Pending orders into news: the fill is whatever the book gives

[Shadow Trader]

The old trick of placing a buy stop above and a sell stop below before a data release has a flaw that gets glossed over. When price jumps through the order, the fill doesn't happen at the order price. It happens at the first available price after.

In calm markets, that difference is a fraction of a pip. In news, it can be 5, 10, even 30 pips. The order becomes a market order the instant the level is crossed, and a market order in an empty book takes whatever is there.

So the straddle that looked like it risked 10 pips on each side effectively risks 10 plus slippage, and the winning side gets filled late enough that much of the move is gone.

There's also the whipsaw. Both orders can trigger as price spikes one way, reverses, then spikes the other. Two losers, one news event, double the spread.

Some brokers cancel pending orders around news, or widen the stop-out buffer, or flag the account. The terms are usually buried in the execution policy.

Straddles survive because the story is attractive, and a few big winners hide a lot of small losses.

Over a full year of releases, can a news straddle actually finish net positive?