There is a lot of news in the world that can move the currency markets. Fundamental economic news releases often disrupt the short term forex markets and quarterly reports carry more weight than the monthly and weekly news. There are many strategies for news trading used by the currency traders.
The news may shock the currency markets for a while. Sometimes, the results of fundamental economic announcements are surprising. For example, the release of the NFP figures has been moving the EUR/USD currency pair on average 100 pips for the last two years. Just within two minutes of the release of the NFP figures on 8:30 AM EST Friday about half of these pips occur.
Consider this worst case scenario. You are a news trader and immediately sell the EUR/USD currency pair within 2-5 seconds after the release of the NFP figures on Friday. However, buy cvv the EUR/USD has already dropped 30 pips because of the pre news guessers who are anticipating a bad news and want to close their open positions.
Your forex broker gets thousands of sell orders just like yours almost at the same moment. It will take your broker a few seconds to execute these orders. Meantime, the EUR/USD pair falls another 15 pips while you wait for your order to be executed.
As no traders are placing the buy orders, the volatility is extreme to the downside. The broker widens the pips from 3 to 12. The moment your order hits the market, you are already at a 12 pips loss. You are also 45 pips away from where you thought the market would be.
All of a sudden, the EUR/USD pair starts to pull back. But you have already pulled your trigger and entered the EUR/USD sell order. Now you are at a loss of 55 pips and you exit your trade to cut your losses. You are angry and you want to blame the broker. But you can’t blame the broker.
You had to sign an agreement when you opened your trading account. You should have read the agreement you made with the forex broker when opening the account. There will surely be a clause in it that says that the broker does not guarantee order execution at times of high volatility.
Do news traders always end up like this? Not always. But most can and do end up behaving this way quite often. This usually depends on the importance or surprise results of the economic announcement.
So you need to develop a survival strategy. Do all that not to lose money. This survival strategy calls for the preservation of your capital at all cost while at the same time giving you maximum pips if you really want to trade the news.