Some traders and investors in the Forex market engage in a practice referred to as news trading in which they trade foreign currencies immediately before or after the release of key economic news or data to the public. In most cases, after such announcements, short-term movements often occur in the market, which can offer opportunities for massive profits or losses within a very short time.

3 Merits

The technique of news trading has at least three advantages to your trading. Importantly, the likelihood that a country’s currency would either appreciate or depreciate within minutes of a major financial data announcement enables you to make huge gains from the fluctuations. For instance, if the United States Federal Reserve Bank releases an economic data to indicate that the interest rate has been revised upward, then you are likely to buy the United States dollar with the anticipation that its price will increase such that you will be able to make profits.

It has been proven that following the announcement of a key economic report, a country’s currency has the potential of either increasing or decreasing in value by nearly sixty to one hundred points within minutes, and you can take advantage of this to make huge gains. In addition, since the Forex market operates 24 hours in a day (from 5pm EST on Sunday until 4pm EST Friday) the regular economic announcements give you the opportunity of incorporating news into your trading. Most of the Forex brokers have no less than eight major currencies available and you can choose the one(s) that best suits your trading needs.

Thus, there is always a scheduled release of some important economic data to the public and you can harness such opportunities to make significant profits in your trading. Finally, it is important to note that during each trading day, there are no less than seven key economic reports that are released; thus, engaging in news trading can make your trading more dependable, less strenuous, and, above all, you can make huge profits in a matter of minutes!

3 Disadvantages

Alternatively, engaging in news trading has at least three demerits to your trading. During important economic announcements, there is often extreme volatility in the market and brokerage firms tend to widen their spread, which increases your trading costs, could hurt your bottom line, and, ultimately, could make your trade targets harder to achieve.

Next, in attempting to trade the news, you could also get “locked out” by your broker. This happens when your have executed a trade at the correct time but the order takes sometime before you can see it in your trading platform.

Clearly, this denies you the opportunity to make any necessary amendments suppose the trade goes against your initial projection. For example, if your trade is “locked out”, and you hurriedly enter another trade, you could be increasing your risk twofold.

Lastly, trading major economic news makes you to be at a high risk of experiencing slippage. During such events, currency prices tend to move very fast due to extreme volatility in the market; therefore, slippage takes place when the price at which you planned to execute a trade is different from your actual transacted price because your order has been filled at a far different price.

It is important to note that slippage is the main problem with placing stop or market entry orders since in most cases they are placed far much away from your actual transacted price; at times too much away from your profit targets or stop loss, which can increase your losses.

Conclusion

Major economic news is important in the Forex market because it is the fuel that moves it. Thus, proper analysis of the Forex fundamental variables can prove to be of great benefit to your trading. Nonetheless, always remember to “buy the rumor but sell the fact.”

A great deal of brokers (along with the one with fixed spread) widen their spreads throughout news releases, making it really tough for a trader to get profits. If you are a news trader, I suggest you to read the details of a broker with tight spread even during news releases on A review of Dukascopy. Also, be sure to use forex strategies that work.

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Filed under: Currency Trading

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