Broker to Trading

It is possible to trade the news at a dealing desk broker. The time around a major news release can be a time of amplified volatility in the markets, however. So brokers, even with fixed spreads, may widen spreads considerably around release. This can make trading into the news problematic, as it means that the trader can potentially start with a significant deficit to make up, if the order goes through, as the cost of the trade is based on the spread (other fees may apply).

Spreads and news trading

Some brokers do not change their fixed spreads, but here problems may emerge for those who trade into the news if the broker does not actually support this type of trading. However there is always the time before release and after, but again, spreads can widen at these times as well at both fixed and variable spread brokers. In general variable spreads widen in volatile market conditions (such as news events) and why this happens is related to such factors as liquidity. Fixed spreads may widen in volatile market conditions, however if they do they stay fixed, there may be issues in placing the order.

One possibility is to use a broker which does not have any restrictions on trading styles, and in particular one which bypasses the dealing desk and looks for the best prices, such as what is termed an ECN broker. It should be noted that even though ECN spreads can be very low (and may have a low average spread), there is normally a fixed commission charged, and spreads can also widen to some extent especially around news events.

Some brokers offer an STP account either instead of or in addition to ECN accounts which tend not to charge commissions but have features associated with ECN accounts. In these accounts, spreads will tend to be higher as they include the mark up which the ECN account does not, rather charges a commission. It should be noted that some brokers do not use the term ECN any more. This is for a number of reasons, however many brokers still do and this site looks for features associated with ECN accounts rather than focusing on the term itself.

The commissions in the table above are per lot per side and at some brokers can vary depending on volume traded. The minimum deposit is for the ECN account types at the broker (there may be different minimum deposits for other account types at some brokers).

ECN and news trading

Ideally a news trade should be executed fast at the best possible price. When trading with a dealing desk broker, the trade may not be fast enough, there may be liquidity issues in placing an order and in all events the order has to clear the dealing desk, creating potential hurdles for some kinds of news trading. An ECN broker on the other hand, can in theory process orders fast, at the best possible price from the increased set of prices it receives, without dealing desk intervention.

Some ECN brokers aim to provide rapid order processing by locating their trading servers in data centres and using technology such as fibre optical cables. To actually make the news trade, the trader can use the online trading platform provided, and the table above lists the platforms offered by each broker, all of which can be used by news traders.

Before, during and after release

This article has mentioned that there can be different phases to trading the news (typically this news is economic data related to the currency pair, in the case of Forex). Trading the news is based around trading on a known factor (that the data will be released at a certain time) but with a range of unknown factors, such as what the value of the data will be and how the market will respond. The trader can speculate on what the data will be and the way the market will respond, with the caveat that these speculations can be wrong. However the market may show different types of behavior to news releases, if the market is considered before and after news release, as well as at release.

Before the release of the potentially market moving news is a relatively flexible time frame, as major news releases can see 'pricing in' action for an extended period up to release. This can produce trends. However as the release approaches, then increased volatility may be seen. The more immediate time frame before release can be quite volatile, but still with trends perhaps visible on shorter time frames. Closer to release, there may be a quiet time, but there can also be very strong volatility.

The time of release can see the actual data being digested by the market very rapidly. Thus a very strong move may be seen up or down, especially if there has been a significant deviation from the expected value of the data and the real value of the data. However this move can rapidly change and oscillate in a very short time frame. Even if there has been a deviation, oscillation can happen, as the market deals rapidly with broader consequences of the data. Sometimes the result has been priced in to the extent that the market does not react that strongly (for example if there has not been a significant deviation from the expected and real value).

The time after release is also a flexible time frame, as it can cover the more immediate time after release, which may show moves counter to the original move at release or continuation of the direction of the move, and the next sessions where the market may show renewed reactions to the data.

How might the trader approach news trading

One way to approach news trading is to examine an Economic Calendar, typically available on the broker's website or from the trading platform. This will show upcoming news releases normally with affected markets and expected values for the data (the actual values may and can be different). Thus the trader can pick a market and trade it on the news. The Forex market is open continuously during the week and therefore will be usually be ready to trade when the release happens, but the trader can choose other markets. As noted above, there are different times to trade the news. The market may behave in an unexpected manner at any time, but around a news release moves can be amplified by volatility.

Are there other ways to news trade ?

In volatile times news can enter the market unannounced and affect markets. The trader can still speculate about whether such news might happen and keep an eye on a market to see if it is reacting. Thus the trader is not trying to find immediate reactions per se, rather looking for changes in the way a market will move in response to significant news.

What if the trader does not want to trade with an ECN broker but wants to trade the news ?

A potential solution for traders who want to news trade but do not want to trade on with an ECN broker, is to trade with Plus500. Plus500 offers a user friendly platform with a relatively wide range of markets to trade (allowing different types of news trading, from Forex to Stocks CFDs). The reason Plus500 is picked is because it offers specific support for news traders, in the shape of an Economic Calendar which is available off the platform (on its website) and offers from the platform data about news events which may affect a particular market to be traded (as information about each market), including past results for the news data, expected (projected) results and then the actual results. The trader may sign up for a demo account below and test out the platform, and try out news trading, before continuing to a live account. The trader may wish to compare news trading later on an ECN broker, but as noted trading the news with a market maker broker is both possible and supported.

Best Broker For News Trading

The news trader may be interested in a pick on this site of 'Best Broker' and the pick is Pepperstone. This is partly because it offers cTrader. This platform is a relatively user friendly with detailed charting. When news trading, the trader may want a platform which is user friendly and fast, as they attempt to narrow down a choice of when to trade and how to trade. More than this, Pepperstone also provides TradingView (through cTrader), which provides another way to view news trading events though charting. Pepperstone also offers MT4 which some traders may prefer using and MT5, the successor to MT4, which is a platform with a number of enhancements on MT4 including potentially more optimised performance.