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How Forex Brokers React to News?

October 26, 2015 by

Three quarters of this blog’s readers follow Forex news to some degree. I assume that some part of them is actively engaged in news trading . (By the way, we have a strategy description for trading the important news.) Brokers that execute trades during the high-impact news releases have to deal with abnormally high volatility, which results in certain problems for the order execution process.

Forex News Trading Can Be Dangerous

  • Spread widening is a simple way for a broker to deal with an increased volatility and low liquidity. By offering Bid/Ask prices below and above the normal levels, the company protects itself from traders opening positions at non-market level. It is easy to work around the widened spreads unless they are too wide — you simply have to adjust the stop-loss and take-profit levels accordingly. Of course, scalping becomes even more risky during widened spreads.
  • Slippage is a common response to price gaps. During macroeconomic news releases that move currency rates within seconds or even milliseconds, the gap between ticks or bars appears on your chart. Entry, stop-loss, or take-profit executed at a price disadvantage produces direct loss to a trader. Traders bypass the price slippage by entering the trade before the news is released and by exiting the trade when the volatility calms down.
  • Requotes happen when an FX broker is operating the instant execution model and the price slippage exceeds the maximum deviation allowed by the trader. Requotes can be frustrating as they prevent traders from executing a trade, but they also provide the chance to get a guaranteed price and to avoid opening position at an unplanned rate.
  • Disabled trading is a less common brokers’ reaction to the important news releases, but it still happens with some of them. On the one hand, it seems a fair solution — a broker protects itself from non-market price executions and its customers from the problems listed above. The broker saves its reputation, its traders save their money from the potential loss at a cost of the potential news trading profit. On the other hand, disabled trading will trap traders with existing positions endangering their accounts.
  • No connection is the last thing a trader wants to see when engaging in news trading. There is no way to enter or exit a trade. It is not even possible to see how the price action develops. Fortunately, few brokers apply such harsh means to news traders. If yours does, I would advise finding a new one.

The broker that I use for occasional news trading (EXNESS, ECN account) increases the spreads by a factor of 3–5. It increases the probability of my stop-loss being hit but, otherwise, there is no interference with my trading strategy, which can be carried out smoothly.

How does your broker react to high-impact news releases?

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If you want to tell us more about how your broker handles trading during important economic news releases, please feel free to do so using the form below.

3 Responses to “How Forex Brokers React to News?”

  1. Shahid

    For a novice Forex trader what is most important to have a good broker or to have a good Forex trading software ?

    Reply

    Andriy Moraru Reply:

    Why not both? Especially, considering the fact that the kind of trading software you get depends on the broker you are working with.

    Reply

  2. Brian

    Slippage occurs so often and is so large, that it discourages one from trading the news.

    Reply

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