In certain countries where there is market tension, a bank could go bust in the space of a weekend. This could mean that your position will change dramatically by the time the market opens again on Sunday. Certain currencies have very low rates of demand for exchange purposes.
As a result, these currencies can be difficult to trade and can usually only be traded in specific banks. Because currency trading does not take place on a regulated exchange , there is no assurance that there will be someone who will match the specifications of your trade. US Markets. Your Money. Personal Finance. Your Practice. Popular Courses. Key Takeaways Currencies trade 24 hours a day in the forex market, meaning that you can often place an FX trade at any time. This is achieved as trading transitions from one major market in a certain time zone to another as the day progresses e.
Retail traders often are limited to trading Monday through Friday, however. Because markets can move at any hour, many forex day traders prefer not to hold positions overnight. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
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A major news story during the Russia-Ukraine war that impacted the value of the Ruble, for example, could trigger a gap. Gaps do require significant volume though, and with major players out of the game during the weekend, it is the closing gaps we are interested in. Closing gaps can be triggered by a small number of traders investing in the same direction. The market reacts, spiking, and many traders are left puzzled.
So, they trade against the trend, hoping to capitalize on the error. Now, look at the closing price at 5 pm EST on Friday. We can use this to establish whether the gap can be traded when the market opens on Sunday. Next think about how big the gap has to be for you to take a position.
A 1 percent gap would mean the price opens up at approximately Tweak the percentage size in line with your risk appetite. So, if the market opening gaps up to Alternatively, if the market opens at You want to keep the trade open until the gap fills or your chart suggests the gap is going to keep growing.
Gaps are often filled and it can happen for a number of reasons:. When a gap is filled within a single trading day, it is referred to as fading. Fading is not applicable to weekend trading as it takes place over a longer period, but it is commonly used by those trading overnight gaps so it is worth understanding what it means.
The longer the markets are closed, the greater the associated risks. Trading an overnight gap has a lower level of risk vs trading the weekend gap for example. This is because price fluctuations tend to be less extreme. That is not to say that the risks should be underestimated. Traders should bear in mind that slippage can occur when trading the weekend gap, opening themselves up to the risk of losing more than their initial investment.
There are a few things it is worth keeping in mind when trading the weekend gap in the forex market:. More investors are forex trading over the weekend. With additional hours to trade, many see the profit potential, with the gap trading strategy proving particularly popular. But before you start trading, make sure you have a reliable online broker and a strategy that reflects the weekend market environment.
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