Article by Ahmad Hassam

Currency markets react violently to the release of fundamental economic news like the release of the NFP figures, the housing sales figures, the GDP figures or other socioeconomic and political news. Volatility is what makes currency markets so attractive to so many traders.

News trading is one of the popular strategies of trading forex. News trading provides the possibility of instant gratification. This strategy of news trading is intriguing to many traders. When the clock ticks within 60 seconds of the number coming out, you enter the trade. Your heart pumps. You are nervous.

The news comes out. Either you feel an instant sense of elation, a trading high that you had the right instincts or an instant sense of frustration when the market behaves in a totally unpredictable fashion. News trading is great. News trading is for those traders who like a lot of action within a short period of time.

When an economic number deviates significantly from the consensus forecast, there is usually a knee jerk reaction in the markets accompanied by a decent follow through. This is the basis of news trading. News trading if done incorrectly can lead to more losers than winners. So you have to be careful. There are many ways to trade the news.

Trading the news means attempting to capture the volatility in the currency markets created by a news release. This volatility creates the breakout trade as the prices smashes through the support or resistance. However, please note that a news trade is not a trade that is placed just before the news is released or is placed just after the news is released.

Many traders trade the news. They follow the adage, Buy the rumor and sell on the news. However, news trading is a risky business. You need to understand the risks involved in news trading. There are several forms of risks unique to news trading.

The spread charged by most forex brokers may jump sometimes up to 15 pips from 2-4 pips right after the release of the economic news like the NFP figures. Many forex brokers charge more spreads for a trade just after news is released.

Most brokers are flooded by thousands of orders in just a few seconds and find it difficult to enter your order just right after a news release. This means that your order may take longer to process. Your trade could be entered many pips away from where you had wanted.

The stop order placed by you needs to be touched by the price before its triggered. However, sometimes after the release of fundamental news, the markets can become highly volatile and jump several pips all of a sudden.

For example on the EUR/USD currency pair, all of a sudden on the release of the news the price may suddenly jump from 1.3249 to 1.3255. Suppose you had the stop loss order placed at 1.3250. The price jumped from 1.3249 to 1.325 without ever touching 1.3250 price levels.

Your stop loss order was not triggered as the price never touched 1.3250; you did not get stopped out. You are still in the market and exposed to potentially unlimited losses.