In a future article, we will see some techniques to trade the fundamental news in Forex. Before going on, you have to take into account the advantages mentioned in previous lessons about news trading but also the risks and disadvantages that I will expose next and that you will be able to experiment frequently when important market news is published. As with any trading technique, news trading can be profitable but risky, especially for novice traders
Increase of Bid-Ask spread
Some brokers can guarantee the execution of your orders during the publication of important news but not the spread, others can guarantee the spread but not the execution, and others may not guarantee either one thing or another and let the market decide what it can offer you. You will see very often how the spread increases considerably (2, 3, 10, or even more pips) moments before and after the publication of economic news or important economic indicator. If you are going to pursue small profits, 10 or 20 pips, this increase in the spread will also increase the chances of your trades ending up with losses.
Freezing in the execution of the orders
Some brokers do not allow the opening of new orders just before the publication of news (some up to 15 or 30 minutes before) and can stop the execution of the orders until the market stabilizes after the news has been published.
You can see this fact in a much more marked way in those brokers that guarantee fixed spreads since the natural spread in the market may have increased and if the broker offers its fixed spread then it will lose money.
During the publication of high-impact news in Forex the market can move really fast in a matter of seconds. If you try to send an order at a certain price in the middle of this high volatility it is very likely that your order ends up being executed at a price very different from what you wanted and it will be a real miracle that the difference between the execution price that you wanted and the price at which your order was finally executed goes in your favor.
The high volatility, sometimes extreme, that occurs in the face of big news can cause the price of a currency pair to move 20, 30, or more pips to both sides of the price chart. This can give you false signals as well as execute pending orders placed previously, sometimes the market can be in your favor and in seconds turn against you.
All these problems can be very difficult to handle even for experienced traders. Now that the problems and the advantages have been mentioned, in the next articles we will describe a few strategies to trade the news, although basic, widely used, and popular.
In this article we explain in detail how to operate with market news: Trading Forex during economic news