Forex: Current Events

Trading forex without an eye to what is happening in current events is a sure recipe for disaster. Current events constantly shape what happens on the forex market. For instance, the value of the Euro was largely controlled for more than a month by the prospect of a bailout for Greece. Trading without knowledge of these factors is like walking through a minefield in a blindfold.

However, some forex traders fail to keep an eye on current events because they are confused by the market’s responses. This happens for several reasons.

First, many traders struggle to keep track of current events—especially as they pertain to forex. One of the best solutions for this problem is to find a news aggregator that is designed for forex and only lists pertinent news. Some brokerages now include this information within their platforms. Look at a forex broker comparison to find one that does.

This is crucial, because it is often necessary to respond to an event as soon as it happens. In fact, the announcements for many economic indicators are scheduled long beforehand, and you are probably too late if you respond at the time they occur. The volatility just before and after an event offers a key opportunity that you should take advantage of.

A second reason for confusion is that the market may seem erratic in response to current events. Consider, for instance, a trader that sees optimistic numbers on an economic report, such as GDP or inflation. Assuming that this is good, he goes long on that country’s currency, only to watch it drop quickly. What happened?

The truth is that the market has a complex relationship with current events and economic indicators. In this case, the number may have already been counted in. When the market has a solid expectation of what these reports will be, people trade as though it has already happened. If the report turns out to be a little different than expected, you might see an unusual response as the market adjusts.

In another example, high unemployment numbers might have a huge impact on one country, while similar numbers hardly affect the value of another country’s currency. Why didn’t this news affect both countries in the same way? Perhaps positive news offset the affect, or more likely, perhaps the market already expected this to happen. To make things even more complicated, traders might be less concerned by unemployment in one country than in another. Sometimes the market is extremely sensitive to certain factors in some countries, and less sensitive in other, similar cases.

All of this leads to a basic conclusion—in order to effectively trade in response to current events, you need to understand the underlying complexities that make these events significant. To begin, you should find a good forex trading course that discusses the major economic indicators and what they mean. Learn how to recognize when the market is responding to an anticipated report. Most of all, keep a constant eye on what is happening in current events so that you can respond quickly.

Still, the reason that currents events make such a difference is fundamentally simple: the value of a currency represents the global market’s evaluation of how that country is doing economically. Good news will draw more investment capital into the country and raise the value of the currency; bad news can make capital flee very quickly. In both cases, the traders that respond most quickly are the ones that enjoy the profit.