At the global stage, the foreign exchange (forex) market stands as one of the most volatile and active markets. Be it as a retail trader or an employee of a proprietary trading company, dealing with the rapid market changes during an important news release can either entice traders or scare them off. One important aspect that most traders miss during those times is the spread, also known as the difference between the bid and ask price.
In understanding the nature of spread monitoring, knowing how to manage changes during moments of high volatility is crucial, especially during the appealing events on the calendar. MT5, a well-known platform among retail traders and prop firms, has built in functions that enable monitoring of spread changes, allowing adaption of trading plans.
In this article, I will illustrate how to enhance one’s trading outcome by accurately monitoring spread changes during high volatility with MT5.
Understanding the Importance of Spread Monitoring
In a well-functioning market our spread will not go beyond certain boundaries, especially with the major currency pairs. Unfortunately, at times, the market fails to operate as it is supposed to. This can happen as a result of important economic announcements, political news, or any other market driven factor.
Wider spreads can diminish profits or amplify losses, particularly for scalpers and intraday traders, as these traders need tight spreads to sustain an optimal risk-to-reward balance. This makes monitoring spreads not just beneficial, but critical. If you are under a prop firm that tracks precision and results, this need becomes even greater.
Why MT5 is the Right Tool for Spread Analysis
Most traders are familiar with MT5 as a multi-asset and algorithmic trading platform, but its real-time monitoring tools are critical for spread observation. MetaTrader 5 is the successor of MT4, and its improved features and capabilities make it the go-to platform for many proprietary firms and professionals in the industry.
One of the key features is the Market Watch window, which allows traders to see the bid and ask prices of multiple instruments simultaneously. Combined with the Depth of Market and tick charts, MT5 enables traders to visualize how spreads change tick by tick.
During volatile trading sessions, MT5 can assist in detecting inefficiencies and abnormal shifts in trading costs. These sessions include NFP (Non-Farm Payroll) releases and other central bank announcements.
Configuring MT5 for Spread Tracking
To track spreads on MT5, the first thing to do is to adjust your charts and Market Watch to suit your preferences.
First, in your Market Watch, right-click and make sure the “Spread” column is checked. This will show you the current spread of each instrument beside his bid and ask prices. You will see that during periods of high liquidity, the spread is quite tight. However, during volatile periods, that number can easily double or triple in just a few seconds.
Tick charts, which display each price update, including bid and ask changes, is another quite powerful tool. The ability to display tick or tick volume charts enables traders to see how fast the bid-ask spread is changing. This is particularly important in scalping strategies which can be adversely impacted by the order execution price due to even the smallest changes.
Using Indicators and Scripts to Track Spreads
Utilizing MT5’s built-in tools for visibility of spreads provides a good starting point, but customization through the use of scripts and other user tools can be utilized by more advanced traders to monitor and log spread information. Some user-developed tools integrated into MT5 enable traders to not only monitor the spread data but also calculate the average spread for a period of time and even trigger notifications when the spread passes the user defined limits.
When developing automated strategies, these tools can be incredibly advantageous. For instance, if you’re part of a prop firm and you are executing algorithmic trading systems on MT5, you can implement a spread filter so that trades are not executed when spreads are unfavorable.
Understanding when spreads are most likely to increase allows for better placement of stop-losses, preventing slippage, accurate backtesting, and consistency under a prop trading model.
Monitoring Spread During News Releases
The forex market experiences some of the highest volatility during scheduled news releases. These releases include interest rate decisions, employment reports, and other geopolitical changes that lead to rapid price movements and significant spread widening.
Traders can prepare for these occurrences using MT5. With the integrated economic calendar, a trader can track the events that are likely to bring volatility to the market and this calendar is built right into the MT5 terminal with descriptions of the events, their expected impact, and some of them even offer a level and forecast data.
During this period, you can observe how liquidity providers start to wind down, which leads to increased spreads. With MT5, traders can monitor this behavior in real time and decide whether to remain in a trade, scale down, or completely refrain from trading.
Your ability to anticipate and respond to these market conditions indicates a professional grasp of risk management—qualities that prop firms value in funded traders.
Backtesting Spread Conditions for Strategy Development
For systematic traders and investors, historical spread data can be quite useful in evaluating a particular strategy’s performance in varying market conditions. With the MT5 trading platform, backtesting Expert Advisors (EAs) using real tick data and variable spreads is possible.
As a result, you can assess how your trading strategy is likely to perform not only during tranquil periods but also during stress. It is a common tendency for traders to optimize their strategies based on spreads that are not realistic, and they end up using in live trading conditions.
More robust strategies that are appropriate for actual market environments can be developed by employing spread monitoring within your testing framework. This is especially pertinent for those trading on a prop firm account, where consistent performance is evaluated and the performance metric granular.
Split-Second Decision Making Based On Spread Changes
Having the ability to seize opportunities in rapidly evolving markets provides a competitive edge. The sudden widening of spreads is accompanied by a decrease in liquidity or a rise in market uncertainty. It may also alert one to take action by either exiting trades, hedging positions, or making no trades at all.
Using the MT5 trading platform, users are able to execute trades quickly through one-click trading and real-time alerts. Additionally, proprietary scripts programmed in MQL5, the platform’s native language, can be used to automatically adjust positions based on set spread values.
These kinds of systems are essential within proprietary trading firms, or prop firms, where strict drawdown limits have to be maintained, trading needs to be maximized, and efficiency is a key metric.
Using MT5 in Prop Firm Evaluations
Many prop firms integrate the MT5 platform within their evaluation and funding processes. During evaluation, traders are assessed not only on potential profits, but also on their disciplined execution of a trading plan, trading systems, along with the consistency and balance between their earnings and risk.
Understanding spread behavior is one of the strongest indicators of market knowledge, especially during high-volatile periods. Some firms even have a policy where they disregard trades executed during irrational spread fluctuations or periods of very low liquidity.
Through monitoring the spread using MT5, traders can stay compliant with the firm’s rules while retaining their competitive advantage. The capacity to navigate around unneeded risks while taking advantage of market volatility is often the divide between flourishing prop traders and everyone else.
Conclusion
The monitoring of spread variations during periods of high market volatility is a critical consideration in forex trading. However, this is often overlooked. It greatly influences the execution of trades, managing risks, and the profitability of the trades.
Every trader is equipped with MT5, which allows for adequate monitoring, analysis, and action to be taken regarding spread changes. Whether you are trading solo or with a prop firm, your trading routine can greatly benefit from spread analysis.
In trading, where each pip holds crucial value, knowing the trading cost, particularly during periods of intense market activity, distinguishes failure from success.
