A Short History of News Trading

I’ve been thinking about a post by the FX guru Tom Yeomans entitled “Is news trading dead?” In a tremendously interesting and informative post Tom documents his experience in news trading as:

• 2003-4 Straddling – Traders would place an order 15 pips above and below current price 30 seconds prior to the release of an important economic report. No matter where price went, the trader would profit. Straddling worked well and brokers guaranteed fulfillment of the order.
• Whiplashing the Straddlers - My understanding is that in response to straddling, brokers increased spreads and took the waiting orders, then decreased the spread and filled the waiting orders, triggering stops all over the place seconds prior to the report being released. That move (called a whiplash) ended straddling.
• Tick trading - This trading exploited the delays in updating currency pairs.
• Delayed correlation signals – using the correlation of the USDCAD against the EURUSD to give entry and exit signals. Tom still uses the correlations but not the same way since the correlations are not as useful.
• News trading – Quote from “Is news trading dead?”: “When I first began trading economic numbers, I did it with B’berg on the web and constantly refreshing my browser or searching around for a feed that gave me them fairly quickly. I usually had a few minutes to place my trade, have it accepted, and then a few sips of coffee before it began to move. That was on the EURUSD in 2006. It often took up to 20 minutes before the UK based reports moved the market. I am dead serious.”
• News Arbitrage - Summer 2006 - thousands of people, faster entry, special brokers, and software began to scalp the market immediately after a report. As a result the spreads have widened prior to big reports. Mr. Yeomans might be somewhat responsible for this as he has been successfully training people to trade the news for some time.
• Wait and see – Tom now sets his triggers higher knowing that noise created by people jumping in and out during the first minute creates chaos. These days, Tom waits to see confirmation of the move in a clear, sustained direction. By waiting an extra minute or so to see the move going in the correct direction means that he can execute his trade when the spreads have dropped back to normal. The idea is to still base the trade on the economic numbers and results, but to increase the lot size of the trade while forfeiting the early gains of the move. By placing larger bets he hopes to get the same payoff as before news trading became so popular.

Tom has adapted to market conditions and continues to do so. Next I’ll discuss Tom’s view of the future of FX news trading and how I think it can be realized.