Volatility around news

You can describe what happens to prices, spreads and order fills in the minutes around a major release, and plan around it.

One minute, one huge candle

On a one-minute chart, the twenty minutes before a major release often look almost flat. Candles are tiny, and the price drifts a pip or two at a time.

Then the number arrives. A single candle can cover more ground than the whole hour before it. For anyone holding a position, those seconds decide much more than the price: they decide whether orders fill where planned. This lesson looks at what happens, and how to prepare.

18 pips of slippage

The fictional one-minute chart shows EUR/USD around a US release:

For twenty minutes, the price moves in a range of a few pips around 1.0847.
At the release, candle 21 falls from 1.0849 to 1.0798, a range of 52 pips in one minute.
A trader holding a long position had a stop order at 1.0830. Once triggered, a stop becomes a market order and fills at the next available price. Here that was 1.0812, 18 pips lower. This difference is called slippage.
One minute later, the price swings back up to 1.0821. The fast move did not even last.

Why does this happen? Liquidity providers, the banks and market makers who continuously quote prices, do not want to be caught on the wrong side of a surprise. Just before a release they widen their quotes or pull them. The spread between bid and ask widens, and the order book thins out. When the number arrives, few orders stand between the old price and the new one.

Wide spreads, fast prices

The pattern is well documented. In a study of the US Treasury market, Fleming and Remolona (1999) found that prices adjusted sharply and almost immediately to announcements, while spreads widened dramatically at the release and stayed somewhat wide during a longer phase of heavy trading. Andersen, Bollerslev, Diebold and Vega (2003) found that exchange rates jump quickly in response to announcement surprises.

Practical consequences:

Stops can slip. A stop limits a loss in calm markets. Around releases, the actual exit can be much worse.
Costs rise. A wider spread means paying more to enter or exit.
First moves can reverse. Prices often swing in both directions while the market digests the details.

Many traders therefore decide ahead of the calendar: close or reduce positions before high-impact releases, or accept that a stop may fill well beyond its level.

Common mistakes

Treating a stop as an exact exit. In a fast market it fills at the next available price.
Trading the first second. Spreads are widest and prices most erratic right at the release.
Ignoring the calendar. Many sudden losses happen on release days that were known in advance.
Sizing positions for calm markets only. Plan the size for the move that a surprise can cause.

The takeaway

Around big releases, prices jump, spreads widen and stops can fill far from their level. Decide before the release whether to be in or out.

Check yourself

Quick quiz

4 questions. Instant feedback, nothing is saved.

1Tap the candle in which the release hit the market.

Tap the chart.

Candle 21 covers 52 pips in one minute, after twenty minutes of candles only a few pips tall.
2A stop sell order at 1.0830 is filled at 1.0812. What happened?

A stop becomes a market order once triggered. In a fast market, the next available price can be far away.
3Why do spreads widen right before major releases?

Research on the US Treasury market found spreads widening sharply at announcements and narrowing again as trading resumed.
4What is a sensible way to plan for a high-impact release?

The decision belongs in your plan, not in the seconds after the number appears.

of 4 correct.

Sources

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