News Trading

News Trading is a popular Forex strategy based on prompt adjustments of trading activity in line with market movements directly caused by the release of key economic data. Macroeconomic and political news may often be the catalyst for sharp market movements and thus creating potential for increased volatility over a short time interval. News may affect trading in different ways; it may either yield a good return or lead to potential losses therefore it is very important to continually monitor market data.

This trading style requires a thorough analysis of key news releases emanating from major market players such as the U.S, Canada, Japan, UK and other G20 countries, who provide the currencies for the most liquid derivatives in Forex however, with the US dollar being either the base or the quote currency in most trades, the economic releases from the U.S generally influence the market to a greater extent.  

It is extremely important to understand the importance of these key releases. The burning topics are usually related to inflation, unemployment, surveys in industry, business and consumer sector, etc…  The fallout of such publications may differ in terms of their length of impact but the major changes are usually observed immediately after publication.

Such publications may trigger a run on a currency pair of a particular country i.e., its currency may get stronger or weaker after the news reaches the public domain. In such conditions, currency pairs may experience significant price movements within a short timespan. This may encourage the perception that sizable profits can be made, but news trading is associated with high risks, the most dangerous of which can be:

  • Large price fluctuations after a news release;
  • Market volatility resulting in price gaps;
  • Stop and Market Orders activated with potential for a substantial slippage;
  • Considerable differences in the desired and actual price of execution;
  • Unexpected prices reversals and movements against you.

These elements should be factored into your strategy to mitigate the risk of heavy losses. 

Read more on news trading in the ECN environment:

News Trading: High Profits - High Risks

News trading can also be used as a supplementary strategy.