The forex market closes on Fridays at 5 pm and opens on Sundays at 5 pm New York City local time. When the market is open, traders from all around the world can trade forex through forex trading brokers and execute trades in the forex market 24 hours a day, 5 days a week. The forex market is closed on the weekend and cannot be traded. However, currency prices can still fluctuate. This is why you may see a change in prices when the market opens on Sunday. Forex traders are then unable to place any trades during the weekend, as the forex market is open from Sunday evening to Friday. Institutional forex traders and banks primarily operate Monday to Friday.
However, some forex traders can take advantage of online forex trading opportunities by using such trading strategies as the weekend gap technique. Traders using this strategy aim to profit from the change in price between the time the market closes on a Friday and when it reopens on a Sunday.
Those who want to trade weekend forex gaps need to find online forex brokers that are open during weekend hours. They will also need to have a strategy in place and a good understanding of market news.
Why don’t most traders trade on weekends?
Trading forex is all about volume. Without trading volume, there could be unpredictable volatility and day traders will find it impossible to trade under such conditions. During the trading week, forex volumes are high, with high volumes during the London session, less as we move into the US trading hours, and little volume in the Asian trading hours. For forex traders, the best time to start trading forex is when the market opens whereas towards the end of sessions volume is lower.
If the market was open to retail traders over the weekend, then traders would experience disruption as big financial institutions would not be running at full and banks will be unable to move much currency, with the market volume being very low. This equates to difficult trading conditions, high spreads and less of an edge for traders.
Gap trading strategy
For those wanting to start trading forex on the weekend, the trading the gap strategy provides such an opportunity. The strategy focuses on the expectation that Sunday’s opening price will have returned to Friday’s closing price. The difference between the price when the forex market closed on Friday evening, and the price when it opened on Sunday is known as the “gap.” For example, major news or an important event such as the invasion of Ukraine by Russia that has a big impact on the Russian Ruble could be the reason for a “gap” or a big change in the price between Friday’s close and Sunday’s opening.
For such gaps, it is important to have big volumes which is impossible as most big traders and financial institutions aren’t working or trading forex over the weekend. This is why forex traders trading over the weekend focus on closing gaps. Closing gaps can be created by a small number of traders who are trading forex in the same direction. For example, the market reacts by rising and many traders decide to trade against the trend, hoping to take advantage of it.
Types of Forex Gaps
When trading forex over the weekend, traders tend to use three types of forex gaps: breakaway gaps, exhaustion gaps and continuation gaps.
- Breakaway gaps: we get breakaway gaps when the price is different from a pattern or goes above critical support or ceiling levels. The price tends to move out of the consolidation phase, creating a gap.
- Exhaustion gaps: these gaps happen at the end of a price pattern and indicate an attempt to go higher or lower. They follow a sudden rise in volume which turns dramatically. With no one else entering the trade, the price falls indicating the end of the trend.
- Continuation gaps: these take place during a price pattern and indicate an increase in buying and selling.
How to trade the weekend gap
To trade the weekend gap, you will need to choose a currency pair that is popular and very liquid. You will then need to check the closing price at 5 pm EST on Friday so you can determine whether the gap can be traded when the forex market opens on Sunday. Depending on your risk appetite, choose the size of the gap and how big it should be for you to take a position.
For example, taking Friday’s closing price of 82.00, when the Tokyo market opens at 7 pm EST on Sunday, you can enter a trade if the open price is at least 82.80 or 81.20. If there is a gap when the forex market opens up to 82.80, you can sell the pair and exit the trade when the price reaches 82.00. On the other hand, if the market opens at 81.20, you could buy the pair and exit the trade when the price returns to 82.00.
Weekend forex trading: the essentials
- The platform. When you start trading forex over the weekend you will need to have a good understanding and know how to use technical and fundamental analysis. This is why you will need to use a platform that you can rely on that provides all the necessary tools. MetaTrader 4 (MT4) is the most popular forex platform and is a good fit for both beginners and experienced traders.
- Strategy. The forex market behaves differently over the weekend so you will need a strategy such as the weekend gap strategy to take advantage of the different market conditions.
- Risks. When traders refer to gap risk when trading the weekend gap strategy, they refer to unexpected gaps. So, if the markets are closed for a prolonged time, then there are more risks. For example, there are fewer risks when trading an overnight gap than the weekend gap since price movements can be less sudden and sharp.
Pros and cons of trading forex on the weekend
- Traders can try different trading strategies such as the weekend gap which can be effective when trading over the weekend.
- Trading over the weekend allows traders extra time to trade and more opportunities to make a potential profit.
- Traders who are busy daily can take advantage of the weekend forex market.
- With low liquidity, executing orders over the weekend can be difficult and orders may not be filled at the ordered price.
- Traders may experience increased spreads as there are lower trading volumes and CFD forex brokers raise spreads to cover costs.
- Trading over the weekend is different than when trading during traditional open hours, so there can be unexpected and sharp price fluctuations.
When trading forex weekend gaps, you will need to have a good understanding of the market, choose a trusted online forex broker and a reliable platform to trade on. You will need to ensure that the forex weekend trading strategy you choose is also married with strong risk management, as the market environment during the weekend is unpredictable and more volatile.