What Happens to Spreads During News

The spread during news in five lines

The spread is the gap between the price you buy at and the price you sell at, and this paper is about what a scheduled release does to it. On a quiet minute the euro's spread is a fraction of a pip, where a pip is the fourth decimal place of the price. At the release it opens wide for seconds to a minute and then closes back, because the banks that quote both prices step back until they can see where the price is going. What it costs follows the width: at one lot a pip on the euro is 10 dollars, so a spread that has gone from a fraction of a pip to 6 pips has gone from about 2 dollars to 60 dollars to cross. The widths in this paper are examples; the real number is on your own screen.

A river whose banks pull apart

Picture a river. The far bank is the ask, the price you buy at; the near bank is the bid, the price you sell at; the water between them is the spread, and you cross it every time you open or close. At 15:28 the river is a stream, a fraction of a pip wide. At 15:30, the release, the banks pull apart, here to 6 pips as an example, thirty times wider, and by 15:32 they are drifting back together. The river does not stay wide; it bulges for the seconds the number is being read and narrows as the banks come back. Every broker's river has its own width, which is why these are examples.

This paper is locked