Why Trading The News In The Forex Industry Can Be Risky

If you have gained some expertise in trading the forex markets you know that there is income to be made trading forex news. Did the Fed just make an critical announcement? Is the treasury going to mint a trillion dollar platinum coin (I am afraid to trade that news !)? When a massive announcement is made, it is the distinction among the actual announcement and what the marketplace was expecting the announcement to be that creates a massive marketplace move. There is usually a quieting of the markets ahead of a significant announcement since absolutely everyone is waiting for the big news and dare not trade until the news has been released. It is thus crucial that you have access to the news in as timely a fashion as attainable as the effects are really short term, often lasting as tiny as a handful of minutes. In this era of higher frequency trading (HFT) these moves might be more than in mere sseconds. The two or three hour period prior to the release is particularly dangerous as it can be complete of false and misleading signals. To capitalize on this sort of news, traders are typically day trading, or using a scalping technique. Personally I would avoid trading this variety of news as the industry can turn against you very speedily, even if you catch the initial move properly.

Yet another problem with trading the news is that the spreads tend to widen during these instances. Whilst your broker could guarantee execution of your order , there is not 1 who will guarantee you a usually tight spread throughout a news release. Due to a lack of volume quickly preceding the release, most brokers will widen the spread prior to, and throughout the news release. For instance, the generally tight spread on the USD/EUR could go from two pips to as higher as 10 pips.

If all of this wasn’t enough to scare you, there is the further problem of slippage. When things really commence to move during the news release, a limit order that you placed at say 1.4000 may possibly get filled at 1.4020 simply because the price tag shot up by 60 pips to 1.4060 so quickly. This kind of slippage can wreak havoc with your trading technique.

If you are an skilled trader with access to up to true time quotes and news feeds then this type of method may be for you. If you are a novice, or intermediate trader without having access to the fanciest low latency trading tools this startegy must probably not be undertaken.