News trading is when you wait for news that'll resolve a market and then buy the market all the way up to 100/0. By "actively participate", I don't just mean doing that casually, but investing significant time or effort into it - keeping mental track of a bunch of news-resolving markets and quickly trading on them, writing scripts that buys markets when news comes out that resolves them, checking for news every hour, etc.
Why might be virtuous: It updates markets earlier, it's something else you can compete with people over, if you let other people get free lunch you could get it distorts manifold by weighting their bets above yours
Why it might not be: You're mostly grabbing AMM liquidity that's 'free', rather than competing against other traders. You're not testing forecasting skill, just willingness to do rote activity for M$ or competing on news reaction time. It's not valuable to move a market 3 minutes earlier after news comes out.
1,000Well, I wouldn't call that news trading as such, but rather "event trading". There is news that legitimately moves a market, but not in a way that it can resolve yet. This is separate from something happening that forces a resolution because the significant event has occurred that defines how the market resolves. And at least the former should be considered legitimate. I think called live trading for example in sports events case, while you can bet during the game.
So definitely all news trading isn't even remotely iffy, but the focus should be on the events that force a resolution directly, particularly if the time for them is known in advance. And even there there is a legitimate arguments to be made.
What's your opinion on specifically writing bots to do this kind of thing?