As a general rule, Apiary discourages trading during scheduled news events for several reasons.
- Spreads widen. The cost of trading in the form of spreads increases during news events due to the expectation of volatility and risk. Liquidity providers will widen the spread to mitigate risk.
- Slippage increases. Since it takes time for a quote to be sent from the liquidity provider, received by Alveo and then a trade sent back to the liquidity provider, the chances of slippage increase with the volatility of a news event.
- Whipsaws are more frequent. The initial reaction to a news announcement is not always right and markets can change direction many times before the full meaning of the news is digested.
- Lack of liquidity. Sometimes trades may not trigger due to a lack of liquidity during news events.
- Hardware issues. The volatility and pace of data during news events can put extra strain on your hardware leading to a slowdown in performance or even malfunctions during a news event.
If you choose to trade during news events, you must recognize the challenges associated with this type of trading and be willing to adjust for the probability of increased risk.
Here is a link to a video where Jeff Crystal gives a great explanation of what happens during a certain news event: