News is Important to Foreign Traders

Shutting yourself off from the news, in an era when information is a powerful strategic tool, for individuals and corporations alike, and where money equals information, can be a suicidal act, particularly for traders. Forex is highly sensitive to news related to its market. Major short-term currency movements are often preceded by fundamental changes influenced by news. Information is processed and translated into currency by traders around the globe. The providers of financial news know that news is important to Forex traders and they charge more for this service. On an average trading session, you can expect to receive hundreds of headlines that could be relevant for Forex trading.

To make their decisions quickly, traders, particularly those that day-trade the Forex, need the most recent and up-to the-second updates. Most traders use online newswires such as Dow Jones Newswires and Bloomberg to display financial updates on their computers. Many traders prefer these instant online news services because they are concerned about the dissemination of information. They do not rely on newspapers such as the Wall Street Journal and Financial Times, which provide stale or outdated News.

News is important for Forex traders because each piece of new information could potentially change their perceptions about the future and/or current situation of a certain currency pair. People tend to buy or sell in the Forex markets when their opinions and beliefs change. These traders are preparing for new or existing positions based on news. The trader expects that other traders will follow suit and take the same direction as him or her when they see the news and interpret it in the same way.

The news is an important catalyst for short-term movements in prices because it is expected to have a significant impact on other players on the market. This is, therefore, a reaction from the trader who assumes other traders are also going to be affected.

Assuming the US Dollar is bullish and the traders react quickly, they will likely be the first traders to purchase the US currency. Other traders may be slower or wait for technical criteria before joining the frenzy. There will also be traders who jump on the bandwagon later, when the news is delayed and they receive it from the morning papers or their brokers. The gradual entry of US Dollar bulls is what drives the USD rate higher against the other currencies. In the case of bearish news traders are more likely to sell, as they anticipate that other traders will also be dumping USDs, causing it to fall. The assumption is that other traders who will also be receiving the same news will tend to react the same.

News released by the public is distributed to various newswires. These wires allow traders to tap in and act on the news. Institutional players have access to information retail traders do not, such as order book data in their computers. They may also be privy to information through personal connections in the industry.

There are no restrictions or rules against insider trades in the Forex market! Insider trading is allowed in the Forex markets by anyone who has information only a few people know. These institutional players may gain an unfair advantage from such information, while other traders may be unable to access it.

Imagine that the Forex market depends on news. Without news, price changes would be minimal or non-existent. Although currencies can sometimes move based on technical factors, these technical factors have already been determined by previous news and expectations for future news. Therefore, news will always influence currency prices.