Due to its huge size and ease of use, the Forex market is quickly becoming one of the most popular ways to invest. But it is also one of the riskiest ways to invest because its prices change quickly and because most of the market is heavily leveraged. Because of these things, people can make or lose a lot of money very quickly. This makes the need for a reliable investment system very urgent. Many Forex investors use charts that show how prices change and other forms of technical analysis to help them decide when to buy and sell. However, some investors like to buy and sell based on news.
In theory, smaller Forex retail traders should have a slight edge when it comes to taking advantage of how the news affects the markets. Small investors should be able to buy or sell a position faster than a large company, mutual fund, or hedge fund because they have instant access to the Internet and a never-ending stream of brokers willing to make trades at any time of the day. The market can literally react to important news in minutes, so investors who act quickly should be able to make money.
Of course, it all comes down to knowing what news is important and how that will affect the exchange rates. Even news from countries that aren't part of your currency pair can have a big effect on prices in the short term. If you want to trade in the Forex market based on news, there are 8 major currencies that are important in the market right now. They are:
- The Aussie Dollar (AUD)
- Japanese Yen (JPY)
- British Pound (GBP) (GBP)
- Dollar of New Zealand (NZD)
- Switzerland (CHF)
- Canadian Dollar (CAN)
- Euro (EUR)
- U.S. Dollar (USD)
Because the USD is a backer in almost 90 percent of all Forex transactions, the release of key economic indicators from the U.S. is always important for the currency exchange rates. These numbers are released on a regular basis, which is supposed to make it fair for both big and small investors. In theory, they should be able to make money off of short-term price changes caused by these key indicators:
- The amount of trade
- Price rises
- Central banks and other financial policy makers decide on interest rates
- Retail sales and output from manufacturing
- Rates of GDP
- How Outlook Surveys Measure Business Confidence
- Unemployment data
- Surveys of consumer confidence
Outlook surveys are used to figure out manufacturing confidence.
When you trade on the Forex based on news, you take advantage of small changes in the market as it corrects itself. Since these changes can happen in a matter of minutes, this type of investor needs to act quickly or risk jumping in after the market has already changed to reflect the new information. This is theoretically possible, but it's very likely that the big investors already knew this before it was made public. If these investors have already changed their investments to match the news, at least some of the market's problems will have been fixed before the news came out. If that's the case, the small investor will probably get in too late and lose money.
In fact, trading based on news is very risky because it leads to overtrading, which is a known way to lose money, especially on the Forex. This is why most Forex investors use technical analysis and their reliable charts to decide when to enter and leave the market.
