Prop trading is a new way of trading that provides traders with more ways to take advantage of the financial market. Without any barrier, traders can trade and earn a lot of profit. Most of the traders who trade through prop firms must know about news trading. Some traders even prefer it and others avoid it due to their preferences. But one thing’s for sure it can be incredibly profitable if you know what you’re doing. That said, it’s not as simple as just jumping in when big headlines hit. There are some rules, risks, and strategies you need to understand. If you want to know all about news trading then let’s discuss it in detail so you can decide whether news trading with a prop firm is right for you.
What Is News Trading?
News trading is exactly what it sounds like—trading based on market-moving news events. This could be economic reports like Non-Farm Payrolls or CPI, central bank announcements, geopolitical events, or even unexpected headlines like company earnings surprises.
Traders who specialize in news trading try to capitalize on the rapid price movements that occur when fresh information hits the markets. These moves can be explosive and create massive opportunities for quick profits. But the other side? They can also wipe out an account just as fast if you’re not careful.
Why News Trading Appeals to Prop Firm Traders
When trading with a prop firm then you’re using the firm’s capital instead of your own. This opens up opportunities for traders to take on bigger positions than they might otherwise afford. Since news trading can lead to extreme volatility and rapid price swings then having access to more capital can mean larger profits—if you trade well according to your strategy.
Another reason news trading is popular among prop traders is the potential for quick gains. Unlike position or swing trading which can take days or weeks to play out, news trading often delivers results in minutes. If you execute well then you can hit your daily profit target in a matter of seconds.
The Challenges of News Trading with Prop Firms
Before you go all in on news trading, let’s talk about the challenges. Prop firms typically have rules in place to manage risk and many of these rules directly impact news traders.
News Restrictions
A lot of prop firms don’t allow traders to enter positions right before high-impact news events. Why? Because the volatility during these moments can lead to extreme slippage, widened spreads, and unpredictable prices—all of which can be a risk management nightmare.
Some firms completely forbid trading a few minutes before and after major news releases. Others allow it but have restrictions such as requiring wider stop losses or limiting maximum lot sizes. Before you start news trading always check your firm’s rules to avoid violations that could get your account suspended or even banned.
Slippage and Execution Issues
During high-impact news events, the market moves fast and sometimes too fast. Even if you set a stop-loss or take-profit order then your execution might not happen at your desired price due to slippage. This means you could lose more than expected on a bad trade or make less than anticipated on a good one.
Plus, spreads widen significantly during news events. Even a well-timed trade might start out significantly losing money if the spreads for your prop firm rise to uncontrollable levels. It’s crucial to test your broker’s execution speed and spreads during high-volatility periods before relying on news trading as a strategy.
Emotional Stress
News trading isn’t for the faint of heart. The price can spike in both directions within seconds which makes it easy to panic and make irrational decisions. Even experienced traders sometimes struggle with the mental aspect of news trading. If you don’t have a solid plan and emotional discipline then it’s easy to blow up your account in just one or two trades.
Best Strategies for News Trading with a Prop Firm
If you’re still interested in tackling news trading then you need to have a solid plan. Here are some of the most effective approaches:
The Straddle Strategy
This is a common news trading strategy where you place both a buy-stop and a sell-stop order just before a major news event. If the price moves sharply in one direction then one of your orders will get triggered while the other will get canceled or stopped quickly. The important thing here is proper risk management. You don’t want to risk too much on a single news event, and you need to account for slippage and spread widening.
Waiting for the Initial Spike
Instead of jumping in immediately, some traders wait for the first big move and then trade the retracement. A break usually follows an initial surge caused by news events before the true trend shows. This approach enables more calculated entry and helps one avoid becoming stuck in the first chaos.
Using a Prop Firm-Friendly Broker
Not all prop firms have the same liquidity providers or execution speeds. Some firms provide better conditions for news trading than others. Look for a firm that provides competitive spreads, minimal slippage, and fast execution. If your firm struggles with execution delays during news events then you’re better off avoiding news trading altogether.