whether to individuals or corporations, and information equals money, especially
for a trader, shutting yourself off from news can be suicidal. The forex market is
extremely sensitive to the flow of news that is related to it, and major short-term
currency moves are almost always preceded by changes in fundamental views
influenced by the news. Traders around the world make a living by processing and
translating information into money. Financial news services providers know how
important news is to the forex market players, and charge a premium for it. It is not
uncommon to get hundreds of headlines of news that are potentially relevant to
forex trading from any news service provider on an average trading day.
Traders, especially those who day trade the forex market, require the latest up-tothe-
second news updates so as to facilitate their trading decisions which have to be
made at lightning speed. They mostly make use of online financial newswire
services such as Dow Jones Newswires, Bloomberg and Reuters, which display the
latest financial news on their computer monitors. Since the speed of news
dissemination is very important to traders, many opt for these online instant news
services rather than depending on daily newspapers like the Wall Street Journal or
the Financial Times which carry stale news that is of little use to traders.
The Importance of News
News that is of great importance to forex traders is generally related to a country’s
economic, monetary and political situations, and socio-political events that are
happening around the world, with special attention on the Middle-East and isolated
countries in Asia like North Korea.
The underlying reason why news is so important to forex trading is that each new
piece of information can potentially alter the trader’s perceptions of the current
and/or future situation relating to the outlook of certain currency pairs. When
people’s opinions or beliefs are changed, they tend to act on these changed
perceptions through buying or selling actions in the forex market. Based on the
news, these traders will be preparing to cover their existing positions or to initiate
new positions. A trader’s action is based on the expectation that there will be a
follow-through in prices when other traders see and interpret the same news in a
similar way that he or she has, and adopt the same directional bias as the trader as
a result.
News is a very important catalyst of short-term price movements because of the
expected impact it has on other market players, and this is in a way an anticipatory
reaction on the part of the trader as he or she assumes that other traders will be
affected by the news as well.
If the news happens to be bullish, say for the US dollar, traders who react the fastest
will be among the first to buy the US dollar, followed soon by other traders who
may react slower to the news or are waiting for certain technical criteria to be met
before jumping onto the bandwagon.And there will be those who join in the buying
frenzy at a later stage when they get hold of the delayed news in the morning
newspapers or from their brokers. This progressive entry of US dollar bulls over a
period of time is what sustains the upward move of the US dollar against another
currency, with the USD exchange rate going higher against other currencies. The
reverse is true for bearish news, traders will sell because they know that others will
soon be selling, thus pushing the USD exchange rate down. This is based on the
assumption that since other traders will be getting the same pieces of news, they
will be also tend to be affected the same way.
Publicly released news is disseminated to the various newswires. Any trader with
access to these wires can tap into the information given out, and react accordingly
in the forex market. However, institutional players do get information that retail
traders don’t, as they get privy access to order book information in their computer
systems, and may also know something that others don’t through their personal
contacts in the industry.
In the world of forex trading, there are no rules or restrictions against insider
trading! Anyone who possesses information that is known only to a select few can
and do trade that information in the forex market. Sometimes, such news may give
an unfair advantage to these institutional players, but at other times, this isolated
news access may not translate into real market action if other players do not have
that information.
Think of it this way: The forex market is dependent on news, for if there is no news,
there would be little or negligible price movements in the market. Even if
currencies may move according to the technicals sometimes, the technicals have
been established previously by news or expectations of future news, and so the
influence of news on currency prices is inevitable and inescapable.
Source: 7 Winning Strategies for Trading Forex: Real and Actionable Techniques for Profiting from the Currency Markets
