Trader Alert: What You Need to Know About Trading a Key News Event

Professional traders are generally prepared for what to expect following a major economic news release or key news event.
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• They expect liquidity to thin
• They expect gaps in market prices to often occur
• They expect bid/offered spreads in quotes to widen
• They expect the market may be volatile until the news is digested and analyzed.

Less experienced traders, on the other hand, may find themselves to be less prepared until they learn the hard way.

• They may expect trading as usual after a news event
• They expect their trades to be executed at the prices they see on their platforms
• They expect their stops to be honored.

In other words, they expect to get their orders executed at prices that may or may not exist no matter what the platform shows or are there for only a fraction of a second. This often leads to complaints about orders not being executed or slippage.

The reality is that by the time a market order hits the online broker’s server, the price may no longer be there. In fact, the price may have moved a considerable distance from that order entry level, leading to what traders term an “awful fill.”

Slippage or not?

Some traders refer to this as slippage, but in reality, it
may simply be a matter of when the order hits a broker’s server when prices are changing at a rapid pace. Whatever the case, brokers do not control the market pricing and base their quotes around what is currently quoted in their liquidity feed.

Believe me, I am not defending brokers and am sure there are more than a handful who take advantage of volatile markets. Rather, it is an effort to educate traders, especially the less experienced ones, about how trading markets work.

No online broker could afford to provide gap insurance in periods of volatility when prices are moving rapidly. Some brokers tried to offer this in the early days of retail online trading, but it was not viable. It is is no longer a common practice and itis unrealistic to expect it.

So, when trading on a news event, just be aware that the executed price of your trade may differ, sometimes significantly, from your order entry price. Take this into account if placing an order during a period of volatility as you might have the right idea and timing but lose money due to the actual executed price.

Jay Meisler, co-founder, global-view.com
jay@localhost