pool adsTrading the FOMC Decision with ProShares Ultra QQQ (ETF) (NYSEARCA:QLD)
Although it is very tempting, given the market's volatility afterwards, trading on the heels of a FOMC decision is often very treacherous. The spread between the bids and asks of even the most liquid securities widen significantly, and where the spreads might have averaged about a penny in normal conditions, the spreads can widen to as much as 0.20 after FOMC decisions.
A great example of this is ProShares Ultra QQQ (ETF) (NYSEARCA:QLD).
The spreads in this NASDAQ ETF are typically very tight, but after FOMC decisions, today being a great example, the spreads widened considerably. Initially, the spreads leaped to 0.20, but they settled back into a range of about 10 or 15¢ thereafter, not getting beyond 20¢ again.
Still, that spread is massive.
They spread that wide because large bets get made, often on both sides of the fence, and general market activity surges, and in environments like that the ones who benefit most are the market makers. The ones who tend to have the most difficult time of it are smaller traders who might often find themselves buying a stock or ETF at a price that is 10 or 20¢ higher than where they could sell it if they decided to turn around and do so.
In every respect, trading on the heels of the FOMC decision is gambling. Sometimes gambling works, and sometimes it doesn't, but when the spread risk increases like it has today and like it usually does after FOMC decisions the best decision individual investors can make is often to just step away and let the noise, the news, and the reactions get digested.
Evidence of that happening will come in the form of tighter spreads. When the spreads for QLD, for example, get back to a penny or so we will know that the news has been digested. Until that happens, however, the risks to individual traders who are attempting to trade on the heels of the FOMC decision will remain extremely high.
As a result, the best decision is often to make no decision until the news is properly digested.
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