What is trading on data (news trading)

Trading on data is a strategy of taking the appropriate position in response to macroeconomic events, thus hoping that they will have a significant impact on the price of a given instrument and allow the investor to make a quick profit. In practice, it simply means buying a given asset at the moment of the announcement of information that may, in the investor’s opinion, positively affect the price of the asset in the future.

 

Does trading on data pay off?

Already logically judging, trading on data can pay off. With access to new information, we can more easily predict the price direction of an asset in the future. The strategy of trading on data is successfully used by major investment funds. However, from the point of view of an individual investor, trading on data has several significant disadvantages.

What are the disadvantages of trading on data?

One disadvantage from the point of view of the average investor is that we are actually “trading” news that is no longer really news. The information we have acquired will certainly get at least fractions of a second sooner to an investment fund and will be able to analyze and use it faster. In order to be able to react as quickly as possible, fund headquarters are located on Wall Street so as not to waste even the fractions of milliseconds necessary for data transmission. We, therefore, by entering into a transaction, are already buying an asset, the price of which includes news.

Why is trading on data complicated?

Another problem may be that we are not quite able to predict the reactions of other investors to a given piece of information – something that is a positive sign for us may turn out to be bad news for others. In practice, when using trading on data, we try to empathize with other investors and deal with psychology – trying to predict the behavior of other market participants.

Trading on data vs. insider trading

One particular type of trading on data is insider trading. This is, in practice, insider trading. This type of trading gives a great advantage to market participants who engage in it – for this reason, however, it is illegal and its use in various countries is even punishable by imprisonment.