The risks of trading the news in forex: spreads, slippage and gaps

Trading the news means opening or holding positions at the moment a major economic release or central bank decision is published. The main risks are that spreads widen sharply, liquidity thins, orders and stops are filled at worse prices than requested, and the first move often reverses, so losses can be several times larger than planned. Those risks are why many retail traders deliberately stay out of the market for a few minutes either side of high-impact releases.

None of this means news days are untradeable. It means the costs and the range of outcomes are different from an ordinary hour, and a plan that works at 11am on a quiet Tuesday can behave very differently at 8:30am New York time on the first Friday of the month. This guide explains what changes, why, and what it can cost.

What "trading the news" means in practice

The phrase covers several quite different activities:

• Trading the release itself. Opening a position in the seconds before or after the number is published, aiming to catch the initial move.
• Straddling the release. Placing a buy stop above and a sell stop below the current price before the release, so that whichever way the market breaks, one order is triggered.
• Holding through the release. Keeping a position that was opened earlier for other reasons, with its stop and target still in place, while the data comes out.
• Trading the aftermath. Waiting for the initial volatility to settle, then trading the trend or range that forms in the following hours.

The risks described below are most acute for the first two, significant for the third, and much smaller for the fourth. If you are not sure which releases matter, the economic calendar guide explains how to read impact ratings, and how economic data moves forex explains why particular numbers matter.

Risk 1: spreads widen

In the minutes around a major release, liquidity providers widen the prices they quote or pull them altogether, because they do not want to be filled at a price that is about to become stale. Your broker's spread reflects that. A pair that normally trades at under a pip can show a spread of several pips, sometimes much more, for a short period. The why spreads widen guide covers the mechanics.

Wider spreads matter in three ways:

• Entry costs more. You buy at the ask and sell at the bid, so the gap between them is a cost you pay immediately.
• Stops can be triggered by the spread alone. A long position's stop is triggered by the bid. If the spread widens from 1 pip to 8 pips, the bid can fall 7 pips without the mid-price moving at all. A tight stop can be hit without the market ever trading at that level in the way your chart suggests.
• Most charts show only the bid. In MetaTrader, the default chart is built from bid prices, so a short position's stop (triggered by the ask) can be hit with no visible touch on the chart. Turning on the ask line helps.

Illustrative cost: on a standard lot of EUR/USD, worth $10 per pip on a US dollar account, a normal spread of 0.8 pips costs $8 to enter. A spread of 6 pips at the release costs $60. That is before any slippage.

Risk 2: slippage

Slippage is the difference between the price you asked for and the price you got. Market orders, stop orders and stop-losses are all instructions to trade at the next available price once triggered, so in a fast market they can be filled some distance away. The slippage guide explains which order types can slip and why.

On news, slippage has a particular shape:

• It is larger and more frequent. Prices jump between levels with few trades in between, so there may be no counterparty at your stop level.
• It tends to work against stop orders. A buy stop is triggered because price is rising fast, and the next available price is usually higher. A stop-loss is triggered because price is moving against you, and the next available price is usually worse.
• Positive slippage exists, but you cannot plan on it. Limit orders can be filled at better prices, and some execution models pass positive slippage through, but on news it is the negative kind that dominates for stop orders.

The practical consequence is that the loss on a stopped-out trade is not capped at the stop distance. A 20-pip stop can produce a 30-pip loss. Position size calculated on 20 pips will then lose 50% more than planned.

Risk 3: whipsaw

The first move after a release is often not the lasting one. Algorithms react to the headline number in milliseconds; human traders and slower funds then read the details, revisions to earlier months, and the components, and the price can reverse sharply. Some common reasons:

• The headline and the detail disagree. A strong US payrolls number with a large downward revision to the previous month, or weak wage growth, can produce an initial jump and then a fall.
• The surprise was smaller than it looked. Markets react to the number relative to the consensus forecast and to what was already priced in, not to the number on its own.
• Several numbers arrive at once. US jobs data includes payrolls, the unemployment rate and average earnings simultaneously; a CPI release includes headline and core. They can point in different directions.
• A central bank statement is followed by a press conference. The decision moves the price; comments in the press conference can move it back.

Whipsaw is what turns a straddle into a double loss, as the worked example below shows.

Risk 4: gaps

A gap is a jump in price with no trading between the two levels. Weekend gaps are the familiar kind, but large unscheduled announcements can cause intraweek gaps too. The best-known case is 15 January 2015, when the Swiss National Bank removed its floor under EUR/CHF without warning and the pair fell far through levels where stops were sitting. Many stops were filled hundreds of pips beyond their levels, and some retail accounts went into negative balances. The gap risk guide covers this and how traders size for it.

Scheduled releases rarely cause gaps of that size, but small gaps of a few pips at the moment of release are common, and they are enough to turn a tight stop into a much larger loss.

Risk 5: platform and connection problems

Retail platforms are under load at the same moments as the market. During a major release you may see:

• Delayed quotes, so the price on your screen is not the price available.
• Requotes or rejections on instant execution accounts, where the platform offers a new price or refuses the order because the requested price is gone.
• Slow order confirmation, so you do not know for a second or two whether you are in the trade.
• Your own connection dropping at the wrong moment, leaving a position open that you meant to close.

None of these is unusual, and none necessarily means anything is wrong with the broker. They are a feature of trading at the busiest second of the month through a retail connection.

Risk 6: margin and broker rules

Around some events, brokers may raise margin requirements, lower maximum leverage, or restrict new positions on affected instruments; this is more common before elections, referendums and central bank meetings with a wide range of possible outcomes. A higher margin requirement on an open position can reduce free margin and bring the account closer to a margin call or stop-out.

Some brokers and many proprietary trading firms also have rules about trading in the minutes around high-impact releases, from outright bans to restrictions on certain strategies. Read the terms of your account before assuming a news strategy is permitted. The prop firm challenges guide covers the news rules those firms commonly use.

Worked example: a straddle on a jobs release

All prices and fills below are illustrative, chosen to show how the costs combine. They are not a description of any particular release.

A trader with a $10,000 US dollar account plans to straddle a US jobs release on EUR/USD. The mid-price before the release is 1.0800. They place:

• A buy stop at 1.0815, with a stop-loss 20 pips below at 1.0795.
• A sell stop at 1.0785, with a stop-loss 20 pips above at 1.0805.

Each order is 0.5 lots, worth $5 per pip. The plan assumes a maximum loss of $100 if one side is stopped, and only one side is expected to trigger.

The headline number surprises in one direction and EUR/USD spikes upwards, then swings back and forth as traders read the detail.

1. The buy stop is triggered. Price rushes through 1.0815 and the order is filled at 1.0823, 8 pips of slippage.
2. The move reverses. Within a minute, price falls back. The stop-loss at 1.0795 is triggered and filled at 1.0790, 5 pips beyond its level. The loss on this leg is 33 pips, or $165, against a planned $100.
3. The sell stop is triggered. Price continues lower through 1.0785 and the order is filled at 1.0782, 3 pips of slippage.
4. The move reverses again. Price bounces to 1.0810. The short position's stop at 1.0805 is triggered and filled at 1.0807. The loss on this leg is 25 pips, or $125.

Total loss: $290, nearly three times the $100 the trader thought was the most they could lose, from one release, in a few minutes, with no mistake in placing the orders. Spread widening is already inside those fills. On a different day the straddle might have caught a clean move; the point is that the range of outcomes is much wider than the stop distances suggest.

What the same release does to a position held through it

Now take a trader who opened a long EUR/USD position the day before, at 1.0760, with a stop at 1.0730 and a size of 0.5 lots. Planned risk: 30 pips, or $150. If the release produced a fast fall through 1.0730 and the stop was filled at 1.0721, the loss would be 39 pips, or $195. That trader was not trying to trade the news at all, but the release still determined the outcome. This is why many traders check the calendar before holding through a high-impact event and decide in advance whether to reduce size, move the stop, or close.

Why many traders avoid trading the release

Put the risks together and the attraction fades for many retail traders:

• The costs are highest at exactly the moment the trade is placed.
• The loss on a stopped trade can be well beyond the stop distance, which breaks the position sizing every other part of the plan depends on.
• The direction is hard to judge even with the number in front of you, because the market is reacting to expectations, revisions and components.
• Institutions with direct market access and faster systems are trading the same seconds.

That does not make every news approach a losing one. It means that a strategy built for normal conditions should not be assumed to work in the minutes around a release, and that any approach which deliberately trades those minutes needs its own evidence, ideally from a demo account and a trading journal, not from a chart viewed afterwards. Remember that a demo account may not reproduce live spreads and slippage at the release, so its results flatter news strategies more than most.

Approaches traders use to manage news risk

These are approaches, not recommendations; each has costs.

• Stand aside. No new positions from a set time before to a set time after high-impact releases for either currency in the pair. Fifteen to thirty minutes either side is common. The cost is missing moves.
• Flatten or reduce before the release. Close or cut positions that would be exposed. The cost is paying the spread to exit and re-enter, and missing favourable moves.
• Widen the stop and cut the size. If a stop is moved further away to avoid post-release noise, the position is reduced so the money at risk stays the same. Assume the stop may still slip.
• Wait for spreads to normalise. Trade the aftermath once spreads are back near their usual size and the initial move has been tested.
• Use limit orders rather than stop orders for entries. A limit order will not be filled at a worse price than requested, though it may not be filled at all. The buy limit vs buy stop guide explains the difference.
• Size for the gap, not the stop. For positions held through events, some traders size as though the stop could slip by a multiple of its distance.

Whichever you choose, write it into your risk management plan as a rule, with the releases it applies to and the time window, rather than deciding on the day.

Which releases carry the most risk

Impact ratings on economic calendars are a rough guide, and they differ between providers. In broad terms the largest moves in major currency pairs tend to come from:

• Central bank interest rate decisions and the statements and press conferences that follow them, such as the US Federal Reserve's FOMC meetings.
• US employment data, especially non-farm payrolls. The guide to trading NFP goes into the release itself.
• Inflation data, especially US CPI, and equivalent releases elsewhere. See trading CPI releases.
• Unscheduled events: surprise policy moves, political announcements, interventions.

A release matters most for the currencies directly involved, but large US releases can move almost every pair that includes the dollar, and gold as well.

Common mistakes

• Sizing for the stop distance on a news trade. The stop is a trigger, not a price. Size on the assumption that the fill could be worse.
• Placing tight stops just before a release. Normal post-release noise, plus spread widening, can hit them without the market moving against the idea.
• Assuming the demo result will repeat live. Demo execution often does not reproduce real slippage and requotes at the release.
• Watching the headline only. Revisions and components often drive the second move.
• Forgetting about positions in related pairs. A US release affects every dollar pair you hold, not just the one you were watching.
• Trading at the release because the calendar says "high impact". High impact describes volatility, not opportunity.
• Not checking account rules. Some brokers and prop firms restrict news trading, and a trade that breaches the terms can be cancelled or an account closed.

Frequently asked questions

Is trading the news a good idea for beginners?

It is one of the harder environments to trade, because costs, slippage and whipsaws are all at their worst and positions can lose more than their stop distance suggests. Many beginners choose to stand aside around high-impact releases until they understand how their own strategy and broker behave at those times.

Why did my stop-loss fill so far away on a news release?

A stop-loss becomes a market order once its level is touched, and it is filled at the next available price. During a release, prices can jump several pips with no trading in between, so the next available price may be well beyond your stop.

Why do spreads widen during news?

Liquidity providers widen or withdraw their quotes because prices are about to move by an unknown amount. With less liquidity on offer, the gap between the best bid and the best ask grows until the market settles.

What is a news straddle?

It is a pair of pending orders, a buy stop above and a sell stop below the current price, placed before a release so that a breakout either way triggers one of them. Its main risk is that the first move reverses, triggering one side, stopping it out and then triggering the other.

How long after a release do spreads go back to normal?

It varies with the release, the pair and the time of day. On liquid major pairs spreads often narrow again within a few minutes, but after large surprises it can take longer. Watching the live spread on your own platform during several releases is the best guide.

Can a broker stop me trading the news?

Yes. Brokers can raise margin requirements or restrict trading around events, and their terms may restrict certain news strategies. Proprietary trading firms commonly ban trading in a window around high-impact releases. Check the terms of your account.