I used to be in this business. It’s a good practice to think of everything in terms of probabilities alongside capacity/liquidity. If an all cash merger hits the news, there’s a race lift prevailing offers on the one stock as there is a much better expectation of value due to the news.

Now let’s say there’s negative news on the Chinese economy. Someone could be running an algorithm that sells down companies with Chinese exposure. But, inherently, there likely is a much lower probability that this news is uniform or material across companies with China exposure. A strategy like this likely would get put on small positions and get in and out quickly as it could get run over depending on how humans process the information and make bigger discretionary bets.

There definitely is a risk too all of this. Roughly 10 years ago, somehow an old united Airlines bankruptcy article hit the wire and the stock sold off hard. Eventually, United released a statement saying the article was innacurate. This isn’t typically the type of strategy you would make large, single bets with, or hold the positions over a long period.

There’s two sides to it: you might decide to take a more aggressive position, but you might also use the headlines as a signal to back off (and stop or scale back trading of securities for the affected underlying, at least temporarily).

One tends to carry more serious consequences when you’re wrong. Accordingly, the ‘take’ path generally has more checks, and more opportunities to abort.

>> or you misread the headline, price reverts and you end up with losing position.

Yes, you might misread here or there. But this is a game of statistics and the real win/loss is whether you read correctly more often this read incorrectly. You want your net wins to be positive.