Brokers for News Trading
Trading on news releases can vastly improve trading strategies. News trading is beneficial to traders who are adding economic announcements to their chart analysis in addition to technical indicators and price action to find potential trading signals. However, trading the news successful not only requires a good news trading strategy, but also a good news trading broker. This is because the markets can be extra volatile around the time of news releases which can cause delayed execution (slippage) and higher spreads. These factors can have an impact on the results of a news trading strategy. Therefore, we will consider what to look for and how to choose a broker for news trading.
What is news trading?
The majority of traders will implement technical analysis and price action analysis when studying the charts for trading signals on their favourite financial instruments. However, this means that many traders are not looking at market fundamentals which can have a significant impact on prices.
Traders can give their strategies that extra edge by studying fundamental analysis such as news releases, earnings reports, changes to interest rates and inflation. These can all help to give an inclination into where price might be heading moving forward.
News trading example
For example, let’s say there was a big news release that was going to impact the EUR/USD currency pair. A news trader might expect the EUR/USD to jump up upon the news release and place a pending order just above the current price prior to the news being released. If they are right and the price does shoot up, they would want their trade executed at the price they placed their order. If price goes in the opposite direction, they might have a stop loss in place to limit the loss.
Whilst that sounds pretty straight forward, there is more to consider when using a news trading strategy. Not only do you have to anticipate in which direction the market might move, you need a reliable broker for news trading.
Using the example above, if the trade was not executed at the desired price, the trade might be entered too late at an unfavourable price. If the trade went against the position and the market was too volatile, the stop loss might even be missed which can be very risky especially if not using a broker with a guaranteed stop loss and negative balance protection.
What to look for in a news trading broker?
There are a few key things to look for in a broker if you are planning on using a news trading strategy. Whilst most brokers will allow you to trade the news, some will make it harder than others. This is not necessarily deliberate to try and prevent you trading the news, it can be due to the market conditions and liuqidity providers.
Liquidity providers in forex are organisations that offer their clients foreign exchange trading services. They connect currency buyers and sellers in order to provide the necessary liquidity to the forex market. The biggest liquidity providers in the forex market are usually prime brokerages, large banks, and other financial institutions.
Generally speaking, the deeper a liquidity pools, the better pricing and execution a broker can provide you with. An ECN broker with 50 different liquidity providers is likely to be able to give you better trading conditions than a market maker broker who only have in house liquidity.
Liquidity providers are essential to news traders because they provide a constant flow of prices that allow them to take advantage of every opportunity without impacting their trading decisions. This results in more opportunities for them and better buy/sell spreads which ultimately means better chance of trading the news successfully.
There are a few different types of broker that you will come across. The main categories are dealing desk brokers and non-dealing desk brokers. If you are using a broker with a dealing desk, there is an intermediary between your trade and the market. This means that there can be a small delay from when you place you trade and when it gets executed. These small discrepancies in price can make a big difference when trading the news as price can move so fast. On the other hand, if you are trading the news using a broker without a dealing desk, your order can get sent straight through to the market at the best available price with minimal delays.
All online brokers will give you a trading platform where you can analyse the markets, place and manage trades. However, there are brokers that take things a step further and can offer direct market access (DMA) along with API connectivity. If you are running demanding news trading strategies, these types of broker can help to ensure that you get the quickest execution speeds and the best available prices at all times, even during major economic news releases. If you are going to be trading the news with large volumes, you might want to consider an institutional brokerage firm.
If you are trading forex news, you will want to look for a broker with low spreads. The spread is the difference between the bid and ask price when you place a trade. Spreads can widen greatly when there is a major news release so keep an eye on them and choose a maximum spread for your strategy. Larger spreads than usual can turn a winning news trading strategy into a losing one. Be wary of brokers with fixed spreads as they will probably have terms and conditions that state spread will not be fixed around volatile market conditions caused by major news releases.
Slippage occurs when an order is filled at a price that is different from the requested price. Slippage can be more than usual when news trading due to the market volatility being high. It can also occur it the market liquidity is low. Delayed order execution can cause trades to get entered at unsuitable prices that a news trader did not expect. If the broker has too much slippage on a consistent basis, it can have a very detrimental impact on results. I find that brokers with more liquidity providers tend to have less slippage.
When you enter or exit a trade, you might need to pay your broker a fee. Commissions can eat into profits if trading the news on a frequent basis. If you opt for a low-cost broker, you can potentially save on fees in the long term. Just keep in mind that although there are zero commission brokers, they might have other fees to compensate for this such as a spread mark-up.
Best news trading brokers
The best news trading brokers should have plenty of liquidity, superior trade execution speeds, tight spreads and low commission fees. In addition to these factors, you will want to consider what financial instruments the broker provides, account types, funding options, regulation and customer support. Please see a selection of our best brokers for news trading in the table below.
ASIC, BaFin, CFTC, DFSA, FCA, FINMA, FMA, FSA, FSCA, JFSA, MAFF, MAS, METI, NFA
News trading pros & cons
- Catch some big market moves
- Give an extra edge to technical strategies
- Lots of major news releases most days
- Plenty of resources for fundamental analysis
- Trade using factual data that is readily available
- Requires ideal broker conditions
- Slippage can cause delayed execution
- Extra market volatility makes it difficult
- Some brokers do not allow news trading
- Tough to test on demo accounts
Conclusion: are news trading brokers important?
Yes, if you are looking to trade the news, you will certainly want to consider using a news trading broker that fits the criteria which we have discussed. This can be the difference between good and bad performance, even when using the exact same news trading strategy. I would be looking for a regulated broker with deep liquidity pools, tight spreads and low commission fees.
Demo accounts can be good to practice other trading strategies but as news trading is so reliant on market volatility, you cannot always replicate news trading conditions on a demo account. Therefore, I might consider trading minimal lot sizes with a micro account to get a better idea on if a broker is good for news trading. However, even then it is not really a fair test as trading large volumes can impact slippage even with the best news trading brokers.
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