Forex news trading is a very popular form of trading strategy on Forex, which consists in opening a deal shortly before the release of an important economic news or immediately after its publication.
In this article, we will analyze not only the essence of this trading system, but also consider the pros and cons of this approach to trading, and we will select brokers for trading the news.
WHAT IS CURRENCY NEWS TRADING?
As mentioned above, this is the opening of the position with the aim of earning a sharp price movement after the release of important macroeconomic news. The analysis is done with the help of an economic calendar, analysts of “experts” and simple logic (although often, it is incorrect because of the lack of deep economic knowledge).
Example: on the first Friday of each month, “Payrolls” (data on the labor market in the US). On Thursday, the trader does his research: looks at previous results, reads the analyst’s “experts” and concludes that the data will be better than predicted. Logically, the dollar should strengthen, meaning EUR/USD should fall. On Friday, before the news, a trader places either the limit order with a stop-loss and waiting for news, or enters the market immediately after the publication of the results.
Basically, pending orders are used (rarely entering by the market). A very common scheme with two orders (limit or stop) in different directions from the current price. Often used special advisors or auxiliary software. It should be noted, a large number of “insider” software, which gives a signal where the market will go exactly.
To maximize profits, risks are inflated by several times (some even risk the entire deposit in one deal).
Important currency market news: the Payrolls and news on the labor market of other countries, rate hike decisions, meetings/press conferences of the heads of the Central Banks + various historical events, for example, Brexit, a referendum in Italy, etc.
Also, trading forex news is very popular among traders with a small deposit, who want to “boost” it, because if you use a large leverage, you can double, or even triple the initial deposit.
All these factors make news trading very popular among novice traders, as well as especially greedy people :). After all, it allows you to quickly earn without spending months developing your trading system, without a deep knowledge of technical analysis, having a fairly small deposit + it seems quite logical, since any currency, in one way or another, depends on fundamental factors.
Nevertheless, if the market was so simple, now all would trade and earn it. Unfortunately, statistics show that really profitable traders who earn longer than 1 year, are only 0.16%.
Next, we’ll figure out what the pros and cons of the Forex news trading and try to answer the question why so few people in it succeed.
PROS AND CONS OF TRADING FOREX NEWS
Some advantages of the trading strategy on the news on Forex have already been noted, but let’s analyze them in details:
You only need to be able to use the terminal and the economic calendar + logical thinking. Ah, well, of course, you need to be able to read)) As you can see, there is no need for special knowledge and skills. And having got acquainted with opinion of many “authoritative experts” (the number of which is endless), traders (especially beginners) immediately gain confidence in their abilities and are waiting for the next economic news greedily rubbing their hands in anticipation of profit. By the way, it is trading on news that is taught in many brokerage companies under the guise of a reliable and highly profitable system;
- A small deposit.
Given that many brokers provide leverage of 1 to 500 or 1 to 1000 (some give even 1 to 2,000, and even completely, unlimited), even with $ 100, you can open a fairly large position, which makes the news trade very popular among the not-so-rich traders;
- Quick earnings.
This point follows from the trader’s ability to open a deal with a large volume, which can bring a good profit in case of “guessing” the direction of the price movement. Thus, you can quickly disperse the deposit;
Nevertheless, serious disadvantages of this trading system are even more than positive qualities:
- Overstated risks.
Where a quick profit is a possible there a quick “drain” is too. Very often traders who trade the news, forget about such an important factor as risk management. After all, trading forex news means using a large leverage to enter the market with the largest volume;
- Illogicality of the market.
Very often it happens that after the news the market behaves illogically, for example, good news for the euro should push EUR/USD up, but instead the price goes down. If you use pending orders, it’s not so bad, but if you enter by the market, you can lose a large part of the deposit;
- Dependence on the broker.
Execution speed, slippage, spread expansion and requotes are just a few of the problems that a trader may encounter when trading during news. Choosing a good broker for news trading on Forex is not easy than choosing a wife (well, or husband). We will discuss this in more detail in the next part of this article;
- A limited number of “running” news for trading.
In a month, only a few really “strong” news comes out, so a trader (who trades on news) most of the time prepares, but does not trade. In addition, in the case of obtaining several losses in a row, it is very difficult to get back on track because of such “dry” periods. This fact makes this trading strategy limited;
- A huge amount of additional software, helping forex news trading.
In principle, this is a common trading problem, which is very small (rather, even, negligible) really useful software and advisors for trading on Forex. But even then, news forex trading has emerged. In the internet you can find a lot of different insider software, which is ready to give you an insider info right from the Wall Street just for $ 100 per month (conditionally). I do not presume to judge for all software, but in my practice I did not meet a person who would actually earn with this software for a year or more. As for me, it’s rather doubtful to rely on such a thing …
As you managed to notice, despite the primary attractiveness, Forex trading on the news has many pitfalls, which seriously (to put it mildly) complicate the life of a trader.
BROKERS FOR FOREX NEWS TRADING
The last and, perhaps, the most important question: how to choose a broker for trading on the news and what brokers can you recommend?
In fact, everything is quite simple: you need a licensed broker (preferably FCA, ASIC as an alternative) with excellent performance (although if you want a serious “news person”, it is desirable to rent a quality VPS next to the broker’s server), plus there will be a server near your location (after all, from Moscow to London, data transfer is faster than in New York, yes, there are milliseconds, but they are important!). If we are not talking about suicides that fall on the whole depot, then the leverage of 1 to 100 will work, the spread of many brokers is now about the point (EUR/USD), and this is not so important, because it will expand anyway.
Also I advise you to remove from the terminal heavy indicators or advisors (if they are intended directly to enter the market during the news), since they can affect the speed of the platform.
But most importantly, the broker must be 100% STP/ECN, otherwise you are doomed. In our case, this is especially important, because it is on the news of the “kitchen” that they like to harvest with the help of various tricks.
For the news, I would advise you to pay attention to the British STP broker Axitrader with the license FCA and the Australian ECN broker Global Prime with the license ASIC.
Nevertheless, the problem with the technical side of trading on the news is much more extensive than one might think. The matter is that even if your broker displays your transactions on the interbank market, an unpleasant surprise awaits you there: many liquidity providers have been manipulating the news for the past 1.5-2 years, this concerns even the largest banks (after all, they are counterparties to your transactions). Of course, some wild “drawn” candles or requotes will not happen, but from slippages (but they can be positive) and spread expansion you are not insured. These are the realities of today’s market, with real!
I met many people who tried to make money using this strategy, but unfortunately (or maybe fortunately, and then a lot of freebies), their attempts either resulted in only a short-term success, or immediately failed miserably. There are too many variable factors and conditions (in comparison with positional tradinh), which strongly influence the final result + a disappointing situation in the real market for “newsmen”.
My opinion: trading news on Forex has the right to live only as a fan (when you can “throw away” a couple of hundred bucks for this lottery), but not as a serious and fundamental (not in the sense of analysis) approach to earning on Forex! It is better to take the time for real studying the market, its analysis, than just blindly try your luck.
There are more sensible and reliable styles of trade.
If you have experience of news trading, share your results in the comments, and also express your opinion on this issue.
If you have any questions or want to get advice on any aspects of trading, add me in Skype – vovkfx.
In the next article, we will consider in detail the following trading style – scalping.
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