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News trading is a practice common among many Forex traders whereby they enter the market just before or following the making of a major economic announcement. 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.

After the release of major economic news, a country’s currency can appreciate or depreciate by almost sixty to one hundred points almost instantaneously, and this is what can enable you to make quick gains worth thousands of dollars. Additionally, because the Foreign exchange market runs throughout the day (from 5pm EST on Sunday until 4pm EST Friday) the constant release of financial news and data provides you with the opportunity of integrating news trading into your trader’s tool box. 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.

Subsequently, in trying to trade the major economic announcements, you could also get “locked out” by your Forex brokerage firm. This often takes place when you have entered the market at the right time but your order delays by some minutes before it appears in your trading station.

Evidently, this does not give you the ability to make any changes to your order in case the trade goes against you. Imagine if your order fails to show up in your trading platform for a few minutes then, in fear, you enter another tradec Your risk could be two times as much now!

Finally, the buying or selling of currencies during the release of key economic reports increases your risk of experiencing slippage. During such occasions, the market conditions tend to be very volatile; thus, you experience slippage when your order is placed far away from the price you had intended to get it filled.

This is the biggest predicament with placing stop or market entry orders because most often they are filled at an entirely different price from the one you had intended; sometimes past your profit target or stop loss, which increases your risk per trade.

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.”

Lots of brokers (including the one with fixed spread) widentheir spreads during news releases, making it very hard for a trader to gain profits. If you are a news trader, I suggestyou to read the facts of a broker with tight spread even during news releases on Dukascopy forex broker. In addition, be sure you use forex strategies that work.