Ever been stuck behind someone who barged in front of you, only to then move at a much slower pace and hold everyone up? Perhaps it’s the slowpoke in the overtaking lane, or the old lady who elbows you aside on the subway stairs then shuffles down, one step at a time? Or, perhaps, has your firm ever placed a trade knowing you have the fastest infrastructure, only to get held up by third parties or queues of orders at the execution venue?
The glut of activity that accompanies any event-driven trading strategy creates a crapshoot. Got a unique strategy to exploit opportunities created by the latest jobs report or crops report or some other item of news that might affect the price of a company’s shares or options? So does everybody else. And whatever their strategy, they’re trying to respond to the same event. The result is that everybody piles into the market at the same time.