Description: We take a quick look at the advantages and disadvantages of currency news trading.
There are two major methods for engaging in currency trading. The first is what is referred to as technical currency trading, while the second is referred to as fundamental currency trading.
With technical currency trading, the trader focuses on what is happening in front of him on his charts, but the fundamental traders make trading decisions based on events happening all across the globe. There is a school of thought that says only fundamental traders make money from trading. We will take a look at the pros and cons of currency news trading.
Advantages of currency news trading
- The very first advantage of currency news trading is that people who trade in this manner only have to be in the market at certain times of the day. This lets them go about their daily activities and then come online when a news release has been scheduled.
- Currency trading in this manner ensures that traders get to enter the market at the point when it is the most volatile, thereby avoiding ranging markets.
- It is often very easy to interpret forex related news, as the general consensus is to place a buy order when the news release favours the currency you are watching and sell when the news release is bad for the currency.
Disadvantages of currency news trading
- The volatile and sharp-moving market conditions at this point has been known to be the second biggest cause of margin calls for many traders. At these release times, the market moves heavily from one direction to the other in just a few seconds. This leads to crashed accounts as it is nearly impossible to enter a suitable stop loss at these periods.
- When you try to trade at this time, you will be left at the mercy of the brokers. There are the huge slippages often witnessed to worry about and you equally have to face the widened spreads when there is no slippage. You may not even get to enter a trade as some brokers freeze their trading platforms at this point.
- Analysis in currency trading is most of the time far from straightforward. There are certain situations where the AUD for example will continue to gain strength even in the face of negative news. Later on, analysts will have an excuse for what happened but during the time it happened, traders would have already lost money.
- The markets don’t always move after a release. This often happens when the numbers didn’t fall beyond or above market expectations. If this happens regularly in a month, the trader will find himself with very few trading opportunities at the end of the month.
- The market rarely moves beyond 50pips, especially when the release is not a rate statement or the employment numbers from the US. This makes traders trade with heavy lots in hope of maximising returns, often leading to crashed accounts. Compare this with a technical analyst that could make 100-200pips on one analysis.
With this, you can see that currency news trading is not a walk in the park, even though it has its positives. If you must trade in this manner, devote some time to practicing it extensively.