Short answer
Spreads widen when market liquidity drops or risk rises. During news releases and holidays, liquidity providers protect themselves by increasing spreads to manage volatility and price uncertainty.
What the spread really represents
The spread is the difference between:
- Bid price (sell price)
- Ask price (buy price)
It reflects:
- market liquidity
- execution risk
- price availability
Tighter spreads = stable, liquid markets
Wider spreads = risky or thin markets
Why spreads widen during major news
Volatility increases instantly
When economic news is released:
- prices move very fast
- direction becomes uncertain
- large orders hit the market
Liquidity providers face higher risk of sudden losses.
To compensate, they:
👉 widen spreads temporarily
Fewer stable prices exist
During news:
- price levels disappear quickly
- orders jump between levels
- smooth execution becomes impossible
Wider spreads protect against execution at unstable prices.
Why spreads increase during holidays and off-hours
During holidays or low-activity sessions:
- fewer traders participate
- liquidity drops sharply
- price availability becomes thin
With less liquidity:
👉 spreads expand naturally
This happens even without major price movement.
The role of liquidity providers
Liquidity providers are institutions that supply buy and sell prices.
They adjust spreads based on:
- market risk
- volatility
- available liquidity
When conditions worsen:
✔ spreads widen
When conditions stabilize:
✔ spreads tighten again
This is automated and happens in real time.
The illustration shows how market risk causes spreads to expand.
Why this is normal market behavior
This is not:
❌ broker manipulation
❌ price error
❌ platform malfunction
This is:
✅ global liquidity risk management
✅ standard market pricing
✅ how all professional markets operate
Stocks, futures, forex, and crypto all behave the same way.
Why this matters for traders
Understanding spread widening helps traders:
- avoid trading during risky moments
- place realistic stop losses
- manage costs
- prevent surprise executions
Most sudden stop loss triggers during news are caused by spread expansion.
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