How Does Forex News Trading Work?

The Forex market is quickly becoming one of the most popular investment vehicles because of its huge volume and liquidity. However, it is also one of the most volatile investment vehicles because of its sudden price fluctuations and the fact that most of the market is heavily leveraged. For these reasons, fortunes can be made or lost in short order making the need for a reliable investment system very urgent indeed. While many Forex investors rely upon charts that track price movements and other forms of technical analysis to help determine entry and exit points, there are some investors who like enter and exit positions based upon news releases.

In theory, the smaller Forex retail traders should have a slight advantage when it comes to capitalizing on how the news affects the markets. With immediate Internet access and a never ending stream of brokers willing to execute trades at any hour of the day, small investors should be able to buy or sell a position quicker than some large conglomerate, mutual fund, or hedge fund. The market can literally adjust in minutes to relevant news releases so investors who move quickest will be able to capitalize—in theory.

Of course, it does boil down to knowing what news is relevant and then to determine how that will affect the currency exchange rates. Even news from countries other than those in your currency pair can play a significant role in short term price corrections. For those wishing to trade in the Forex based upon news releases, there are 8 major currencies currently playing significant roles in the market, including:

1. U.S. Dollar(USD)

2. Euro(EUR)

3. British Pound(GBP)

4. Japanese Yen(JPY)

5. Canadian Dollar (CAN)

6. Australian Dollar(AUD)

7. Swiss Franc(CHF)

8. New Zealand Dollar(NZD)

Because the USD is a backer in nearly 90% of all transactions on the Forex, the release of key economic indicators from the U.S. are always important to the currency exchange rates. These data are released at regular intervals which supposedly levels the playing field between the large and small investors. In theory, they should be able to capitalize upon short term price fluctuations caused by the release of these key indicators:

1. Interest Rate Decisions by Central Banks/Financial Policy Makers

2. GDP rates

3. Balance of trade

4. Unemployment data

5. Inflation

6. Retail sales/manufacturing output

7. Business Confidence as determined by Outlook Surveys

8. Consumer Confidence Surveys

9. Manufacturing Confidence as determined by Outlook surveys

Trading on the Forex based upon news releases means capitalizing upon short term fluctuations in the market as it corrects itself. Because these corrections can happen in a matter of minutes, it is vital for this type of investor to capitalize quickly or risk jumping after the market has already adjusted for the new information. While this is theoretically possible, it is very possible that the big investors had access to the information prior to its release. If these investors have already shifted their investments accordingly, then the market will have already corrected for the news before it was released—at least partially. If that is the case, then the small investor will jump in too late and likely face a loss.

Indeed, trading upon news releases is very dangerous because it also encourages over trading—a factor known to lead to losses—especially on the Forex. This is why most Forex investors rely upon technical analysis and their trusty charts when making decisions about entry and exit points on the market!

Article by Kent Douglas, author of "The Simple Forex Solution: The Easiest Currency Trading System Anywhere." To learn how you too can succeed in Forex and Currency Trading, please visit

A Forex Primer — Forex 101

The Forex—or Foreign Exchange—market is the largest, most fluid investment vehicle the world has ever known. Nearly two trillion dollars are exchanged each day across a vast network of computers found in central banks, investment banks, hedge funds, and brokerage firms around the world. This is the most fluid market in the world because it operates 24 hours per day Sunday through Friday afternoon when it shuts down completely.

Around clock trading means that you rarely have problems with gaps (difference between what commodity closes at and what it opens at the following day—in stocks, the gap can sometimes be devastating), this never-ending array of profit-making opportunities can sometimes lead to over trading—a very costly mistake because it often defies the logic of most Forex investment strategies and often leads to missed opportunities to maximize profit.

Traders in the Forex operate in units known as "lots". A lot is the equivalent of $100,000 (unless you opt for the "mini" lot) and you are essentially trying to predict how the exchange rate between two currencies will fluctuate in the future. While there are literally dozens of potential pairs, the six main players in the Forex are:

· U.S. Dollar

· Euro

· Swiss Franc

· Japanese Yen

· Canada Dollar

· British Pound

International corporations and nations must exchange currency to help finance payroll, secure resources, pay vendors, support infrastructure, etc. This constant exchange of money is done based on a rate that fluctuates due to a variety of factors, including:

· Psychology—fear, greed, and other emotions play a large role in the markets and can sway rates dramatically; however, human emotions have always influenced the markets making them predictable based upon enough data and proper analysis.

· Current Events—with a 24-hour news cycle, events from around the globe can quickly influence exchange rates and cause substantial price fluctuations. If investors allow fear (emotion) to affect their decision-making, then a "sell-off" panic can set in and artificially deflate exchange rates. However, the "sell-off" and panic may have been predicted if caused by historically relevant factors that triggered a similar trend in the past. Doing your homework is a good way to judge if current events are truly relevant to the true exchange rate before deciding to sell.

· Government Reports—Many analysts gauge the economy and the way exchange rates are trending by a number of reports released by the government on a periodic basis by a variety of agencies. GDP, the prime rate, unemployment figures, consumer confidence, and many other reports have been known to play temporary roles in the exchange rates between nations.

Many investors in Forex use margin to secure lots and you can typically secure 1-$100,000 lot for as little as $1,000. It is not very likely in this day and age of advanced technology and rapid connections for you to lose more than your investment—the account will typically be shut down automatically when it becomes negative but be sure to check with your broker. Small fluctuations in the market can make a big difference for those that are highly leveraged so it is best to ask very carefully about the potential risks when thinking about this option.

While there is no central exchange for Forex traders to congregate, the market remains a great place to seek opportunity and profit. However, be sure to research any investment carefully—especially for hidden costs. Brokers are not paid a traditional commission—they are actually paid the difference between the bid and ask price on orders so make certain that all decisions are made only after careful research.

Article by Kent Douglas, author of "The Simple Forex Solution: The Easiest Currency Trading System Anywhere." To learn how you too can succeed in Forex and Currency Trading, please visit

Forex Is Like A Casino — Playing Too Much Can Be Painful!

Between 5 p.m. EST Sunday and 4 p.m. EST Friday, there are millions of Forex traders around the world trying to make a profit by predicting the future movement of currency exchange rates. With nearly 1.8 trillion dollars changing hands each and every day, the Forex is the largest and most fluid market in the world. Traded 24-hours a day and with investors having instant access to price changes via an Internet station, it is literally possible to watch one's fortunes ebb and flow—one pip at a time!

A pip is equal to the smallest price increment that any currency can make. For the U.S. dollar and most major currencies, that amounts to 0.0001 (0.01 for the Japanese Yen). While it seems near impossible to make any money when dealing with such small numbers, the standard transaction unit on the Forex is $100,000 and is called a lot. Thus, the movement of just a few pips in either direction can turn into big profits or big losses—real fast!

In truth, playing the Forex is much safer than heading into a casino because the odds are not automatically stacked against you—but you can still lose your shirt if you over trade. Just like professional gamblers will tell you that playing against the casinos is a losing proposition—professional and successful Forex traders know that trading too often is simply stacking the odds against them.

For whatever reason, most of us are simply not going to risk $100,000 of our own money on something as volatile as the Forex. This is why the margin is such an important factor when thinking about buying and selling positions. Typically, an investor would need to put up $1,000 of their own money to buy a lot, or 1/100 of the total. Leveraging a position may be a practical necessity but it also means that the average investor is more at risk when it comes to price fluctuations. The more leveraged the position, the greater it will be affected by pip movements—up or down.

Making a profit in the Forex market boils down to knowing when to enter and exit a position—period. Investors place stops on orders to help limit losses and they need to rely on those stops to prevent them from losing too much—or bailing too soon! Investors who track the market every minute of the day and constantly monitor their positions are not only more likely to go crazy—they are also more likely to bail when the price starts to dip. So long as you have stops in place and are sticking with your investing strategy—be patient! At most, check the market at the close of each day and just hold to your strategy until the charts indicate otherwise.

It is difficult—almost impossible—not to worry about your investments so the natural impulse is to monitor them closely. However, the time to do your homework and put in the time is before acquiring a position—not after. Backtesting will help you find the best currency pairs for your investment tastes. Once you have the stops in place, check the charts and market once a day and let the investment ride. Losses are part of the game and your stops should protect you from losing more than you are comfortable with. Forex can make you a lot of money with moderate risk but it will become like a casino and the odds will turn against you if you play too often!

Article by Kent Douglas, author of "The Simple Forex Solution: The Easiest Currency Trading System Anywhere." To learn how you too can succeed in Forex and Currency Trading, please visit