated with that bank. Using this information, the events trader will come to a particular trading decision.
This is called trading the event. At this stage, a trader may enter a position prior to the event, during its release, or afterward. Timing is everything in events or news trading, so vigilance and focus are crucial. Finally, an events trader will usually have risk management measures in place to manage their positions in a way that safeguards their capital. This may be through tools like stop-loss or take-profit orders.
Risks associated with events trading
There are several risks inherent in events trading, some of which we’ll discuss here.
- Volatile: event or news trading can be highly volatile. This attribution is made due to its speculative nature. Also, emotions can stir in response to unexpected news or events in this form of trading.
- Timing: Timing is a vital component of events trading as it can greatly impact market movements. While some news releases occur at scheduled times, others happen unexpectedly catching a trader by surprise. This is why a trader must remain on guard as much as possible. This will be an advantage to react as quickly as possible when news breaks.
- Information overload: Event traders need to sift through a substantial amount of information every day. They are constantly monitoring news channels and economic calendars. The risk of missing something is relatively high if not properly tracked. A trader must therefore learn to filter through what’s relevant and what’s irrelevant. In order to come to optimized trading decisions.
- Trading psychology: trading is a highly emotive experience, particularly when following a fast-paced strategy or approach. Feelings like greed or impulsiveness can threaten rational decision-making, leading to adverse trading outcomes. Knowing how to better one’s emotions is therefore key to mitigating this risk. Alternatively, the use of automated (algorithmic) trading may also help.
Why trade the news?
Traders choose to trade the news for multiple reasons. For one, it can be a valued addition to one’s existing strategy. For example, a trader who focuses on long-term trends or prefers long-term investments may choose to intermittently trade the news for the opportunity that it provides to make a profit off short-term market fluctuations.
Secondly, trading the news or events trading offers a way for traders to potentially maximize profits on rapid price movements. This happens if they happen to correctly speculate the market’s reaction to a particular event or news.
It is important to note again that event trading comes with significant risk. Price fluctuations may occur without warning, resulting in unanticipated capital losses. Further, a quick reaction time to news announcements is critical. If you don’t execute the necessary trades in time, you may find yourself either missing out on a profitable trade or losing your money on a position.
Making use of a demo trading account
A demo trading account is a great way to learn how to become an event trader. It offers a virtual trading environment that allows you to practice trading without risking any money. This is especially vital when trading the news because market reactions to news events can be highly unpredictable and result in adverse trading outcomes if not monitored.
A demo trading account gives you the opportunity to make mistakes and learn from them without losing your capital. In addition, demo trading accounts typically provide real-time market data and news feeds, allowing you to gain trading experience under conditions that closely resemble a real trading environment.
You can also use the demo trading account to test different news trading strategies using virtual funds and then assess outcomes. In this way, you can better identify your what your strengths are, as well as your weaknesses, and make the necessary adjustments. It will also help you gain the confidence and expertise required to become a better trader. After all, a demo trading account serves as a great educational resource, allowing you to learn how to trade the news as and when you can, time permitting.
T4Trade Trading Mastery
Traders worldwide seek out T4Trade for the flexible trading experience it offers, fast withdrawals and deposits, flexible leverage, and quick execution. A multi-lingual support team is also on hand 24/5 via email, telephone or live chat to help traders across the globe with any queries they might have.
T4Trade also provides its event traders with exclusive resources to optimise their skills and gain more trading proficiency. This includes:
- An economic calendar to keep track of current and future financial activities and indicators. Also available are precise dates, times and helpful information regarding currencies and to keep you up-to-date with key market-moving events.
- Live TV with daily analysis and live discussions with an expert team of T4Trade presenters and researchers to stay on top of market trends.
- A variety of informative webinars delivering useful trading tips and insights for free.
- An extensive variety of blogs that answer many of the most popular questions that global traders are asking.
- A forex podcast series with a little bit of everything for all traders, regardless of expertise. This includes topics like the impact of central bank policies on trading to the best time of day to trade forex, and many more.
- Videos-on-demand delivering daily commentary in just 60 seconds. These cover a range of subjects like forex basics, popular terms explained, trading tips, technical analysis, etc.
All of these can be accessed via T4Trade’s Academy which is available to all traders online. In addition, traders can also make use of T4Trade’s FAQ page which provides valuable information for opening and maintaining a trading account.
Disklaimer: This material is for general informational and educational purposes only and should not be considered investment advice or an investment recommendation. T4Trade is not responsible for any data provided by third parties referenced or hyperlinked in this communication.
