Algofxsolution
Algofxsolution.com Representative
- Messages
- 11
Today on 16.12.2015, the FED (US central bank) could raise interest rates for the first time since 2006. Very long time speculation when the FED rise interest rates could be finally done. US economy growth and also unemployment rate are good. That could be reasonable to rate hike and prevent economy overheat. Not everything looks so good, for example inflation which is under 2% target. One of the reason is that wage growth still stagnant. Who could be afraid of interest rates hike? Emerging markets, with no doubt. Their debt has accumulated during low rates and now, together with low prices of commodities, it is a problem. But what effect will have the FED decision on algorithmic trading?
Trading during news release is always risky. Nobody knows what will happen. But it is not so black and white. First of all, market is waiting on this a very long time. This rates decision is not surprising as from SNB (15.1.2015). Reaction should not be so strong. Also comparing to weekend events, this should not lead to big gaps, but we can expect higher volatility and some slippage. This is risk of trading this event.
Should we stopped trading? Not necessary. It depend on approach which you use for algorithmic trading. The worst effect it will have on scalping strategies. They are usually sensitive on spread and slippage. They could also use primarily calm market conditions (it should not be expected). On the other hand, swing trading and Low Frequency Trading approach could benefit on this fundament.
Sure, trades could be slipped, but thanks to bigger stop losses, effect is limited. Fundamentals are usually fuel for moves and winning trades. Step out of every news release is not good for long term trades. That mean very frequently reopening positions and also breaching statistics of strategies which could lead into worse performance. And if there will be only volatility without move, then good. Backtests and statistics will count with that, so “nothing wrong”.
P.S.: Sorry for late publication. FED really raised interest rates. On charts below, you can see tick charts from Dukascopy for EURUSD and XAUUSD. In time of release, EURUSD slipped about 23p and XAUUSD about 1000p. But nothing strong and devastating for Low Frequency Trading approach.
Trading during news release is always risky. Nobody knows what will happen. But it is not so black and white. First of all, market is waiting on this a very long time. This rates decision is not surprising as from SNB (15.1.2015). Reaction should not be so strong. Also comparing to weekend events, this should not lead to big gaps, but we can expect higher volatility and some slippage. This is risk of trading this event.
Should we stopped trading? Not necessary. It depend on approach which you use for algorithmic trading. The worst effect it will have on scalping strategies. They are usually sensitive on spread and slippage. They could also use primarily calm market conditions (it should not be expected). On the other hand, swing trading and Low Frequency Trading approach could benefit on this fundament.
Sure, trades could be slipped, but thanks to bigger stop losses, effect is limited. Fundamentals are usually fuel for moves and winning trades. Step out of every news release is not good for long term trades. That mean very frequently reopening positions and also breaching statistics of strategies which could lead into worse performance. And if there will be only volatility without move, then good. Backtests and statistics will count with that, so “nothing wrong”.
P.S.: Sorry for late publication. FED really raised interest rates. On charts below, you can see tick charts from Dukascopy for EURUSD and XAUUSD. In time of release, EURUSD slipped about 23p and XAUUSD about 1000p. But nothing strong and devastating for Low Frequency Trading approach.
