An outline of the risk involved in "Trading the News"
If you have gained some experience in trading the forex markets you know that there is money to be made trading forex news . Did the Fed just make an important announcement ? Is the treasury going to mint a trillion dollar platinum coin (I'm afraid to trade that news !) ? When a big announcement is made , it is the difference between the actual announcement and what the market was expecting the announcement to be that creates a big market move . There is often a quieting of the markets before a major announcement because everyone is awaiting the big news and dare not trade until the news has been released . It is thus imperative that you have access to the news in as timely a fashion as possible as the effects are very short term , often lasting as little as a few minutes . The two or three hour period before the release is especially dangerous as it can be full of false and misleading signals . To capitalize on this type of news , traders are usually day trading , or using a scalping strategy . Personally I would avoid trading this type of news as the market can turn against you very quickly , even if you catch the initial move correctly .
Another problem with trading the news is that the spreads tend to widen during these times . While your broker may guarantee execution of your order , there is not one who will guarantee you a normally tight spread during a news release . Due to a lack of volume immediately preceding the release , most brokers will widen the spread prior to , and during the news release . For example , the normally tight spread on the USD/EUR may go from 2 pips to as high as 10 pips .
If all of this wasn't enough to scare you , there is an additional problem of slippage . Once things really begin to move during the release , a limit order that you placed at say 1.4000 may get filled at 1.4020 because the price shot up by 60 pips to 1.4060 so quickly . This type of slippage can wreak havoc with your trading strategy .
For all of these reasons I feel that trading the news is best left to only the most experienced and expert traders .
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