Forex trading under normal market conditions involves a degree of risk, but trading currencies during significant news events can turn out to be even riskier. Major variations on the charts occur because sudden news events or a significant news event’s prospects are not met.
In the initial phase, you will discover that some FX news will influence the entire foreign exchange market, and others will affect some specific currencies. As a fundamental forex trader, you need to understand what news is vital for the currency pair you are trading.
For a domestic currency, reports on employment, interest rate choices, and GDP figures are considered essential news. After figuring out the most important stories, you must observe the market reaction and movements for some time. Patience is what you need here since most currencies do not behave as you anticipated.
One of the biggest challenges in trading forex news is that every FX broker handles trading during volatile reports differently. Some of these brokers have what is termed as a variable spread, while others have a fixed spread.
Trading news events with a fixed spread
Spread refers to the difference between the asking and bidding price. Fixed spreads enable you to foretell the spread cost and establish a trading strategy. Fixed spread brokers often undergo a price slide or a requote. Although fixed spreads do not shift, they differ between currency pairs.
Fixed spreads are unalterable despite price volatility or change in market conditions. The spread offered by a broker is what you pay for. Some of the benefits of fixed spread include:
- Transparency and openness
- More comfortable to trade news events
- Low cost
- Protection against market volatility
Trading news events with variable spread
One of the main challenges of trading news using variable spread brokers is that when volatility hits the market, the spread can expand rapidly. As a result, your trade can instantly become negative, regardless of whether the entry price was perfect. Spread expansion is usually restricted, but it’s best to terminate your trade if it becomes too vast. Spread widening often occurs when financial institutions think the risk is too huge to be revealed.
Having this in mind, it is very significant to know your broker’s news trading policies. You might have to review it on a demo trading feature to grasp a clear picture. The most reliable forex brokers have a demo feature, a replica of the live trading feature. The only difference is that the demo version utilizes virtual funds while the live one needs real funds. You can always check live forex signals to be sure that everything is on line and get the perfection position for higher ROI.
Trading news events in the foreign exchange market can be quite productive but also risky. Playing down a news report, or if your trade goes opposite to the plan could have a very negative impact on your account. Professionals recommend trading news in the long term as opposed to short term trading. However, it is still possible to trade news profitably in a short period if you follow closely.