News trading
Family VII · Market & styles
Not to be confused with slippage during news, high impact news, sell the news.
News trading is an approach in which positions are opened or closed in response to scheduled economic releases, central-bank statements, earnings announcements or unscheduled headlines. The trader is not forecasting the content of the news but attempting to capture the volatility it produces. Because prices can move several multiples of the normal range within seconds, execution quality and risk control matter more than the direction called.
How news trading is executed
Most news traders work around a published calendar of events: interest-rate decisions, inflation and employment reports, GDP releases and similar data. Two broad styles exist.
- Directional: take a position before the release, or immediately after it, based on the number versus consensus.
- Volatility: trade the range expansion itself, often with straddle orders placed on both sides of the pre-release price.
Both styles face the same structural problem: liquidity thins in the seconds around a release, spreads widen, and the price available on execution can differ sharply from the price displayed before the event. That gap is slippage during news, and it is the main reason reported results from news strategies diverge from theoretical ones.
Worked example
The position is correct in direction, but the entry is 15 pips worse than planned. On a 30-pip target, that slippage consumes half the intended profit before any other cost.
Risk characteristics
News trading concentrates risk into short windows. Relevant factors include:
- Gap risk: a price can jump past a stop level, so the realised loss exceeds the amount set on the order.
- Spread widening: quoted spreads often multiply during a release, and the amount varies by instrument, venue and broker.
- Latency: the speed of data feed, order routing and matching determines whether a resting order is filled near its level or far from it.
- Event risk: unscheduled headlines can arrive when no stop is in place, or when the market is closed.
Position sizing for news events is therefore usually smaller than for ordinary directional trades, and some participants avoid holding through major releases altogether.
Often confused with
- slippage during news
- Slippage during news is the execution shortfall between the intended and filled price around a release, whereas news trading is the strategy of taking positions around that release; the visible sign is that slippage during news is measured in pips or points, while news trading is described by entry timing and direction.
- high impact news
- High impact news refers to scheduled economic or geopolitical releases that regularly cause outsized price moves and volatility spikes across multiple asset classes, such as central bank rate decisions, CPI reports, and non-farm payrolls.
- sell the news
- "Sell the news" is a market reaction in which an asset declines after a widely anticipated positive event becomes public, because positioning ahead of the event already reflected the expected outcome.