Forex News Trading and the Economic Calendar
Trading Forex using the economic calendar is one of the most profitable ways of day-trading.
Volatility is getting extreme during important economic releases and Forex traders who can understand the basics of fundamental analysis can generate profits using reasonable capital leverage. Economic news and updates which are released during session overlaps enjoy even higher volatility.
Forex Economic Calendar
A Forex economic calendar consist all major economic releases from countries whose currencies are included in the major currency pairs. These countries include all the Eurozone countries, United States, Japan, United Kingdom, Canada, Australia and New Zealand. Usually economic releases include also China, as the Chinese economy plays an important role to our global economy. As concerns Eurozone, there is an extra weight regarding news releases coming from Germany and France and especially Germany. Other economically important Eurozone countries include Italy and Spain.
Risks of Forex Calendar-Trading
Although calendar-trading is one of the most profitable ways to trade Forex there are some important risks which traders need to understand and to avoid constantly:
Volatility and Spreads
As volatility gets extreme during news releases the spread between Ask and Bid is hitting red. For example if a Forex Broker offers EURUSD at 1.3 pips typical variable spread, during news releases the spread may come up to 2.0 pips or even more. When the spread is increased the total trading cost is increased and that is bad news. In addition, price re-quotes may increase the total trading cost further. The solution is to trade with reliable Forex Brokers offering trading without re-quotes and to use spread control.
Avoid getting Stopped-Out
In any news release it is very common for a currency pair to move in the opposite direction before getting in the master trend. For example, when news favors Euro against USD, before EURUSD moves +200 pips higher it is very common to move before -40 pips lower. This is happening as Forex trading is more complicated than the average trader thinks. Institutional players try always to force small players out of their positions (stopped-out). The only solution for retail traders is to place their stop-loss orders wide.
Avoid High Capital Leverage
High degree of capital leverage means three things: (a) higher potential profit, (b) higher potential loss and (c) higher trading cost. The factor-(a) favors traders but factors (b) and (c) work against them. If you trade the news using high capital leverage (more than 200:1) you will be probably forced to place your stop-loss orders narrow. That means that the likelihood of getting stopped out is getting extremely high. Therefore use capital leverage with wisdom.
“Making money starts from not losing Money”
Categories of Economic News Releases
Economic releases are divided into 4 major categories:
Central Bank’s Policy Decisions, General Announcements and Comments
Government’s Policy Decisions, General Announcements and Comments
Bond Auction Results
Unexpected Political and Other Events (breaking news)
Let’s see some more information about the nature of these economic releases.
(1) Central Bank’s News Releases
The interest rate decision of a major central bank can turn the whole Forex market upside down. But even simple comments can also have a huge impact on the Forex exchange rates. Every single word of the central banker means something to the market.
(2) Government Economic Releases
The government economic releases are the heart of the market. An unexpected economic release regarding GDP, unemployment or inflation can cause any currency pair to move 1,000 pips up or down in a matter of minutes.
Here are the most influential government economic releases:
(i) GDP Releases
(ii) Employment / Unemployment releases
(iii) CPI (Consumer Price Index)
(iv) Industrial Production Level / Factory Orders
(v) Trade Balance
(vi) Current Account
(vii) Retail Sales numbers
(viii) Housing / Construction level
(3) Bond Auctions
Bond auctions are always important as an indicator of the currency risk. When a country is forced to borrow money expensively in the bonds market it is a clear signal of increased currency risk. Furthermore, expensive borrowing has a great impact in the current account.
(4) Unexpected Political and Other Events
New political conditions in a country can play a major role in the domestic currency’s exchange rate. Political Risk is a huge parameter when you evaluate the fair value of any currency pair. These unexpected political events include parliamentary votes, unexpected elections results or even speeches.
Online Forex Economic Calendars
There are tens of reliable and free Forex economic calendars in the web today. I shall suggest two of them that I use myself.
(1) MyFxBook Economic Calendar
Reliable news, allows adjusting your time zone » http://www.myfxbook.com/forex-economic-calendar
(2) ForexLive Economic Calendar
This is the fastest free economic calendar based on my research. Everything is fine except the fact you can not adjust easily your time zone. » http://www.forexlive.com/EconomicCalendar
□ Forex News Trading and the Economic Calendar
By George Protonotarios, Financial Analyst for Forex-Rebates.com ©