Opening Spread Widening: My Big Losses
After ten years of trading gold, what I fear most is not a one-sided market, but the sudden widening of spreads in the first few minutes after the open. I remember a Monday in the summer of 2019, just as the Asian early session opened, I had a long order at 1296 with a stop loss at 1293. The spread instantly jumped from 0.3 to 1.5, and before the price even touched my stop loss, the order was swept. Looking back at the record, the actual fill price was 1292.8, with 0.2 slippage. Combined with the spread widening, I lost $220 on that single trade. My lot size wasn't large, 0.5 lots, but I felt terrible—I had the direction right, but died because of the spread.
Later, I reviewed and found that this situation is also common in the minutes before the London open and New York open, especially at the Asian open on Mondays. Gold liquidity hasn't fully recovered at the instant of the open, market makers widen their quotes, and stop-loss orders become the victims.
My Response: Avoid the First 15 Minutes After the Open
Since then, I've changed two things. First, I don't open new positions in the first 15 minutes after the open. For example, the London open is at 15:00 Beijing time (16:00 in winter time), so I usually wait until after 15:15 to act. Second, if I already have a position, I widen my stop loss by 0.5 to 1 dollar before the open, or simply use limit orders instead of stop-loss orders.
For example, on a Tuesday in March this year, I held 0.8 lots of gold long at a cost of 1310 with a stop loss at 1306. Before the New York open, the spread jumped from 0.4 to 1.2. I moved my stop loss to 1305 in advance. After the open, the price quickly dropped to 1305.5, and only after the spread narrowed did it continue to rise. Although I took on an extra 1 dollar of risk, I avoided being swept.
Price Action First, Spreads Are Just Noise
My current approach is: in the half hour before the open, I only watch and don't trade. I wait until the spread stabilizes within 0.5 before considering entry. If the spread continues to widen beyond 1.5, I'll just close the trading software and go have a cup of tea. Because at such times, market liquidity is poor, price action is distorted, and chasing orders can easily lead to losses.
Last Monday at the Asian open, gold was around 1290, and the spread once reached 1.8. I stayed flat and watched. When the spread returned to 0.6, the price had already moved to 1292. I judged it was a false breakout and placed a short order at 1292.5 with a stop loss at 1295. Before the European session, it fell to 1288, and I made 4.5 dollars. This trade wasn't based on indicators; I just saw that the price didn't hold above 1292 after the open, and with the spread back to normal, I dared to act.
After all, spread widening is a normal phenomenon at the market open; don't fight it. My principle is: I'd rather miss those few dollars of fluctuation at the open than let the spread eat up my stop loss.