The currency (forex trading) market is the largest financial market in the world and is a market traded by a diverse range or participants, from private investors to central banks.

Successful forex traders will use a variety of tools to help them make decisions about the future direction of a currency against another currency. There are some traders who use only the economic announcements released to speculate on a country’s currency, this practice is known as news trading.

It happens quite frequently; a currency can appreciate or depreciate quite substantial amounts in value when an economic release comes in better or worse than analysts were expecting.

Let’s look at an example. On 16 August the pound continued to slowly climb against the dollar largely thanks to negative data out of the US. Missing analysts expectations were the NAHB Housing Market index and the Empire State Manufacturing Index.

It was only a slow climb as investors were nervous about the next day’s inflationary report; with UK inflation nudging lower to 3.1% in July, the figures were still outside of what was forecast by the Bank of England (BoE) but generally well received. Also playing on sentiment was the imminent release of the minutes of Bank of England’s (BoE)  monetary policy committee (MPC); any split in opinion surround the latest vote on the quantitative easing programme would be seen as further evidence of uncertainty surrounding the recovery in the UK.

On the morning of the announcement the pound fell to a three-week low against the dollar. As it turned out, the minutes revealed that the MPC had voted unanimously to not further its QE programme and the pound jumped back in value against the dollar.

A good way of taking advantage of fluctuations in forex markets is by CFD trading. CFD trading allows you to back your intelligence as to whether a financial instrument will increase or decrease in value in the future.

According to a recent report by research agency Investment Trends IG Markets is the UK’s leading CFD provider. IG Markets provides an extensive range of tools and services to suit all trading styles,  including Reuters feeds, market analysis, professional charts and specialist seminars.

It is worth noting that while CFD trading can result in maginified profits it can also result in similar losses too, so make sure you understand all the risks involved.

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