If you are a newer trader, you may not realize just how important it is to pay attention to some of the breaking news that comes out of the financial world. It is far more important than you may have ever realized. Markets move based on the data and information that comes out, and you need to absorb that information to best inform your trading strategy.
There are some people who are not too keen on trading the news as it adds a lot of volatility to the market. However, if you are okay with accepting at least some risk in your trading, then you will want to pay attention to what is happening with various pieces of economic news so you don’t miss out on the very latest.
Why Bother Trading the News?
You may ask yourself why you should trade the news at all. The quick answer is to earn a larger profit than you might have otherwise. The more reasonable answer is that you really cannot get away with not trading it. This is to say that the news moves the market, and you will always be responding to those moves.
Anytime news comes out, you can likely expect a move in the market somewhere, even if it is not exactly in the markets that you are currently trading. You should be on the lookout for this dynamic changing news because it may indicate to you that there is something major happening in the other markets that you trade as well.
The 2 Primary Risks When Trading the News
Don’t think for a moment that there aren’t some risks involved with trading the news. There are plenty of them. A few of those dangers include widening spreads and price slippage.
The widening spreads are a result of the fact that there is a rapidly moving market underway, and no one wants to get caught in the middle of it. So, many forex brokers will widen the spread when a big news event hits. This makes the cost of trading go up, even if only briefly. You may pay more from a spread perspective than you otherwise would have if you hadn’t tried to trade the news. It is something that you need to think very carefully about as you work on learning about trading Forex markets like a professional. You can get yourself in a lot of trouble if you aren’t careful about the way you play it.
Also, your trade could get locked out — which means your trade might get executed at the proper time, but not appear in your trading platform for a few minutes. That’s bad if the trade moves against you and you can’t adjust.
Traders that trade the news also experience slippage — which is when a trader wants to enter the market at a certain price, but because of the volatility, your position gets filled at a gapped (and far different) price.
Instead of taking a risk of getting hurt trading the news, it is advisable to try trading the news only on demo accounts in the beginning. This is the best way to keep yourself safe from the riskiest types of trades in the market.
Disclaimer: All information provided here is intended solely for study purposes related to trading financial markets and does not serve in any way as a specific investment recommendation, business recommendation, investment opportunity, analysis, or similar general recommendation regarding the trading of investment instruments. The content, in its entirety or parts, is the sole opinion of SurgeTrader and is intended for educational purposes only. The historical results and/or track record does not imply that the same progress is replicable and does not guarantee profits or future profitable trading records or any promises whatsoever. Trading in financial markets is a high-risk activity and it is advised not to risk more than one can afford to lose.