Currency Exchange Reports: 3 Traps To Avoid

Foreign exchange news could be a good basis for day trading and forex scalping techniques, but there are some problems that you need to avoid. It is all too easy to get besieged in a losing position when trading round the time of currency exchange news announcements. Here are 3 possible Problems to keep a look out for.  

1. Spread

Spread can be the bane of the forex trader. It is hard enough to maintain a profit on short term trades with a regular spread cutting into every one, but round the time of news reports the situation gets worse. Many brokers will increase spreads thanks to the uncertainties and the low volume of trading around that time. In a number of cases brokers will not implement new trades in any way.

So when planning trading round the time of stories releases, it's important to consider the likely higher spread, as well as checking that your broker will honour your trades. Some brokers will guarantee this, but the spread is still likely to be anything up to five times the standard level.

2. Slippage

Slippage is the difference between the price that you saw on your screen and the price that you really get. In standard circumstances a trader might expect to get the price that he clicked on, though this can vary from broker to broker. Some have a rep for unpleasant slippage even at steady times. However , when there's a foreign-exchange stories announcement, the costs will be moving so fast that slippage is extremely likely and can be large enough to cut into profits in a big style.

3. Effect Of Expectations

When trading on the foundation of foreign exchange stories, it is vital to take into account the prior expectancies in the market. To take a straightforward example, imagine the US GDP ( gross domestic product ) is preparing to be declared. Most commonly, if the US GDP is high, the US buck will strengthen. So a trader who is expecting the news to report a rise in the GDP might invest in the dollar just before the news is due to break.

However, it might be the market was expecting a high GDP to be reported and therefore some of the rise in price had already occurred in the days leading in to the announcement. If the report is as anticipated, there won't necessarily be any further improvement in the value of the greenback. Worse, if the GDP is up but not to the limit that was predicted, the greenback could really fall following the statement.

So a short term trade right around news releases will only pay off if the figures announced are significantly different from what was predicted. Therefore it is clearly crucial for a trader day trader operating around forex news reports to take account of the expectancy in the market, as well as the likely figures to be released.

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This entry was posted on Thursday, January 14th, 2010 at 12:34 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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