​Trading the news

Trading the news is all about keeping up to date with business and economic news, announcements, and data releases, and reacting to the fast-moving financial landscape in your trading. Staying abreast of financial news plays a key role in fundamental analysis​, which is about evaluating whether an asset or financial instrument is undervalued or overvalued based on underlying economic conditions, industry trends, financial statements, government policy and other factors. 

Breaking news can affect market sentiment in an instant, sometimes causing sudden price swings as traders reassess their understanding of the fundamentals and perhaps adjust or close the positions they've taken up in the market. 

When the news signals that the fundamentals have changed, the ensuing market volatility can brings risks as well as potential trading opportunities. That's why it's vitally important to keep an eye on the headlines, consider the impact on your trades, and be ready to react as you trade the news.

To trade the news, you need to know what to look for. Scheduled announcements including central bank interest rate decisions, official inflation updates, and company earnings reports are among the news events that can impact financial markets. You should familiarise yourself with key economic indicators, such as country-level employment data and retail sales figures, that can have an impact on financial markets from forex to shares and indices. 

Data releases can affect market sentiment, especially if the readings aren't in line with estimates or market expectations. Unexpected news events, such as unscheduled press conferences, coups and wars, can also upend the assumptions that traders have made about the world, sometimes resulting in particularly sudden and dramatic market volatility. 

A news-trading strategy requires flexibility and an ability to think on your feet. Going into a news announcement or data release, you might trade on an instrument based on market expectations. But you also need to be ready after the announcement or release to make quick decisions, potentially adjusting your position as you trade the news itself. The financial markets may be impacted almost immediately as the news breaks, so astute judgement and fast-thinking are likely to be essential as you decide how to trade the news. 

For example, if you were trading on currencies around the time of an election, you might need to decide whether to hold, modify or close your forex positions when news of the exit poll breaks. 

While many asset classes see a spike in trading activity before and immediately after a major economic news event, the forex market can get particularly active. That's because forex markets tend to be sensitive to macroeconomic news, especially to data points that reflect on the health of a country's economy. Generally speaking, forex traders look at economic news to assess its impact on interest rates and monetary policy​. News that suggests a more hawkish (rate-rising) central bank tends to push a currency up in value relative to another currency, while news that implies policymakers could become more dovish (rate-cutting) could cause a currency to depreciate.

Currencies of export-led economies, particularly those that export raw materials or commodities, are often impacted by economic news. Commodity prices are influenced by issues of supply and demand. On the supply side, news that suggests a lower supply of a commodity can push up prices for that commodity, while news that suggests higher supply can depress prices. These commodity price swings can then impact the currencies of countries that trade in those commodities. 

News that could signal changes in commodity supply and demand may include political tensions, war, terrorism, weather, economic sanctions, labour relations, strikes and more. Commodity inventory reports and outlooks can also affect commodity prices, with potential knock-on effects on related currencies.

To come up with a comprehensive forex trading strategy​ based around news releases, forex traders tend to look out for key forex indicators that can have an impact on interest-rate speculation, including:

Share trading based on news events is a strategy that many long-term investors and short-term traders use. When applying a trade-the-news strategy to shares, the key news events to watch are company earnings announcements. These tend to be issued every three months. 

If a company has a strong balance sheet, positive cash flow and solid earnings, then traders may decide to buy and hold shares of that company. However, if a company reports lower-than-expected revenue and earnings, traders might sell or short the stock. Before deciding whether to buy or sell, traders can carry out company analysis, which involves analysing the company's financials, growth potential, and any legal, political or insolvency risks. The company's price/earnings ratio and dividend yield can also indicate whether a stock may be a sound investment.

Morningstar equity research reports, included with our live account, are updated regularly with new information on company fundamentals. These reports are available for a wide range of shares on our platform. Traders use them to gauge whether a company is considered to be overvalued, fairly valued or undervalued by the market. This information may help traders to make a decision on whether to enter a position or not. Register for a live account now to access our Morningstar reports.

Some brokers offer automated news trading signals that can help a trader to make decisions on whether to enter, exit or avoid a trade. These hints are based on price fluctuations after certain types of data release and can prompt traders to either buy or sell an asset. Our platform allows you to set up price alerts, but we are an execution-only provider and do not offer advice or recommendations.

A manual alternative is to monitor upcoming tradeable events using our economic calendar, pictured below. The calendar highlights events such as GDP, CPI and PPI figures, unemployment data, trade balances, sentiment surveys and more. These news events help to shape market sentiment and may cause major price swings in financial markets.

Of course, there are risks associated with news-based trading as well as benefits. Trading the news requires strong fundamental analysis skills, as you will need to understand how economic announcements affect the market and your positions. Inexperience or a lack of knowledge can therefore pose a risk.

Another danger to be aware of is that news-oriented traders sometimes keep positions open for too long. If the news takes a few days or weeks to materialise or for its impact to become clear, a news trader might keep their positions open for longer than they originally intended. In addition to the market exposure risks that this can bring, the trader may need to pay additional holding costs​. Therefore, traders should ensure that they have sufficient funds in their account to cover their costs.

Open an account with CMC Markets to access our news and analysis tools. You can choose to trade on news reports through either a spread betting or CFD trading account. 

Read our article about the differences between spread bets and CFDs to learn more.

As mentioned above, our online trading platform features built-in news and analysis from our in-house analysts as well as from Reuters and Morningstar (for live account holders). Keeping up to date with breaking financial news, emerging trends and shifts in market sentiment will help you to make informed trading decisions.

Our award-winning* trading platform is available for desktop, mobile and tablet devices, and is compatible with iOS and Android systems. Complete with advanced charting features, our trading platform and app make it easy to trade and monitor news announcements. You can also set up trading alerts and choose to receive push notifications via the app, email or SMS. Reading more about our trading alerts​.