2 Ways to Trade News and Macroeconomics in Forex
What is trading the news? Yep, you guessed it—news trading revolves around placing trades around major news events. Simple enough, right? In practice, it's a bit more complicated than it sounds.
Becoming a successful news trader isn't about taking random trades before, during, or after the news. It requires a clear and calculated plan using the macroeconomic picture to work out how the market will react to certain news.
Let’s see in more detail what trading news through macroeconomics truly involves.
What is News Trading?
As mentioned, news trading is a strategy where traders rely on key new releases that lead to sharp price movements, creating opportunities for traders to profit from the volatility.
For most traders, these could fall under 2 categories:
- Recurring News: These are predictable and scheduled in advance. They include regular occurrences, such as Federal Reserve interest rate announcements, which happen at pre-set intervals—roughly eight times a year. You can anticipate these events and prepare accordingly since the timing is known well in advance.
- Unexpected News: These, on the other hand, include unforeseen developments that take the market by surprise like sudden geopolitical tensions like the Ukraine/Russia or Israel/Palestine wars and natural disasters. Since they’re unpredictable, they can cause rapid and volatile market reactions, often catching traders off guard. Plus, they can affect many currencies directly or indirectly.
How to Trade News–What Does It Involve?
News trading isn’t just about reacting to any headline. Successful news traders focus on market-moving events—those that are most likely to create big price swings, e.g., central bank interest rate decisions, inflation data, and employment numbers.
Here are the two tips you’ll need to news effectively:
1. Identify Important News Events
The first step in news trading is knowing which big events will impact the market and when they will occur. You can use news tools like the economic calendar for this. They list the dates and times of major announcements, giving you a heads-up on potential market movers.
For unexpected news, you can monitor financial news sources like Bloomberg and Reuters for breaking news that can create trading opportunities.
2. Choosing Your Strategy: Pre-Positioning or Reacting
There are two main strategies when it comes to news trading: pre-positioning and reacting to the news.
Pre-positioning involves taking a position before the news is released based on an expectation of how the market will react. For example, if you expect the Federal Reserve to raise interest rates, you might take a position ahead of the announcement in anticipation of the market’s response. Pre-positioning requires a deep understanding of macroeconomic trends and how certain events influence asset prices.
Reacting means you don’t have a directional bias before the news. You have to wait until after the data release and then execute your trades based on how the market reacts. This approach requires lightning-fast execution and the ability to interpret news quickly.
“Buy The Rumour, Sell The News?”
The phrase “Buy the rumour, sell the news” is a popular trading strategy built on speculation. It means buying an asset based on expectations (or rumours) of upcoming news and selling it once it’s officially announced. The goal is to take advantage of the price increase that often occurs leading up to the news, followed by a sell-off when the news is made public.
For example, if traders anticipate that interest rates will rise for USD, they may buy USDCAD or other USD pairs before the official announcement, hoping to benefit from the price rise. Once the news is confirmed, they sell to lock in profits before the market stabilises.
However, there’s a catch—if the rumour doesn’t align with the actual news, the price moves in the opposite direction, leading to losses.
Pros and Cons of News Trading
Like anything, news trading has its perks and drawbacks.
Pros
- Since a volatile market can create big price movements in a short time, there’s a higher potential for bigger profit.
- News trading works across all asset classes, from stocks and forex to commodities and cryptocurrencies, therefore there are opportunities across all markets.
- There’s no shortage of news–the economic data is released regularly, therefore, you’ll have frequent trading opportunities.
Cons
- Market reactions to news can be unpredictable, making it easy to suffer huge losses in a short time.
- You must act quickly, often with little time to fully process the news. This increases the risk of making impulsive decisions.
- In a volatile market, there are slippage and execution risks–orders may not be filled at the expected price. This can lead to smaller profit margins.
- The speed needed in news trading can lead to stress and emotional trading, which is dangerous for undisciplined traders.
Should You Trade News?
Now that you understand a few things about trading news, should you do it? The truth is, news trading isn’t for everyone, but if you're experienced, and prepared, it can be very profitable.
If you do want to try your hand at news trading... here are a few ways to do it more cautiously:
1. Start with a Demo Account
You can simulate news trading without using real money on a demo account. This can help you understand how fast markets move and how well you can execute trades under pressure.
2. Stick to a Plan
Always have a well-defined strategy in place before trading the news. This includes setting entry and exit points, and strict risk management rules to protect yourself from big losses.
3. Leverage Prop Firms That Allow News Trading
Most prop firms prohibit news trading. But if you’re serious about it, consider working with proprietary trading firms that allow news trading. They often offer access to high-speed data feeds and better execution systems, giving you a competitive edge. At Optimal Traders, we allow news trading with our range of easy-to-pass prop challenges.
News Trading FAQs
Who can become a news trader?
Anyone can become a news trader—there are no formal barriers to entry. Like trading in any other market, success comes down to understanding how news impacts market behaviour and developing a strategy that fits your risk tolerance and trading style.
Besides that, you may need a prop firm that allows news trading to avoid breaking the terms of service.
Is news trading better than technical trading?
No, news trading is not better than technical trading, or vice versa. At the end of the day what matters is your trading goals and risk tolerance.
The Bottom Line
There’s no one-size-fits-all strategy for trading the news. When news hits, prices often spike sharply in one direction or sometimes show little movement as traders digest the information against their expectations.
To be successful you’ll need a deep understanding of macroeconomics and be disciplined enough to follow a strict news trading plan–not to mention a lot of practice.
We can help with the “practice” part. At Optimal Traders, we offer demo accounts and live challenges for aspiring traders. You’ll have access to simulated capital, allowing you to make trades and practice without risking your money. We also have a market-leading range of live accounts for you to transfer your skills too once you’re ready to trade with live capital.
For more details check out our FAQs or email us at support@optimal-traders.com. Better yet, join our discord channel.
