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Forex Trading On Weekends
The forex market is rather popular among investors as it is the most liquid market in the world. Concurrently, traders are allowed to open a position with a small investment and whenever they want. Thereby, they can enter the market 24 hours a day, but is it possible for them to trade on Saturdays and Sundays? The answer will be detailed in this article.
Is the Forex Market Open on Weekends?
In nature, the forex market can be open 24/7. By definition, forex (or foreign currency) trading is the process of selling one currency to buy another for different purposes such as commerce or travel. Assume a Thailand-based company plans to purchase commodities from France, the company has to exchange Thai bahts for Euros before making a purchase. This act is seen as foreign currency trading which can be done whenever banks or bureaux de change are open, even on weekends.
However, this article mentions a more complicated form of forex trading which is done by speculators to gain profits. Accordingly, those investors are not interested in receiving or delivering amounts of currency, but rather depend on market movements and trends for earnings. Based on currency pairs they prefer trading, they can enter the market 24 hours a day, but unfortunately, the market is closed on Saturdays and Sundays on their trading platform. Therefore, in reality, forex traders can participate in market 24/5.
Instead of being organized in a physical location, the forex market works on different time zones based on four major trading sessions that take place in London, New York, Tokyo, and Sydney. Of which, all sessions are open in the following sequence:
- Sydney: 10 PM till 7 AM GMT+0;
- Tokyo: 12 AM to 9 AM GMT+0;
- London: 8 AM to 5 PM GMT+0;
- New York: 1 PM to 10 PM GMT+0.
This means there is always at least one trading session being open and there is always an overlap between two sessions. So, investors can trade currencies internationally 24 hours a day. Besides, as already mentioned, the market only operates within 5 days, starting from 10 PM GMT+0 on Sunday (the opening time of the Sydney session) and closing at 10 PM GMT+0 on the next Friday (the closing time of the New York session).
Risks Incurred From Not Trading on Weekends
Normally, on Friday, long-term traders can either close their positions or have brokers hold positions over weekends. Leaving orders open whilst the forex market is closed can be much riskier than closing all positions on Friday. This section primarily mentions risks possibly faced by swing or position traders if they hold positions over weekends.
The most common fear of forex investors when no trading occurs is market gaps. Although the trading volume can be comparably small on weekends, the price still moves due to transactions on bureaux de change or the release of major news regarding the economic and political situations of a region. This, as a result, may cause large gaps.
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Market gaps are empty areas between a pair’s close price on Friday and its open price on Sunday. Those gaps occur when no forex trading is done, especially over weekends.
Market gaps can move up and down. Accordingly, gapping up means that no traders are willing to sell at the gap levels, which pushes a pair’s open price on Sunday so high. On the contrary, when market gaps go down, no traders are willing to buy at the gap levels, which renders a pair’s open price on Sunday low.
Gap up (EUR/USD, over weekends)
The above picture shows the market gap between the open price of EUR/USD (1.18813) and its close price of 1.18860 over weekends. Consequently, those holding trades from Friday (6th November) to Sunday (8th November) would be confronted with a gap of 47 points. Thus, they need to be aware of market gaps because if a level of gap goes beyond a stop-loss order and makes orders filled at a worse price, traders may sustain a big loss.
The market gap and the low liquidity may result in slippage which is the difference between the pre-specified price and the filled one of trade. At this time, using a normal stop-loss order cannot protect traders from impacts of negative slippage, typically unexpected losses. However, though both market gaps and slippage are often seen as risks, they are occasionally an opportunity for speculative traders to earn more if the market moves in their favour.
It is believed that a smaller number of major economic events are released on weekends than during weekdays. More particularly, most banks, commercial companies, hedge funds and even governmental agencies that are responsible for publishing interest rates, GDP (Gross Domestic Product), CPI (Consumer Price Index) and so on do not work on weekends.
However, it does not mean that major events are not surprisingly public on those break times. Especially, unexpected news such as an increase in Coronavirus cases may adversely affect the regional or global economy, which then has a significant effect on currency and then forex trading.
When leaving positions open overnight, over weekends or holidays, forex traders may earn or pay rollover – or rather roll – rates which are the difference in interest rates between two currencies.
Similar to market gaps and slippage, rollover is also a double-edged sword. Thereby, a positive rollover will be paid to forex investors if the long currency has a higher interest rate than the shorted currency. Meanwhile, a trading account will be debited when the long currency has a lower interest rate than the shorted currency; at this time, rollover is negative. Of which, the long currency is what traders buy, opposite to the shorted one sold by the counterparty.
In a normal market condition, forex rollover rates may be stable, but vary when major news that influences the economy are released. Therefore, swing and position traders should keep an eye in those rates for not letting their trading account drop too much.
In short, those who decide to leave orders open over weekends can encounter different problems induced by unexpected news, market gaps, slippage and even rollover rates. Having said that, those factors can become an advantage if the odds are stacked in a favour of those investors. Meanwhile, for intraday traders or those deciding to close positions before the closing time on Friday, they are less likely to face risks.
Reasons Why Forex Brokers Advise Against Trading on Weekends
In general, forex brokers discourage traders to open a position on weekends because of several unexpected problems faced by those brokerage companies as follows:
- Firstly, as you know, the main participants in the forex market are large international banks, followed by other financial institutions. Those institutional traders contribute the majority of the trading volume, whilst retail traders share around 7% of the total transaction value. However, in almost all parts of the world, those financial corporations are often closed on weekends. This means a lack of liquidity on these break times.
Normally, most forex brokers act as dealers – commonly known as liquidity providers or market makers. On weekdays, forex brokers would offer a competitively tight spread to single traders owing to stiff competition with large market makers as banks and financial institutions. The absence of major players renders the forex market less liquid, whereas forex brokers are incapable of hedging risks as well as banks. Consequently, forex brokers hardly maintain low bid-ask rates to compensate for the loss of liquidity.
Even NDD (No Dealing Desk) brokers will play as the counterparty to all the transactions if traders require them to trade on weekends. Accordingly, they have to increase spreads significantly to mitigate undesired risks. However, this discourages retail forex investors to enter a trade on Saturday and Sundays.
- Secondly, forex brokers always need someone to manage the system whenever their clients want to enter a trade. In particular, if forex investors struggle with working on a trading platform and need technical help, or if they would like to deposit or withdraw money, employees should be present to support customers.
Moreover, it also costs brokerage companies some infrastructure-related expenses so that the system can keep working smoothly on weekends. Meanwhile, incomes that forex brokers gain from weekend transactions are insufficient to cover incurred costs.
Apart from the mentioned disadvantages that a forex broker may experience, the company also thinks that weekend closure is an opportunity to maintain and upgrade their system. One possible benefit of trading forex is its online presence, which means those having a well-connected computer installed with a trading platform can easily trade forex anytime in any place. However, technological dependence also requires forex brokers to regularly improve their platform.
Also, forex brokers suggest those who intend to trade on weekends to spend such short breaks on relaxing, boosting knowledge and planning their trades. Bear in mind that continuous trading does not make you profitable and wealthy. So, weekends are an ideal time to learn about your trading platform, back-test trading strategies by using past data and then analyzing in-depth reports to see how well those strategies would have worked.
Finally, when trading forex is closed on weekends, traders can use this time to review and modify their trading strategies by looking at major upcoming events on the economic calendar for fundamental analysis and observing charts or indicators for technical analysis. This helps forex investors to plan their trades in the next week and avoid the risks of losing money.
Therefore, in general, taking a weekend break would be beneficial to both forex brokers and traders.
Trading on Weekends: Possible or Not?
Although most brokers refuse forex trading on weekends, high-net-worth individuals (HNWIs) who hold liquid financial assets with at least US$1 million worth can negotiate with brokerage companies about opening a position on those days. However, as already mentioned, considering problems both parties may encounter, trading forex on Saturdays and Sundays is unwise.
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