The following is a guest editorial courtesy of Aggelos Armenatzoglou, Head of Dealing at leading online broker Deriv.

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In the world of trading, there’s a dangerous paradox I see play out every single day. Traders chase volatility, but they never respect liquidity. This creates a fundamentally dangerous misconception in how they behave.

Experienced traders know to stay flat during the daily rollover. They know that as liquidity drains from the market between the New York close and Tokyo open, execution becomes a minefield. Yet, these same traders will dive headfirst into the market seconds around a Non-Farm Payrolls (NFP) release, expecting a sharp move but completely ignoring that the same treacherous conditions and costs are at play.

This disconnect appears repeatedly in trading outcomes. It’s a widespread, account-draining mistake rooted in a misunderstanding of the two forces that truly govern execution: liquidity and volatility.

The two pillars of execution: volatility and liquidity

Let’s be clear. These aren’t abstract concepts; they are the tangible factors that determine the price you actually get versus the price you see on the screen.

• Liquidity is the market’s ability to absorb your order without a significant price impact. It’s the depth of the order book. High liquidity means tight spreads and minimal slippage.
• Volatility is the magnitude of price movement. High volatility is what creates opportunity, but it’s also a warning sign.

Crucially, during moments of market stress, they are almost always inversely correlated. As volatility explodes, liquidity evaporates. This is where the real cost of trading is found.

A tale of two events: The data doesn’t lie

Let’s look at what our systems register during these two critical windows.

During the daily rollover, when liquidity is at its thinnest, it’s common knowledge that execution is poor. We regularly see spreads on major pairs like EUR/USD blow out from a typical 0.05 pips to 1.0 pips or more. That’s a 20x increase. Most traders see this and instinctively step away. They understand the risk.

Now, consider a major news release like the U.S. NFP. The market anticipates a massive price swing. Traders see volatility and prepare to jump in. What they fail to account for is the ‘liquidity vacuum’. In the seconds before and the minutes after the release, liquidity providers pull their quotes to manage their own risk. The order book becomes incredibly thin.

The result? Spreads widen dramatically, often 5x to 10x their normal levels. A 100-pip move might look profitable on a chart, but if it costs you 5 pips in spread and another 5 pips in slippage just to get in and out, your potential profit has been slashed by 10%. This is not a trivial cost; it’s the difference between a winning and a losing strategy over time.

Traders expect the sharp move but fail to price in the brutal cost of execution during that window. They avoid the predictable 20x spread widening at rollover but willingly expose themselves to a 10x widening during news, lured by the siren song of volatility.

An industry failure: It’s time for real accountability

The industry is partly to blame for this paradox. For too long, we’ve marketed “razor-thin spreads” and “24/7 markets” without providing the necessary context. This isn’t just a marketing failure; it’s a failure of accountability.

True responsibility goes beyond just transparency. It requires brokers to take an active role in managing liquidity for their clients. For instance, instead of simply accepting market conditions as they are, it’s possible to identify predictable windows of superior liquidity. By analysing institutional flows, brokers can pinpoint times such as the overlap between the late Asian and early European sessions to identify spread advantage hours.

This directly translates into better, more consistent execution for the client.

This is where AI and machine learning can be genuinely useful. Not as a “black box” that promises to predict the market, but as a transparency tool.

Well-designed AI can analyse historical volatility patterns, and fill quality in real-time to generate a predictive execution score. It can advise traders when conditions are deteriorating and when they are improving. The key is transparency: we must be clear that such a tool is optimising for execution quality, not for price direction.

The takeaway: Trade like a professional

Thinking like a professional trader isn’t just about predicting where the market will go; it’s about understanding the cost of getting there. Long-term investors can afford to ignore intraday noise, but for anyone concerned with the price they get today, timing is paramount.

Before you place your next trade around a major event, don’t just ask, “Where will the price go?” Ask, “What will it cost me to make that move?”

The market is always open, but it is not always equal. Plan for rush hour, respect the storm, and understand that sometimes the most profitable trade is the one you don’t take.