Volatility Around
News Releases
Learn about typical volatility patterns around scheduled economic news releases, for educational purposes.
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Volatility refers to the degree and speed of price movement in a market. Scheduled news releases are commonly associated with short-term spikes in volatility, and this lesson explains why, and what this generally looks like, purely for educational awareness.
This is not intended as guidance on how to trade around volatile periods, but rather as background knowledge to help you understand a commonly observed market pattern.
What Happens to Volatility Around a Release?
In the moments surrounding a scheduled data release, trading activity often increases sharply as market participants react to the new information. This can result in faster and larger price movements than are typically observed during quieter periods, particularly for high-impact events.
Why Volatility Increases at These Times
As covered in earlier lessons, a surprise relative to expectations often requires market participants to reassess their positions relatively quickly. This concentrated period of reassessment, occurring within a short window of time, is one of the key reasons volatility tends to increase around news releases.
Reduced liquidity in the moments immediately before and during a release can also contribute to sharper price swings, since fewer participants may be willing to trade at existing prices while uncertainty about the incoming data is at its highest.
Volatility and Trading Costs
As discussed in the Understanding Trading Costs unit, increased volatility and reduced liquidity around news releases can also affect execution, including wider spreads and a greater likelihood of slippage. This is a practical consideration worth understanding, separate from any expectation about the direction of price movement.
Volatility Is Not Uniform or Predictable
While elevated volatility is a commonly observed pattern around scheduled news, its exact scale, duration and direction cannot be predicted in advance. Some releases result in brief spikes that quickly settle, while others contribute to more sustained periods of price movement. This variability is one of the reasons this lesson focuses on general education rather than specific predictions.
🔖 Summary
Volatility often increases around scheduled news releases due to concentrated reassessment of expectations and reduced liquidity, which can also affect trading costs like spread and slippage. While this is a commonly observed pattern, the specific scale and direction of volatility around any given release cannot be predicted in advance.
Frequently Asked Questions
Does volatility only occur exactly at the moment of release?
Volatility often peaks around the release moment but can continue, in varying degrees, for some time afterward, depending on the nature of the data and market context.
Why can spreads widen during volatile periods?
Reduced liquidity and rapid price movement during volatile periods can lead liquidity providers to widen spreads, as covered in the Understanding Trading Costs unit.
Is volatility the same for every type of news release?
No, volatility levels generally vary based on the event's importance rating and how the actual data compares to expectations.
Can volatility be predicted in advance?
The likelihood of increased volatility around high-impact events is a general pattern, but the exact scale and direction of any specific reaction cannot be predicted.
Risk Warning
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