Cons Higher trade commissions. Deep research library and customer education opportunities. Note the increase in volatility that occurred once the worse-than-expected news was released. The Interactive Brokers Trader Workstation provides a comprehensive list of options trading features and has been compared to the look and feel of a commercial airline cockpit. Times at which various countries release important economic news What Are the Key Releases?
A double one-touch option is the perfect option to trade for news releases because it is a pure non-directional breakout play. As long as the barrier level is breached – even if the price reverses course later – the payout is made.
Best options trading brokers: summary
Some of the products we feature are from partners. We adhere to strict standards of editorial integrity. Some of the products we feature are from our partners. Cons Higher trade commission. High short-term ETF trading fee.
Robust research and tools. Cons No no-transaction-fee mutual funds. Cons Very basic trading platform Limited data and research. Cons Inactivity fees High minimum balance requirement Complex pricing Minimal educational resources. Two platforms with no minimum or fees. Cons Higher trade commissions. Cons High account minimum Trade minimum for active trading platform.
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Top research; two powerful trade platforms. Extensive lineup of investor education options. Good for active traders seeking low costs. Advanced research and tools, speedy execution. Therefore, it is important to keep on top of what the market is focusing on at the moment. According to a study by Martin D. Evans and Richard K. Lyons published in the Journal of International Money and Finance , the market could still be absorbing or reacting to news releases hours, if not days, after they are released.
The study found that the effect on returns generally occurs in the first or second day, but the impact does seem to linger until the fourth day. The impact on the flow of orders, on the other hand, is still very pronounced on the third day and is observable on the fourth day. The most common way to trade news is to look for a period of consolidation ahead of a big number and to just trade the breakout on the back of the number. This can be done on both a short-term basis within one day intraday and a daily basis.
After a weak number in September, the market was holding its breath ahead of the October number, which was to be released to the public in November. Since most major currency pairs are priced to four decimal places, the smallest change is that of the last decimal point. For news traders, this would have provided a great opportunity to put on a breakout trade, especially since the likelihood of a sharp move at this time was extremely high.
We mentioned earlier that trading news is harder than you might think. The primary reason is volatility. This chart shows activity after the same release as the one shown in Figure 2, but on a different time frame to show how difficult trading news releases can be. On November 4, , the market had expected , jobs to be added to the U. This sharp disappointment led to an approximately pip sell-off in the dollar against the euro in the first 25 minutes after the release.
One thing you should keep in mind is that, on the back of a good number, a strong move should also see a strong extension. The answer to capturing a breakout in volatility without having to face the risk of a reversal is to trade FX SPOT options.
A number of different FX brokers offer a variety of exotic options. Exotic options generally have barrier levels and will be profitable or unprofitable based on whether the barrier level is breached. The payout is predetermined and the premium or price of the option is based on the payout.
The following are the most popular types of exotic options to use to trade news releases:. A double one-touch option has two barrier levels. Either one of the levels must be breached prior to expiration in order for the option to become profitable and for the buyer to receive the payout. If neither barrier level is breached prior to expiration, the option expires worthless. A double one-touch option is the perfect option to trade for news releases because it is a pure non-directional breakout play.
A one-touch option only has one barrier level, which generally makes it slightly less expensive than a double one-touch option. This is a good option to buy if you actually have a view on whether the number will be stronger or weaker than the market's consensus forecast. A double no-touch option is the exact opposite of a double one-touch option. This option is great for news traders who think that the economic release will not cause a pronounced breakout in the currency pair and that it will continue to range trade.
FX SPOT options are a viable alternative for those who do not care to get whipsawed in the markets by undue volatility before they actually see the spot price move in their desired direction. If you want to trade news successfully in the FX market, key considerations to keep in mind are knowing which releases are expected when, which ones are most important given current economic conditions and, of course, how to trade based on this market-moving data. A variety of exotic options are available for traders who want to capture a breakout in volatility without having to face the risk of a reversal.
Do your research and stay on top of economic news and you could reap the rewards. These are the eight major currencies: New Zealand dollar NZD And here is just a sample of some of the more liquid derivatives based on the currencies above: When Are News Releases Issued?
Canada CAD 7 to 8: GBP 2 to 4:
Which Currencies Should Be Your Focus?
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