Financial markets do not exist in a vacuum and events around the world; social, political, economic and more, all play a role in influencing market movements and asset prices. As a result, it is vital for a trader to take the time to listen or to read the latest news and to educate oneself about the impact of special announcements from governments or companies as well as the latest major events from around the world. The bottom line is that trading the news is a very important component.

If you want to be an educated trader, you need to have a clear understanding of the asset classes which are available to trade as well as how major news events cause these assets to either increase or decrease in value. However, you should always check that the news you are seeing or hearing is hard news and not simply the opinions of a journalist or economist publishing speculation as a genuine item of news.

Types of News Which Impact Trading

News that affects trading can be divided into:
(1) Hard economic news such as governmental reports and statistics.
(2) General socio-political news which might have far wider implications.
(3) Official company news such as management changes or mergers and acquisitions.

All of these types of news items can affect the fundamental factors that influence the values of many different types of investment assets.

Stocks

Financial reports provide details of a company’s business activities and performance with regard to revenue and profitability during the period under review and these have an effect on the value of the stock. The period before the release of the report often sees asset values fueled by speculation. Once the report is released, markets’ values are determined by trading the news.

Besides earnings reports and other releases directly from a company, the stock of a company can also be affected by other external factors such as the GDP or the unemployment rate. When trading, it is therefore important to incorporate all the elements which play a distinct role in influencing asset price movements and then to trade accordingly.

Commodities

The prices of commodities on world markets should be determined by the basic rules of supply and demand, but many other factors come into play that can disturb this ratio.

Changes in monetary policy in either the producer or consumer countries can have a large effect on the prices of commodities. Socio-political news coming out of the commodity-producing countries also has an important effect on prices particularly as most commodities are traded on futures markets and investors have to make a call on the value in the future. Many of the producer-countries are developing countries that are susceptible to wage demands and other labor disputes, as well as political uncertainties, which would be widely reported.

The production of agricultural commodities is, in most cases dependent, on the weather with insufficient or excessive rain negatively affecting crop production. Weather news thus also comes into play for investors who trade in agricultural commodities as the availability of future supplies affects the supply and demand ratios.

Currencies

Changes to national monetary policies, such as increases in the money supply, credit availability or changes in the interest rate, can have drastic effects on currency values and again illustrates just how important trading the news can be.

Fundamental press releases and announcement such as GDP, unemployment, inflation and other related data are all released by government agents at predetermined times and very often result in intense speculation and forex fluctuations prior to their release. In addition, major news events also play a vital role in impacting the value of a currency.

Forex values are particularly subject to rumors and speculative news reports and it is always better to wait for the hard and definite news to inform trading decisions. The interesting aspect with forex trading is that profits can be made whichever way a currency moves depending on whether the trader has read the signs correctly or not.

Final Word

The value of all the different investment assets are so interlinked that an understanding of socio-political news, governmental reports, and corporate data releases becomes vitally important to investors. The well-known quote by Francis Bacon “knowledge is power” qualified by the sociologist professor Robert Staughton Lynd who added “only if man knows what facts not to bother with” applies with total accuracy when applied to trading the news.

If you’re interested, you can speak with our analysts personally regarding event trading, news trading, or trading using the economic calendar. However, these one-on-one sessions are only available to customers with a certain account type.