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?
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:
- Sell Limits
- 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:
- Sell Limits have no change. Bid price was too low to activate Sell-Limit
- 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.