When liquidity providers pull their quotes

[Fairman]

When liquidity providers pull their quotes

Market makers do not like uncertainty. When a big number is about to land, many of them simply stop quoting, or widen their prices so far that nobody trades. That is the reason for the odd gaps in a news chart.

On the screen it looks like price jumping from one level to another with nothing in between. In reality there were no prices in between. Orders that were sitting in that range get filled at the next available quote, which may be far away.

Stop losses are the main victims. A stop at 15 pips from entry can fill at 40 because the market skipped over the level entirely. Brokers call this slippage, and in this situation it is not a failure of the system. It is how the market works.

Limit orders can benefit, since a spike through a limit price often fills at the limit or better. That is one reason some traders prefer pending orders near news over stops.

Protection comes mainly from size. A position small enough to survive a gap through the stop is the only reliable defence.

Orders placed as limits near the expected reaction zone can benefit from the gaps, since a fast move through the limit price often fills at the limit or better. Many experienced news scalpers prefer this to stops for exactly that reason.

Has a stop ever filled much further away than expected during a data release?