Because of the largely unregulated nature of the forex market and the fact that it involves national currencies, most information affecting the market is made available instantly worldwide. This provides a major advantage for forex traders.
Also, this widespread information available in the forex market differs considerably from the way information is released that can affect individual stocks in the stock market.
As a result, insider trading, as it is commonly understood in the stock market, does not really exist in the foreign exchange market.
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Information Availability in the Forex Market
Most of the information that affects the currency markets involves the release of economic data from different governmental sources in each currency’s home country.
In addition to world current events, which tend to influence currency movements, forex traders also watch price charts and technical price indicators. Technical traders believe these analysis tools give them an edge when trading, and they can readily be obtained via software that has access to the Internet.
A notable exception to the general openness of information available in the forex markets involves order flow. Generally, the only parties that are privy to large transactions occurring in the forex market are the two parties conducting it.
The Internet Leveled the Playing Field Considerably
With the exception of the aforementioned order flow data, the majority of forex traders obtain their market and economic information from the same sources. Essentially, news which influences the currency markets is now available to anyone with Internet access and the knowledge about how to obtain it.
At the dawn of the modern electronic age and before the Internet had become widely available, technical price data and information feeds from companies such as Reuters and Telerate (Associated Press/Dow Jones) would cost a fortune that only banks and wealthy individuals could afford.
Thankfully, the Internet has helped level the playing field in the forex market by bringing all of this information and the capability to trade the forex market to millions of individuals. Many of these people would not otherwise have been able to afford access to this huge market and its key information sources.
How News Affects the Forex Market
Most of the economic data and other information released by these sources are already anticipated by the various professional observers analyzing the economy. Nevertheless, news that differs significantly from the consensus expectation in the market can have a substantial impact on the forex market.
For example, if the Gross Domestic Product or GDP for a nation came out at 1% when the market was expecting 2%, that would tend to provoke a sell off in that nation’s currency.
Other currency pairs demonstrate notable sensitivities to the price of one or more commodities. For instance, a sharp increase in the price of crude oil would tend to produce a negative effect on the USD/CAD exchange rate. The reason for this involves the fact that Canada is a major exporter of oil to the United States, which is a net importer of oil.
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