Forex trading revolves around market movements, and nothing moves the market quite like major news events. Central bank announcements, employment reports, inflation data, and geopolitical developments can trigger sharp price fluctuations, presenting both opportunities and risks for traders.
Some traders thrive in the volatility created by high-impact news, making significant profits within minutes. Others see their positions wiped out in seconds due to unpredictable price swings. Trading during major news events is not for everyone, and understanding the benefits and drawbacks is essential before engaging in this high-stakes environment.
This article explores the pros and cons of trading forex during major news events, the types of news that create the biggest price movements, and strategies for managing risk effectively.
What Are Major News Events in Forex?
Major news events refer to scheduled or unexpected announcements that have a significant impact on global currencies. These events are closely watched by traders because they influence interest rates, economic stability, and investor sentiment.
Key Scheduled News Events
✅ Central Bank Meetings and Interest Rate Decisions – The Federal Reserve (Fed), European Central Bank (ECB), Bank of England (BoE), and other central banks set interest rates and provide economic outlooks. A change in monetary policy can cause major currency movements.
✅ Non-Farm Payrolls (NFP) Report – Released on the first Friday of every month by the United States, this report measures job growth and unemployment. Strong job numbers typically strengthen the US dollar, while weak numbers can weaken it.
✅ Consumer Price Index (CPI) and Inflation Reports – Inflation data determines future interest rate policy. Higher-than-expected inflation may push central banks to raise rates, strengthening the currency.
✅ Gross Domestic Product (GDP) Reports – Measures economic growth. A stronger GDP report often leads to currency appreciation, while a weaker one can lead to depreciation.
✅ Retail Sales and Trade Balance Reports – Indicate consumer spending and overall economic health. Significant changes in these numbers can cause market fluctuations.
✅ Speeches from Central Bank Officials – Statements from policymakers like the Fed Chair can signal future monetary policy changes, causing sharp market movements.
Unscheduled Market-Moving News Events
✅ Geopolitical Events – Wars, trade tensions, and political instability can create uncertainty, affecting currency valuations.
✅ Natural Disasters – Hurricanes, earthquakes, or pandemics can impact a country’s economy and currency value.
✅ Unexpected Monetary Policy Changes – Surprise interest rate cuts or hikes can create immediate volatility.
The Pros of Trading Forex During Major News Events
Despite the risks, many traders are drawn to trading during news events because of the potential for quick and significant profits.
1. High Volatility Creates Rapid Profit Opportunities
Major news releases often lead to sharp and fast price movements. Traders who correctly anticipate market reactions can capture substantial profits in a short time.
For example, if the Federal Reserve unexpectedly raises interest rates, the US dollar may strengthen rapidly, providing opportunities for traders positioned long on USD-based pairs.
✅ Example: A trader buys USD/JPY moments before a rate hike announcement. The pair surges 100 pips within minutes, yielding a substantial profit.
2. Increased Market Liquidity During Major News Releases
Liquidity refers to how easily assets can be bought or sold without significantly affecting the price. During high-impact news events, liquidity can surge as institutional traders, hedge funds, and retail traders flood the market.
This increased liquidity can result in:
✅ Better order execution – Orders are filled more efficiently without large price gaps.
✅ Higher trading volumes – More activity leads to greater price movement, which day traders can take advantage of.
3. Clear Market Direction (In Some Cases)
Certain news events create clear trends that persist for hours or even days. If a central bank shifts to a more aggressive policy stance, traders may see a sustained rally or decline in a currency pair.
✅ Example: If the European Central Bank unexpectedly signals an interest rate hike, EUR/USD could begin a multi-day uptrend as traders anticipate stronger demand for the Euro.
4. Trading News Events Can Be Part of a Bigger Strategy
Some traders specialize in news trading, using fundamental analysis to predict how the market will react. By combining technical indicators with economic forecasts, traders can develop structured strategies to trade during news events effectively.
✅ Example: A trader who follows inflation trends and central bank commentary may anticipate a strong US inflation report and take a long position on USD before the release.
The Cons of Trading Forex During Major News Events
While news trading offers opportunities, it comes with significant risks. Many traders lose money due to unpredictable price movements, high spreads, and extreme volatility.
1. Extreme Volatility Can Lead to Large Losses
Price movements during major news releases can be unpredictable and violent. A currency pair might spike in one direction, only to reverse seconds later.
✅ Example: A trader goes long on GBP/USD before an inflation report, expecting higher inflation to strengthen the Pound. However, an unexpected economic slowdown is also announced, causing GBP/USD to drop sharply instead.
If stop-losses are not set properly, traders can suffer heavy losses within seconds.
2. Widened Spreads Increase Trading Costs
During major news events, spreads—the difference between bid and ask prices—can widen significantly. Brokers do this to account for increased market uncertainty.
✅ Example: A normal spread on EUR/USD may be 0.6 pips, but during a major news event, it could widen to 5 pips or more.
This increase in spreads can make it difficult to enter and exit trades at the desired price, reducing profitability.
3. Slippage Can Lead to Unintended Losses
Slippage occurs when a trader’s order is executed at a different price than expected due to rapid price changes.
✅ Example: A trader places a buy order at 1.1200 on EUR/USD after a strong NFP report. However, due to slippage, the order executes at 1.1225, reducing potential profits.
Slippage is especially problematic for traders using tight stop-losses, as they may be taken out of trades before they can react.
4. False Breakouts and Whipsaws
Markets often experience false breakouts during major news releases, where prices initially move in one direction before reversing sharply.
✅ Example: The USD initially surges after a strong jobs report, only to drop suddenly as traders take profits, causing a sharp whipsaw effect.
This can trap traders who enter the market too soon without waiting for confirmation of the trend.
How to Trade Major News Events Safely
If traders choose to trade during news events, they should adopt risk management strategies to protect their capital.
1. Use Wider Stop-Losses and Smaller Position Sizes
To account for volatility, traders should increase their stop-loss levels while reducing trade size to limit exposure.
2. Wait for the Initial Market Reaction Before Entering a Trade
Jumping into a trade immediately after a news release can be risky. Waiting for price action to settle before entering can help traders avoid getting caught in a false breakout.
3. Check Economic Calendars and Prepare in Advance
Using an economic calendar to track major news releases helps traders plan their trades and avoid unexpected surprises.
4. Consider Trading the Aftermath Instead of the Event
Instead of trading during the initial spike, some traders wait for the market to stabilise and trade the longer-term trend that follows.
Trading forex during major news events presents both opportunities and risks. While the potential for quick profits is attractive, the extreme volatility, widened spreads, and unpredictable price movements make it a high-risk strategy.
Successful news traders must be well-prepared, disciplined, and willing to accept the risks involved. For those who prefer a more controlled approach, trading after the dust settles may be a safer alternative.
If you want to learn how to trade major news events effectively and manage risk like a professional, join MS Africa Academy today for expert-led forex education and real-market insights.
