Currency trading can be very lucrative, but there are a few important factors and events you should keep an eye out for.
Forex trading can be a great way for new traders to generate an income – either as their main source of income or a secondary source alongside their job. Although currency trading is typically considered to be easier and better suited to beginners than other types of trading (such as commodities or equities trading), the market can be very volatile at times and potentially catch you out unless you’re careful.
With that in mind, here are three things you should always consider when trading Forex.
Central banks often tweak their base interest rates in response to changing economic conditions and potential shifts in the government’s monetary policy. Interest rate changes should be closely watched by currency traders, as they can greatly impact the value of a currency.
Central Banks, such as the Federal Reserve or the Bank of England (BoE), announce their meetings and press conferences in advance, so you should make a note of these events. If you’re using an intraday trading strategy, such as scalping, you should consider not trading in the period after these events, as the markets can be quite unpredictable and may move sharply against you. READ: Spread Betting Guide: Benefits, Best Online Brokers and More On the other hand, if you use a different Forex trading strategy and believe you can anticipate whether the base rate is going to go up or down, you can take an appropriate position ahead of the release and make a large profit in the aftermath (assuming you are correct.)
Political events can affect investor confidence and have profound economic implications, so they should be factored into your trading. The Forex market is especially sensitive to international politics and world trade.
For example, following the UK’s decision to leave the European Union (EU) in mid-2016, the value of the Great British Pound (GBP) plummeted. Forex traders who predicted a “Leave” vote in the referendum generated huge returns from this political event and the subsequent price movement.
Other Economic Events
Ministries and trade bodies release economic data on a regular basis, in a similar fashion to how publicly traded companies release gross and net profit figures during their quarterly earnings calls.