There is no officially designated
starting time to the trading day or week, but for all intents the market action
kicks off when Wellington, New Zealand, the first financial center west of the
international dateline, opens on Monday morning local time. Depending on
whether daylight saving time is in effect in your own time zone, it roughly
corresponds to early Sunday afternoon in North America, Sunday evening in
Europe, and very early Monday morning in Asia.
The Sunday open represents the
starting point where currency markets resume trading after the Friday close of
trading in North America (5 p.m. eastern time [ET]). This is the first chance
for the forex market to react to news and events that may have happened over the
weekend. Prices may have closed New York trading at one level, but depending on
the circumstances, they may start trading at different levels at the Sunday
open. The risk that currency prices open at different levels on Sunday versus
their close on Friday is referred to as the
weekend gap risk or the Sunday open
gap risk. A gap is a change in price
levels where no prices are tradable in between.
As a strategic trading
consideration, individual traders need to be aware of the weekend gap risk and
know what events are scheduled over the weekend. There’s no fixed set of
potential events and there’s never any way of ruling out what may transpire,
such as a terror attack, a geopolitical conflict, or a natural disaster. You
just need to be aware that the risk exists and factor it into your trading
strategy.
Of typical scheduled weekend
events, the most common are quarterly Group of Seven (G7) meetings and
national, elections or referenda. Just be sure you’re aware of any major events
that are scheduled.
On most Sunday opens, prices
generally pick up where they left off on Friday afternoon. The opening price
spreads in the interbank market will be much wider than normal, because only
Wellington and 24-hour trading desks are active at the time. Opening price
spreads of 10 to 30 points in the major currency pairs are not uncommon in the
initial hours of trading. When banks in Sydney, Australia, and other early
Asian centers enter the market over the next few hours, liquidity begins to improve
and price spreads begin to narrow to more normal levels.
Because of the wider price
spreads in the initial hours of the Sunday open, most online trading platforms
do not begin trading until 5 p.m. ET on Sundays, when sufficient liquidity
enables the platforms to offer their normal price quotes. Make sure you're
aware of your broker's trading policies with regard to the Sunday open,
especially in terms of order executions.
