Trading based on economic news – how to make money
How does economic news impact the forex market, and how can you make money from it? Learn how to trade the news to make money.
Yes, you can make money trading online. Many people are gradually transitioning into finance- and trading-related careers. If you want an extra income stream, consider forex trading. Forex is a global market where traders and institutions buy and sell multinational currencies. The exchange rate to convert one currency to another changes every second, which is what forex traders capitalize on.
Forex trading aims to correctly predict which direction the change will take. Is the currency going to increase in price or decrease in price? If your prediction is correct, you’ll make money on your trade.
When you trade forex frequently, you’ll notice the forex market is very erratic, and it can be challenging to predict the right move if you don’t have the right skills and knowledge. Economic news is one factor that influences the price direction of currency pairs.
This article aims to help you understand the economic calendar, how to read the news to make appropriate trading decisions, and how to craft the right trading strategy. Furthermore, we will highlight the benefits and risks of trading the news so that you thoroughly understand how the market works.
Understanding the economic calendar
An economic calendar contains the scheduled days to release important news and events that can influence currency exchange rates and impact the financial market. This news causes a significant volatility change, which poses an opportunity for traders to leverage for profit. An economic calendar tells you what will happen so you can plan your trades to profit from the news after effects.
News about monetary and fiscal policies affects the forex market the most. These news releases can be risky for traders who have open trades, so there’s a constant need to keep in touch with what’s happening in the economy. On the global economic calendar, you’ll see all the events relating to each currency, including the time of release, market consensus, and previous results.
Some essential updates from the economic calendar include economic reports for each country, including the employment report, GDP statistics, central bank announcements, and others. These events are based on two categories: reports on past economic events and projections for future performance. Being in the know when economic news is released can determine if you’ll close an ongoing trade or open a position.
How to read the news for trading
Your trading app is the best place to monitor economic news for trading purposes, especially if it’s integrated into TradingView. For example, you can log into a trading app like Oanda on TradingView and begin trading. The exciting thing about this co-app feature is that you get updates about the latest economic news worldwide. You can also access the economic calendar on TradingView to catch up on what’s next for the currency pair you’re trading.
When you look at the economic calendar, there are tons of events coming up, but the ones relevant to you are those about the country whose currency you’re trading. News that suggests a strong, positive, and aggressive central bank declaration tends to push currency pairs up, while mild and negative news tends to depreciate a currency.
Also, take note of the commodities that are peculiar to different countries. For example, Norway is a major oil exporter, and news about oil exports can affect the Norwegian kroner (NOK). For supply and demand, news that suggests a lower supply will increase demand and cause currency prices to rise. Alternatively, news suggesting a more significant supply will lead to lower demand and lower currency prices. Political events, wars, weather, terrorism, natural disasters, economic sanctions, and other factors influence such news.
By identifying how certain news or events will impact the forex market, you can make guided decisions about which currencies to trade and how to predict their price movements.
The benefits and risks of trading based on economic news
Trading the news gives you access to higher volatility, which increases your chances of making quick profits. But this unique advantage also comes with a risk. So your trades need to be among currency pairs with the right spreads, which means you should trade currencies whose buying and selling prices differ only by a slight figure.
The wider the difference between the buying and selling price, which is the bid and ask price, the higher the chance of your trading plans going awry.
Before you jump into a trade, ensure the news you receive is solid and accurate. And know that the effect of the news may take days or months to materialize on the forex market. Another benefit of the news trading strategy is that you get to observe and know the trends and patterns in the market. For example, countries with seasonal products tend to get a more robust currency rate when their major exported products are in season.
The risks associated with news trading include the possibility of the market being erratic and going against your trade quickly. In addition, you should be very well informed about economic announcements and skilled in fundamental analysis to trade profitably.
The Bottom Line
You’ve now learned all you need to be confident about interpreting economic news and opening profitable trades. If you want to use the news trading strategy, study the economic calendar and how previous events have impacted the forex market.
If you wish, you can take a step further and use a demo account to practice trading based on the news. Using a demo account gives you access to virtual capital, giving you ample space to sharpen your skills before trading with real money. You’re not alone in this journey; many people trade forex, and you can follow them or join their communities for more support.