The simple answer to that question is “To make more money!”
But in all seriousness, trading the news gives us another opportunity to trade the forex market. As we learned in the previous section, news is a very important part to the market because it’s what makes it move!
When news comes out, especially important news that everyone is watching, you can expect to see some major movement. Your goal as a trader is to get on the right side of the move, but the fact that you know the market will indeed move somewhere makes it an opportunity definitely worth looking at.
Dangers of trading the news
As with any trading strategy, there are always possible dangers that you should be aware of.
Here are some of those dangers:
Because the market is very volatile during important news events, many dealers widen the spread during these times. This increases trading costs and could hurt your bottom line.
You could also get “locked out” which means that your trade could be executed at the right time but may not show up in your trading station for a few minutes. Obviously this is bad for you because you won’t be able to make any adjustments if the trade moves against you!
Imagine thinking you didn’t get triggered, so you try to enter at market… then you realize that your original ordered got triggered! You’d be risking twice as much now!
You could also experience slippage. Slippage occurs when you wish to enter the market at a certain price, but due to the extreme volatility during these events, you actually get filled at a far different price.
Profitable as it may be, trading the news isn’t as easy as beating Pipcrawler on Call of Duty. It will take tons of practice, practice and you guessed it… more practice! Most importantly, you must ALWAYS have a plan in place. In the following lessons, we’ll give you some tips on how to trade news reports.