Just before a major news release, it is common to witness lower trading volumes, lower liquidity and higher spreads, often resulting in big jumps in price. This is because large liquidity providers, much like retail traders, do not know the outcome of news events prior to their release and look to offset some of this risk by widening spreads.  

While large price movements can make trading major news releases exciting, it can also be risky. Due to the lack of liquidity, traders could experience erratic pricing. Such erratic pricing has the potential to cause a huge spike in price that shoots through a stop loss in the blink of an eye, resulting in slippage.

Additionally, the wider spread could place traders on margin call if there isn’t enough free margin to accommodate this. These realities surrounding major news releases could result in a short trading career if not managed properly through prudent money management such as incorporating stop losses or guaranteed stop losses (where available).

In general, major currency pairs will have lower spreads than the less traded emerging market currencies and minor currency pairs. Therefore, traders may look to trade the majors EUR/USD, USD/JPY, GBP/USD, AUD/USD and USD/CAD to mention a few.

Traders need to be well prepared ahead of time – with a clear idea of what events they want to trade and when they occur. It’s also important to have a solid trading plan in place.

“Don’t think about what the market’s going to do; you have absolutely no control over that. Think about what you’re going to do if it gets there. In particular, you should spend no time at all thinking about those rosy scenarios in which the market goes your way, since in those situations, there’s nothing more for you to do. Focus instead on those things you want least to happen and on what your response will be.” – William Eckhardt

WHICH MAJOR FOREX NEWS RELEASES TO TRADE?

When learning how to trade news, traders must be aware of the major news events that affect the forex market, that can be monitored closely using an economic calendar.

US economic data is so influential within global currency markets that it is generally seen as the most important news. It is important to note that not all news releases lead to increased volatility. Rather, there are a limited number of major news releases that have previously produced the greatest potential to move the market.

The table below summarizes the major US economic releases alongside some of the most important non-US data releases from around the world.