Forex trading resources including analysis and news

You should know the problem of slippage and how to avoid it if you want to successfully trade the news. Slippage occurs when the price you intend to enter or exit the market is different from your actual transacted price. Currency prices tend to move very fast during highly volatile market conditions. The risk of slippage is usually very high when trading the news.

Placing stop or market entry orders under such times do not guarantee anything. Slippage is the biggest problem when the market moves fast. These orders do get filled but mostly at different prices than you had intended.

Many market makers will wait till after the big move is over. Then they will fill your entry order. Sometimes, these entry orders may even get filled past your stop loss or profit target. This means that you would be left with immediate net loss.

Slippage is a trick that many forex brokers use in order to make profit by filling your position with a negative spread. Before filling your entry order with wide slippage, many brokers will fill your stop loss or take profit order. The wider the slippage, the fatter the profits the broker is going to make. Imagine the number of orders placed with each forex broker and the amount of profits the broker makes from one such single event.

Lets take an example. Suppose you have placed your long entry stop for EUR/USD at 1.2564. Your profit limit is 1.2594. The forex broker may first fill your take profit at 1.2594 and then fill your long entry stop at 1.2604 with a 40 pips slippage.

You were confident that you would make a winning trade. If the orders had been filled at the prices you wanted, your trade would have resulted in a profit. But now you have a net realized loss. If the trade goes against you, the forex broker may fill your stop loss order first and then fill your entry order with slippage after that so as to widen their profits. With slippage you cannot predict anything what the broker will do with you.

Suppose, you had placed your long entry stop at 1.2564. You place your stop loss at 1.2544. The broker could first fill your stop loss at 1.2544. Then fill your long entry stop at 1.2594 with a slippage of 30 pips. You now have a net loss of 50 pips due to slippage instead of planned 20 pips loss.

The more you stand to lose and the more the forex broker stands to make a profit, the larger the slippage you experience. You should know as an individual trader that during news when the market moves fast, your orders will be kept pending till you get stopped out or your profit limit is reached. Some forex brokers add slippage to any of your orders to increase their profits.

Many traders readily accept the risk of slippage as one of the realities of trading the news. However, they should know that slippage can eat up a huge chunk of profits and in the end affect their overall profit/loss. You can overcome the problem of slippage through the use of stop-limit entry order. More on it in the next article!

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There are easily 15-20 daily economic data releases relating to the major currencies USD, JPY, CHF, CAD, EUR, GBP, AUD and NZD. Trading news can be a very profitable strategy if you know when and how to enter the market. Forex market react the most to the release of the US economic news.

This is not surprising given that US is the largest economy of the world and is the worlds major trading partner. This is the main reason why the US economic news announcements have the greatest potential to influence other countries economies and their respective currencies. An initial part of the news straddling strategy is to pick out the various market moving announcements that can have a big impact on the forex market.

Inflation, consumer confidence, trade balance, unemployment figure, home sales, interest rate decisions, industrial production, retail sales, manufacturing and business sentiment figures are of significance to the currency market. If these economic data released relates to US or Euro zone, the higher the impact will be.

These news releases are usually made around 12:00 GMT or 13:00 GMT. It is morning in US and the European markets are still open at this time. You should note the dates on your trading calendar if you want to trade these economic news releases. You should also note the time of that economic data release other than the dates. Many economic reports are released once a month.

News straddling strategy is an intraday trading strategy. It maybe more advantageous to focus on the more volatile currency pairs! It tries to take advantage of the high amount of volatility that is usually generated with the news announcement.

Since the US economic news is the most market moving, the news straddling strategy should be applied on currency pairs that involve the USD. Some good candidates for this strategy are the currency pairs GBP/USD, EUR/USD, USD/JPY and USD/CHF.

Try to focus on the currency pairs involving the Euro zone currencies as the European markets are usually open at the time of US news release. However, the Asian markets where the JPY is mostly traded are closed by that time. Thus, the four major currency pairs ERU/USD, USD/CHF and GBP/USD tend to be better candidates than USD/JPY. Even among these four currency pairs, certain currency pairs among the majors respond better than others when it comes to trading major economic news release.

Economic News Straddling strategy is only employed upon the release of significant scheduled news. Moderate to very high price volatility can be expected during the time of the news release. We can expect to profit from the resulting sharp market moves.

For this strategy, you should mostly concentrate on the EUR/USD pair based on its superior liquidity compared to the other major currency pairs. This strategy requires very nimble and fast entry and exit because currency prices usually respond very quickly in a knee jerk reaction to a move in one direction and may correct themselves very quickly.

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You should understand the discounting effect in the forex market. Often new traders get confused and ask why a particular currency has rallied despite the negative economic figures about that country. Sometimes, the currency can decline on the release of positive news.

These types of effects confuse and bewilder new forex traders. When there is good economic news about United States, commonsense says that US Dollar should appreciate. Similarly when there is bad economic news and there are signs of economic weakness, like unemployment and huge budget deficits, commonsense tell that US Dollar should depreciate.

What is the reason that a particular currency goes up despite bad economic performance of that country or the currency goes down despite good economic performance of that country? This can be attributed to the discounting mechanism of the forex market.

Traders try to take into consideration the future expectations about the currency in their present trading decisions. Traders think long term. Markets function on the basis of expectations, what the traders think will happen in the future. The markets inbuilt discounting mechanism is formed by the anticipatory reaction of the traders.

Traders will be bearish on JPY and go short now, if they think that Japan will suffer from the rising oil prices in the near or medium term, thus pushing down the currency. But the traders will be bullish on JPY and go long now, if they have a positive view of the Japanese economy, thus pushing up the currency.

You must have heard the famous saying: Buy on the rumor and sell on the news. This is somewhat similar to this saying. Currency prices integrate the markets expectations about the future in this way. Market has already made up its estimates of those figures based on the work of analyst and economists in the major trading institutions like banks or funds even before the economic data is released for public consumption.

Suppose, the market thinks that the US Consumer Confidence Index to show a worse figure than the previous month. The efficient market hypothesis says that all available public information is immediately compounded into the prices of the securities. So the market has already compounded that information in the exchange rate of say EUR/USD way before the US Consumer Confidence Survey results are released to the public.

The currency pair EUR/USD was rallying due to poor market sentiment for UAD. When the US Consumer Confidence Survey figures are released, what will move the market is the amount of deviation between the expectation and the actual figures.

If the released figures are almost the same as expected, this is old news for the market. This information has already been compounded into the currency prices. No surprise was caused in the market.

The release of the anticipated data or news can often cause the currency price to move in the opposite direction initially to where the market had positioned itself before the release of the news. This is due to traders closing their positions on the release the news and taking profit. After sometime the market adjust itself and the status quo prevails.

EUR/USD pair may even end up declining with the USD strengthening even in the face of a negative consumer confidence number if the US Consumer Confidence Index figures turn out to be almost the same as expected.

Thus the lack of any deviation between the expected and the actual figures may cause the currency pair to move sideways or even move in the opposite direction as the status quo remains. This contrarian market reaction is the result of traders who had gone long on EUR/USD closing their positions and taking profit on the news release.

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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.

Publicly released news is disseminated to the various newswires. Any trader who has access to these newswire services can tap into that information and react accordingly in the forex market.

However, institutional players do get information that retail traders dont have. Institutional players have access to the order book and they may also know something that others dont through their contacts in the industry.

At times, this isolated news access may not translate into real market action if other players dont have that information. However, sometimes the news may give an unfair advantage to the institutional players. They may act on it before it becomes public. The efficient market hypothesis says that all publicly available information is immediately compounded into the prices. So insider information can be very valuable.

In nutshell, forex market is dependent on news. If there is no news, there will be negligible or little price movements in the market. Even if the currencies move based on the technicals, these technicals have been established previously by news or expectation of future news.

Now the market reaction to the news is staggered. The market reaction to the news is specific as it depends on both the type of medium that the news is transmitted on and the type of news that is being released.

The online news service relay the information to the computer monitors of the traders at almost the same time as the market event occurs with very slight delay. Most active traders get their information from these online market news services.

However, there are many other less active traders who feel they dont need real time news so they dont subscribe to these online news services. They rely on market commentaries written by analysts and published on websites or in newspapers. These traders may take time to react to the same news that may vary from a few hours to a few days to weeks. The market reaction can thus be staggered.

Staggered market reaction means that the market will react over time. Some part of the reaction will be immediate while the other part will be delayed and come in a few hours to days to weeks. Part Market reaction may be immediate within the first few second from those who receive real time news. Part market reaction will be more delayed reaction from those who obtain the same news hours or even days later.

Forex economic calendar is usually packed with an average of twenty economic news releases per trading day. The market reacts differently to different news. Some news may produce little or no reaction at all.

You have to be selective to what news to focus on as the market reacts to a varying degree in relation to the type of news that is released. During times of scheduled news releases, currency prices adjust very rapidly to the released data.

Forex market reacts to what of the news rather than the why. For example, the currency prices will move as the market reacts to the better than expected unemployment figures. The market will not have time to consider why the unemployment figures are better this month as compared to the last month. Trading is all about taking advantage of what of the news. If you are more concerned about the why of the news rather than what of the news than you should stop trading and become an analyst.

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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. The forex market is extremely sensitive to the flow of news related to it.

We live in the information age. It is an era where information can be an extremely powerful strategic asset. Information equals money especially to a trader. Shutting yourself off to the news can be suicidal. Timely information is vital to an individual or a corporation.

The speed of the news dissemination is very important to traders. If you receive the news after some delay, it is almost of no use to you. Others have already taken advantage of it. Traders especially the day traders require the latest up to the second news updates. Latest news facilitates their trading decisions which have to be made at the lightening speed. A 15 minutes delay in receiving the news can mean losing the trade.

Online news services display the latest financial and economic news on their computer monitors. Many opt for instant online news services such as the Dow Jones Newswires, Bloomberg and Reuters.

News is important to forex trading. Each new piece of information can potentially alter the traders perception of the current or future situation relating to the outlook of certain currency pairs.

News that is of great importance to forex traders is generally related to a countrys economic, monetary and political situations and socio-political events that are happening around the world like in Middle East and North Korea.

It is expected that other traders see and interpret the same news in a similar fashion and adopt the same directional bias. A traders action is based on the expectation that there will be follow through in prices. These traders will be preparing to cover their existing positions or initiate new positions based on this news. It is all based on your perceptions. Sometimes you can wrong too! Market may not react the way that you had anticipated.

News is a very important catalyst of short term price movements because of the expected impact it has on other market players. This is in a way an anticipatory reaction on the part of the trader as he or she assumes that the other traders will be affected by the news as well.

If the news happens to be bullish for the USD, traders who reacts the fastest will be the first to buy USD followed soon by other traders. Other traders may be slower. They maybe were waiting for some technical criteria to be met before they jump on the bandwagon.

When others get hold of the delayed news in the morning newspapers or from their brokers, there will be many who will join in the frenzy at a later stage. An uptrend has already started. When these traders join the bandwagon, they will be reinforcing the uptrend. This progressive entry of the US Dollar bulls over time is what sustains the upward move of USD against another currency.

Almost the reverse will happen on the surprise bearish US Dollar news. Traders who get the news first will start selling US Dollar instantly on the assumption that when other traders will hear the news, they will also start selling. A downtrend develops. Other traders join soon. The downtrend becomes strong. Forex market is constantly in the throws of news driven volatility.

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