Trading Around News and Events
Use an economic calendar, understand how spreads and slippage change around events, and decide when to stay flat.
What you will learn
- How to use an economic calendar in your weekly preparation.
- Why spreads widen and slippage grows around scheduled events.
- Three practical options before an event: stay flat, reduce size, or hold with a plan.
- How to estimate a realistic loss for an event trade.
Explanation
An economic calendar lists scheduled releases with their date, time and usually an importance rating. Important examples are central-bank interest rate decisions (such as those of the European Central Bank (ECB) and the US Federal Reserve), inflation data such as the Consumer Price Index (CPI), employment reports and gross domestic product (GDP) figures. For shares, company earnings reports are the key events; they are often published outside normal trading hours.
Central-bank decisions matter because interest rates affect currencies, bonds and share valuations. The decision itself, the statement and the press conference afterwards can all move prices.
Around these events, liquidity (the amount of buy and sell orders available near the current price) can drop briefly. Market makers and brokers protect themselves, so the spread (difference between bid and ask price) often widens. Prices can jump several levels at once. A stop-loss is then filled at the next available price, which can be far from the stop.
Your options before a high-impact event:
- Stay flat: close or do not open positions shortly before the event. Not trading is a valid decision.
- Reduce size: keep the position but make it smaller, so that a 2R or 3R slip remains acceptable.
- Hold with a plan: accept the event risk consciously, for example on a longer-term position with a wide stop and small size.
Write your choice into your rules, for example: "No new positions in the affected market from 15 minutes before to 15 minutes after a high-impact release."
Worked example
Hypothetical example: account €10,000, 1R = €100. Long EUR/USD with a 20-pip stop. EUR/USD is assumed to be 1.10, so pip value per standard lot = €9.09. Fees and financing are excluded.
- Size = €100 ÷ (20 × €9.09) = 0.55 lots. Planned risk = 0.55 × 20 × €9.09 = €100.
- A central-bank decision surprises the market. The spread widens and price jumps 35 pips below entry before the stop can be filled.
- Actual loss = 0.55 × 35 × €9.09 = about €175 = 1.75R.
Alternative: halve the size to 0.27 lots before the event. The same 35-pip move would cost 0.27 × 35 × €9.09 = about €86. Or stay flat and lose nothing on this event.
Common mistake
Practice activity
You hold 33 shares bought at €60 with a stop at €57. The company reports earnings tonight after the market closes. Tomorrow the share opens at €51. Calculate the planned risk, the actual loss in euros and in R, and the loss if you had halved the position to 16 shares.
Show solution
Planned risk = 33 × €3 = €99 (about 1R).
Actual loss = 33 × (€60 − €51) = €297 ≈ 3R.
With 16 shares: 16 × €9 = €144, about 1.5R.
Limitations: the size of a news gap cannot be known in advance; these figures only show how size changes the damage.
Key takeaways
- Check the economic and earnings calendar before every trading day.
- Spreads widen and stops can slip far around high-impact events.
- Staying flat is a valid risk decision.
- If you hold through an event, reduce size so the realistic loss is acceptable.
Next step
The next lesson shows how to measure your performance with key statistics from a trade journal.
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