As forex traders, it’s important to pay attention to major economic data releases, speeches from government officials, and geopolitical events.
Because this information usually reflects the strength of a given economy and may indicate the future direction of a given currency.
Trading the news is often difficult and not be suitable for everyone, but the volatility that follows can create lots of trading opportunities.
Why trade the news?
The simple answer to that question is “To make more money!”
But in all seriousness, as we learned in the previous lesson, the news is a very important part of the forex market because news has the potential to make the market move!
When news comes out, especially important news that everyone is watching, you can almost expect to see some major movement.
The fact that you know the market will most likely move somewhere makes it an opportunity definitely worth looking at.
Your goal then, as a news trader, is to get on the correct side of the move.
The Dangers of Trading the News
As with any trading strategy, there are always possible dangers that you should be aware of.
Here are some of those dangers:
Because the forex market is very volatile during important news events, many forex brokers WIDEN the spread during these times.
This increases trading costs and could hurt your bottom line.
You could also get “locked out” which means that your trade could be executed at the right time but may not show up in your trading platform for a few minutes.
This is bad for you because you won’t be able to make any adjustments if the trade moves against you!
Imagine thinking you didn’t get triggered, so you try to enter at the market price… only to realize that your original order got triggered!
You’d be risking TWICE as much now!
You could also experience SLIPPAGE.
Slippage occurs when you wish to enter the market at a certain price, but due to the extreme volatility during these events, you actually get filled at a far DIFFERENT price.
Big market moves made by news events often don’t move in one direction.
Often times the market may start off flying in one direction, only to be whipsawed back in the other direction.
Trying to find the right direction can sometimes be a headache!
Profitable as it may be, trading the news isn’t as easy as beating some toddler at Fornite. It will take tons of practice, practice and you guessed it… more practice!
Most importantly, you must ALWAYS have a plan in place.
In the following lessons, we’ll give you some tips on how to safely trade the news.
Do you feel overwhelmed by all this margin jargon? Check out our lessons on margin in our Margin 101 course that breaks it all done nice and gently for you.