The Importance of Trade Balance Number in Relation with Currency Trading

PAMM Investments Hand Graph

What are the important things traders or investors should pay attention about in doing their trading? Well, there are lots of important variables which affect the consideration before traders make their decision. One of these important things is knowing the right news that moves the market and trade-balance news, is such a critical information.

Before continuing our discussion, let’s find out what’s the meaning of trade balance itself. It’s simply said that trade balance is a gap in value between imported and exported goods and services done by a particular country. The more a country exports, the more it produces and the higher its GDP is. See, everything is connected! That’s why trade balance is very crucial figure for currency or forex traders.

A positive number in trade balance means a country is more self-sufficient than the imported country. It also shows the increase in exported goods and services which will directly connect to an increase in the value of a particular currency. It’s because foreigners must buy the domestic currency for their payment. Whilst a negative number in trade balance will be treated as a negative correlation with the currency value because the country has to use its currency to buy the imported goods and services. This will make its currency depreciate. At this point, you can see how important trade balance is for us as traders, right?

Trade balance is basically derived from three aspects:

  1. the price of goods in a given country
  2. tax and tariff charges on imported or exported goods
  3. the exchange rate between two currencies

Although there are lots of information about trade balance, but one of the most critical sources of information on the state of trade in the U.S. is the monthly international report released by the Census Bureau of Economic Analysis. The bureau releases this report around the third week of every month. Detail performance of several exported goods and services in various economic sectors will be published in this report.

How to treat the trade balance news?

It’s generally known that a better than forcasted number in trade balance will lead to an instant bullish pressure for the currency while the negative one will bring the currency down. Well, if we’re buying or selling in this situation, it means we’re trading the news, the events of the momentum. So, what should we do then?

Firstly, we must remember this thing: never front run the news, ever! The trade balance will cause a very unstable condition in market in very clean moves. What we are going to do is using pending orders, both buy-stops and sell-stops, to get sense of the base price. By doing this, we’re preventing ourselves from falling down to the very bad levels. If a correction happens, it’s better for us to ignore it but we’ll definitely not ignore the consolidations to add to our precision.

Happy trading in PAMM Investments !

Don’t forget to read this important article for PAMM trader

1. How to become a PAMM Trader

2. Understanding your Forex Trader Level as PAMM Trader