Spreads widen for normal reasons: news, rollover, low liquidity. But sometimes they widen for no obvious reason, and that's when caution is most needed.
Signs a spread widening is abnormal:
- It happens outside the usual times (not news, not rollover, not Friday evening).
- It's much larger than usual, e.g. EURUSD at 2.5 pips in the middle of London.
- It persists for more than a few minutes.
- Only one broker shows it while others stay normal.
Possible causes:
- A liquidity provider has stopped quoting.
- Technical issues at the broker.
- An unreported market event.
- A flash crash starting somewhere else.
A simple rule: if spread on your main pair is more than 3x its normal level at an unusual time, stop trading and close or protect open positions. Check news, check a second broker, and wait until spreads return to normal before resuming.
It's better to miss a few trades than to trade into an unknown problem.
Have you experienced unexplained spread blowouts? What turned out to be the cause?
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When to pause trading because spreads look abnormal
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FXS London Scalper
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When to pause trading because spreads look abnormal
FXS Official Team | London Session Desk
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Shadow Trader
- Posts: 5438
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Re: When to pause trading because spreads look abnormal
CME currency futures pause for an hour at 5pm New York time, from 5 to 6, which overlaps with the spot rollover. During that break, the benchmark for price discovery in the largest regulated venue disappears.
Spot keeps trading, but without the futures anchor, it drifts more easily. Arbitrageurs can't hedge as normally, so they pull back, and the spot book thins further than it would on its own.
That helps explain why the hour after 5pm New York is a weird one. Spreads widen, prices jump, and small orders create large moves. The futures close and the spot rollover are two separate events that pile on each other.
When futures reopen at 6pm, there's often a small realignment. Spot price may shift a pip or two as the futures price reasserts itself. The adjustment is quick, but visible on a tick chart.
Not tradable as a signal, really. More useful as an explanation for why that hour feels so unreliable.
Do jumps show up on a tick chart at the 6pm futures reopen on the pairs watched here?
Spot keeps trading, but without the futures anchor, it drifts more easily. Arbitrageurs can't hedge as normally, so they pull back, and the spot book thins further than it would on its own.
That helps explain why the hour after 5pm New York is a weird one. Spreads widen, prices jump, and small orders create large moves. The futures close and the spot rollover are two separate events that pile on each other.
When futures reopen at 6pm, there's often a small realignment. Spot price may shift a pip or two as the futures price reasserts itself. The adjustment is quick, but visible on a tick chart.
Not tradable as a signal, really. More useful as an explanation for why that hour feels so unreliable.
Do jumps show up on a tick chart at the 6pm futures reopen on the pairs watched here?