First of all let’s ask a question; why would you trade the news anyway? Well, the simplest answer is; to make more money. But to be more official, trading forex news has a great potential for your income, since market makes much greater movements during the releases of the news, especially the more important ones.
When those news come out, knowing on which side of the movement to be can be a golden key to a large win, while riding the market in the wrong direction will empty your pockets very quickly.
Most common way to trade news is to be aware of the consolidation period before the release, and then after the news are out trade only after the price breaks through the highs or the lows of the consolidation.
What Are the Dangers of Trading Forex News?
Trading news is harder that it might look at a first glance. And the reason this is so is the volatility of the market. It can easily happen that you enter on the right side of the move but movement may soon simply stop because it is lacking the momentum to insist in the direction.
Because brokers are aware of the volatility during those times they may widen the spreads, which brings even more risk to your side.
It can also happen that you end up being “locked out”, which is the term used to describe the situation when you enter the market at the right time of forex news release, but your trading station may not show your trade for a couple of more minutes. This can cause some troubles for you since you cannot exit the trade if price moves against you.
So you might think that your entry at the market wasn’t successful, and you enter one more time, afterwards you realize that your initial trade is open after all and end up with two trades and with double the risk.
Another term to describe certain situation is “slippage”.
This means that you enter the marker at the desired price, but volatility may be so great that your trade actually enters at the whole another price.
Movements caused by the release of forex news can often times go in both directions. Market may start off by going in one direction and soon changes its course and rapidly follows the other direction. Trying to follow the price accordingly can cause trader a great deal of difficulties.
Trading currencies by this method is more or less a subject to short-term movements caused by the economic releases from the entire world, not just the United States and Europe. Knowing the current economic conditions in the world, which forex news are expected when, which are more important than other and so on are most important factors to successfully trade in such a high volatile market.
Go further in education on the subject, explore your options and possibilities as a trader and always risk only the money you can afford to lose.