Spread is the distance between Ask and Bid. During the normal condition, spreads remain stable. But at times of high volatility spreads can dramatically change and become wider. Why?

Because:

The main goal of the Market is to make as many fools as possible. Bernard Baruch

Here is an example from the gold market. It consists of 2 screenshots and uses FXSSI Order Book indicator. You can find a discount via this link.

Screenshot 1. It represents the Order-book BEFORE the News Event.

Note the orders around 1950:

  1. Sell Limits
  2. Buy-Stops (Stop-Losses of sellers)

Screenshot 2. It represents the Order-book AFTER the News Event (wide bar at 15:30).

Note the change in orders around 1950:

  1. Sell Limits have no change. Bid price was too low to activate Sell-Limit
  2. Buy-Stops (Stop-Losses of sellers). They were totally swiped out because Ask price raised high enough to activate Buy-Stops.

Conclusion. Ask-price went high to make as many losses for existing-sellers as possible. Bid-price did not go high enough to let new-sellers enter shorts at the best moment. They became fools both. The market reached its goal. This happens everyday.

 

Sharing is caring!

Leave a Reply