News Trading is a strategy where traders open and close positions in financial markets in response to the release of important economic data, corporate reports, or other significant events. These news events can cause strong price fluctuations, creating opportunities for profit.
Features of News Trading on the Exchange:
High Volatility: News, especially unexpected ones or those that contradict forecasts, can cause sharp changes in asset prices. Volatility significantly increases during this period, attracting traders seeking to profit from rapid market movements.
Quick Order Execution: During news releases, liquidity may decrease, and orders may be executed at prices different from expected, a phenomenon known as “slippage.” To minimize risks, traders need to use fast and reliable trading infrastructure, sometimes including automated trading systems (algorithmic trading).
Risk of Sharp Reversals: Sudden changes in market sentiment can lead to quick trend reversals. For example, an asset’s price may spike on positive news but then quickly fall as traders start taking profits.
Ambiguous Market Reaction: The market’s reaction to news is not always straightforward. For example, good corporate earnings reports may not always lead to stock growth if expectations were even higher. Similarly, negative news may cause a smaller drop than expected if the market already factored in those data.
Trading on Actual vs. Expected Data: A key feature of news trading is that the market reacts not only to the data itself but also to its deviation from expectations. If published data matches forecasts, the reaction may be limited, but if they significantly differ, volatility sharply increases.
Time Frames: News trading usually occurs in the short term. Traders may open positions a few minutes before or after the news release and close them within minutes or hours, depending on how the market reacts.
Use of Stop-Losses: To manage risks during high volatility, traders often set stop-loss orders, which automatically close a position when a certain level of loss is reached. This helps limit potential losses if the market moves against the trader’s position.
Psychological Pressure: News trading requires quick reaction and decision-making under stress. To be successful, it’s important to maintain composure and adhere to a developed strategy, avoiding emotional influence from the market.
Examples of News Affecting the Market:
Economic Indicators: Data on GDP, inflation, unemployment, interest rates.
Corporate Reports: Quarterly or annual financial reports of companies, management changes.
Geopolitical Events: Elections, conflicts, sanctions.
Central Bank Decisions: Changes in key interest rates, quantitative easing, or tightening programs.
