Risk Events Explained
Risk events are any upcoming catalysts the market believes could change volatility, liquidity, or sentiment. They don’t need to be economic reports — they can be political, geopolitical, structural, or even liquidity-related. What matters is uncertainty, because markets hate uncertainty more than bad news.
The Two Types of Risk Events
1. Known Risk Events
These are scheduled or widely anticipated catalysts:
- central bank meetings
- major economic releases
- earnings for index-weighted companies
- policy announcements
Because they’re known, the market begins pricing in uncertainty early — often days beforehand. This relates heavily to volatility timing behavior.
2. Unknown / Shock Risk Events
These include:
- geopolitical surprises
- liquidity breakdowns
- major corporate failures
- unexpected policy shifts
These cause instant repricing and often trigger liquidity shocks.
How Markets Price Risk
Markets don’t wait for the event. They adjust pricing as uncertainty increases:
- volatility rises — options premiums expand
- liquidity thins out — depth drops
- spreads widen — market makers reduce risk
- imbalances increase — one side hedges aggressively
This repricing is the “risk premium.” It’s the cost of uncertainty.
Why Liquidity Changes Before Risk Events
Liquidity providers don’t want to hold inventory into uncertainty. So they:
- quote smaller size
- widen spreads
- pull resting orders
This is the same mechanic behind liquidity voids — risk creates thin zones.
How Traders Misinterpret Risk Premium
Beginners see the market slow down or chop and think it’s random. It’s not. The market is waiting. When uncertainty is high, flow dries up, structure becomes sloppy, and rotations shrink.
Post-Event Behavior
Once the risk event hits, one of two things happens:
1. Volatility Explosion
- thin liquidity + aggressive flow → fast moves
- gaps and voids form
- stop cascades fire
2. Volatility Collapse
- risk removed → liquidity floods back
- tight rotations return
- mean reversion dominates
This ties into momentum shifts after events.
How to Trade Around Risk Events
- don’t size up ahead of uncertainty
- expect spreads to widen
- avoid chasing moves during repricing
- watch liquidity behavior more than candles
Bottom Line
Risk events are uncertainty generators. The market prices uncertainty long before the event hits, and that repricing shows up in volatility, liquidity, and flow. Understand risk premium and you stop getting blindsided by “random” conditions.