News Trading

News trading is a form of trading the financial markets, where traders attempt to capitalize upon short term heightened volatility due to the release of monthly economic reports.

Common readings can include such metrics as Unemployment Rate, GDP, and Retail Sales, or central banking updates.

Therefore, news traders aim for large amounts of profit, in a short space of time. News trading is not limited to just asset classes such as forex however.

In terms of equities, news trading is pivotal for company-specific updates, trade talks or disruptions, economic outlooks, shareholder meetings, or earnings.

In terms of forex, economic data releases and reports are key movers of any currency, especially in the short-term.

Some of the major news releases include Unemployment rate, Interest rate decision, Retail sales, GDP, Business sentiment and consumer confidence.

Economic news releases usually have a short-term impact, lasting from a few hours to a few days.

This depends upon the importance of the report, with a large percentage of the movement often actually occurring within a few minutes post release.

Most news traders naturally focus on economic reports from the United States as it’s the world’s largest economy.

Consequently, news reports from the US are generally the most volatile, with reports from the United Kingdom and Canada also often causing large fluctuations in price.

Prior to actually trading the news, news traders need to select, a) which news report from which country they want to trade, and b), which currency pair they want to trade the selected report.

Are News Traders Successful?

The main advantage of news trading is the fact that no other (regular) events can match the impact that economic releases provide.

So once the news trader knows which releases significantly move the market and with which pairs, the next step is to take advantage of this knowledge.

Two of the popular methods in which forex traders seek to profit from the volatility of major news reports are known as spike trading.

This occurs where traders aim to enter the market as soon as the economic data comes out and therefore before the market moves.

Moreover, investors can engage in straddle trading, where traders will place buy and sell pending orders on either side of current price before release, a number of pips away determined by the trader.

The volatility of news reports is such that prices often spike up and down within milliseconds, known as whipsaw.

In addition, spreads can widen so much that a trader’s stop loss can be taken out, or at least makes the risk reward ratio unattractive.

However, this doesn’t mean it’s impossible to be a successful news trader, since news trading, whilst carrying with it many risks can actually prove profitable in the right conditions.

The problem is that those conditions are not always precisely met.