Spread Cap

Spread caps are a small but operationally important risk control. The principle is simple: don't enter new trades when execution conditions are unfavourable. The implementation requires the EA to monitor current spread continuously and compare to threshold before each potential entry.

Why spread caps matter:

• **News-event protection**: scheduled high-impact news (CPI, FOMC, ECB) produces spread widening of 5-20× normal levels for 10-60 seconds. Without spread caps, EAs can enter trades at extremely unfavourable spreads • **Low-liquidity protection**: Asian session and pre-market opens can produce spread widening from typical 1 pip to 3-5 pips. Strategies optimised for tight spreads lose their edge during these periods • **Broker condition variability**: different brokers have different baseline spreads; spread caps tuned for IC Markets Raw (sub-0.1 pip EURUSD) prevent the same EA from trading on Standard accounts where spreads are 1+ pips • **Strategy-specific erosion**: scalping strategies with 5-pip targets break-even disappear at 2-pip spreads; trend strategies with 200-pip targets tolerate 5-pip spreads. Spread cap thresholds should match strategy class

Typical spread cap thresholds by strategy class:

• **Scalping (M1-M5)**: 1.5-2× normal spread; below this the strategy edge breaks down • **Day-trading (M15-H4)**: 2-3× normal spread; modest spread widening tolerable • **Swing-trading (H1-D1)**: 3-5× normal spread; strategy is less spread-sensitive • **Trend-following (H4+)**: 5-10× normal spread; spread is small fraction of typical move

For EA buyer evaluation: vendors should document spread cap thresholds in product specifications. Vendors who don't mention spread caps are either (a) not implementing the protection, exposing their strategy to news-event spread blowouts, or (b) implementing it implicitly without buyer visibility. Either way, the absence of spread cap documentation is a deployment-risk red flag.