In the proprietary trading environment, compliance with rules and risk management are always top priorities. One of the important regulations is news trading restrictions, which limit trading around important economic news. Today’s article from PF Insight will provide an overview of the concept of news trading and strategies to help proprietary traders take advantage of opportunities while ensuring safety.
What are news trading restrictions?
News trading restrictions are rules or restrictions imposed by exchanges, brokerage firms or other financial institutions to manage trading during significant economic news events. These restrictions are intended to protect the firm’s capital and ensure that traders do not violate capital discipline.
News trading restrictions often appear in the following cases:
- When important economic news is released, such as CPI inflation, interest rate decisions or non-farm payrolls.
- Volatile Period: When prices fluctuate strongly and rapidly.
- The goal of protecting traders and brokers is to minimize the significant risks caused by unforeseen fluctuations.
Why do exchanges place trading restrictions on news?
Brokerages or exchanges apply news trading restrictions for several important reasons:
Reduce the risk of sudden fluctuations
Important economic news, such as inflation data, interest rate decisions, or employment reports, often cause sharp fluctuations in a matter of minutes. In addition to causing unusually wide spreads, this can lead to large spreads. To minimize risk and protect the capital of both traders and brokers, news trading restrictions are in place.
Protect liquidity and stabilize the market
The market is susceptible to illiquidity when many traders place orders at the same time when important news is released. This leads to unusual fluctuations, widening price gaps and high risk of slippage. Exchanges can maintain market stability, reduce liquidity pressure and protect investor interests by applying trading restrictions.
Compliance with legal regulations
Financial regulators in many countries enforce strict laws to protect the interests of customers, especially during major economic events that can lead to large fluctuations. As a result, exchanges are forced to adopt risk control measures and implement news trading restrictions. In addition to protecting the safety of traders, compliance also helps exchanges operate more legally, transparently and reliably.
Trading performance evaluation
Before funding a trader, most proprietary firms use an evaluation process. Profits or losses incurred are more likely to be the result of luck than actual skill if a trader opens positions with excessive risk in the context of news. Therefore, applying news trading restrictions allows firms to evaluate a trader’s skill more objectively and fairly, while maintaining professionalism throughout the evaluation process.
Common types of news trading restrictions in prop trading
Proprietary traders can create effective strategies by being aware of the different types of news trading restrictions.
Limit on order form
Only market orders are allowed during news periods, and some proprietary trading firms will temporarily disable pending orders. This measure is intended to reduce the risk of sudden price fluctuations since pending orders can be triggered at unexpected prices, leading to high slippage and reducing the fairness of trader performance evaluation.
Limit the size of the transaction order
The maximum number of lots a trader can open during a news release is often limited by proprietary brokerage firms. This reduces the possibility of large orders causing volatility and large capital losses for the firm. Additionally, it encourages traders to prioritize risk management over chasing quick profits.
Margin call
In order to maintain capital safety, many proprietary trading firms often apply higher margin requirements during major news events. For example, during news releases, the margin required by the market may increase by 5-10%. Increasing the margin ratio helps reduce the possibility of unexpected losses, limit excessive volume trading, and protect the financial stability of the firm.
Trading suspension
Proprietary brokers may proactively suspend trading on certain sensitive currency pairs, or even entire markets, when market volatility is high due to important news. This is done to reduce the risk of unexpected price movements when spreads widen or liquidity dries up. By maintaining system stability, halting trading helps protect both trader and firm assets.
News trading strategy in prop trading
Proprietary traders can still take advantage of news opportunities while staying within the rules by using the following strategies:
Pre news trading
Combining technical analysis with strict risk management is a safe approach when implementing news trading restrictions in prop trading. To understand the overall market and identify important support and resistance levels, traders should first consider the long-term trend. If the market is volatile, only place orders with small volumes to minimize losses. Setting accurate take profit and stop loss levels is also important to manage risk and preserve profits.
Post news trading
Waiting patiently for the market to calm down after the initial volatility, which usually takes 15 to 30 minutes, is a safe strategy for news trading restrictions in proprietary trading. During this time, most of the volatility will subside and signals will become clearer. Then, using breakout or retracement patterns at key price points, the trader can look for entry opportunities. When the price is very volatile, it is best to avoid trying to “catch a falling knife” as the risk of losing money will be greater than the potential profit.
Use risk control tools
The top priority in news trading restrictions at prop trading should always be risk management. Stop-loss orders should be placed to protect the account and minimize losses in case of unexpected market reversals. To avoid losing current profits due to unrealistic expectations, traders should also place take-profit orders at reasonable levels based on actual volatility. Furthermore, it is important to adhere to the order volume limits of the prop trading company to avoid violating capital management regulations and maintain sustainability throughout the trading process.
Take advantage of additional tools
Traders should take advantage of the necessary support tools to trade news effectively in proprietary trading. You can proactively prepare your strategy by using the Economic calendar to know when important news announcements, such as non-farm payrolls, interest rate decisions or CPI reports, will take place. Additionally, news alerts will give you advance notice, helping you avoid missing opportunities or being surprised by sudden changes. Furthermore, using volatility indicators helps determine appropriate order sizes and entry points, improving trading efficiency and assisting in assessing risk levels.
Useful tips for prop trading traders
Proprietary firms must implement news trading restrictions clearly and consistently to be successful. At the same time, traders must adhere to strict regulations, integrate risk management, and adjust strategies to adapt to market fluctuations. Here are some helpful tips for proprietary traders:
Understand company regulations
Each prop firm’s regulations are different, especially regarding order volume restrictions and news trading. To minimize risk, some firms prohibit trading during news hours, while others allow it but apply stricter margin requirements. In addition, order volume limits are also adjusted according to each firm’s policies to protect capital. Therefore, traders need to carefully read the regulations of the prop firm they participate in to avoid violations and optimize trading performance.
Prepare a clear strategy
Careful planning before news releases is an important step in implementing news trading restrictions in proprietary trading. Traders should avoid placing large, high-risk orders by clearly defining the order volume according to the proprietary trading company’s regulations. At the same time, when prices fluctuate strongly, it is necessary to set up stop-loss orders to limit losses and lock in profits at a reasonable level. Traders can be proactive, avoid making hasty decisions and maintain discipline in all market conditions by setting these parameters in advance.
Avoid overtrading
Overtrading in the hope of making quick profits from high volatility is a common mistake made by many traders during news periods. However, since the market can reverse suddenly and lead to significant losses, this strategy is often riskier. Traders should seize obvious opportunities, stick to their plans, and monitor their risks carefully rather than trying to squeeze profits from news waves. In the long run, avoiding overtrading will maintain stability and discipline, and help preserve capital.
Strict capital management
The key to long-term security when trading news with brokerage firms is strict capital management. Because large fluctuations can wipe out an account in a matter of seconds, traders should never invest all their money in a single trade. To minimize risk, they should use a small amount of capital for each trade and allocate it appropriately. They should also adhere to the trading volume limits set by the company and incorporate stop-loss orders. This strategy helps to keep trading sustainable, creates opportunities for recovery, and helps to preserve capital.
Practice on demo account
Practicing on a demo account is one of the safest and most effective ways to prepare for news trading restrictions in proprietary trading. Traders can test strategies in this simulated environment without risking real money. Through practice, traders can observe how the market reacts to important news events such as inflation reports, interest rate decisions, and non-farm payrolls. This process improves their ability to evaluate, react, and control orders in highly unusual situations. This makes traders more confident and disciplined when trading in real life.
Conclude
Adherence to news trading restrictions is not only a mandatory requirement for proprietary trading, but also essential for maintaining trading discipline and protecting capital. Although this restriction may reduce the opportunity to profit from news volatility, professional traders will know how to adjust, build a safe strategy and manage risk effectively.
Successful proprietary traders are aware of limitations, comply with regulations, and strategically seize opportunities. Combining your understanding of the markets, the economic calendar, support resources, and money management techniques will help you maximize your trading performance while protecting your proprietary trading account.