Even though in theory the currency market never ever closes, it is very hard to see somebody trading on a Sunday. A newbie might even feel the trading activity has actually come to a halt because of Forex brokers who take a break on weekends.
Major participants in the Forex market
In among our earlier guides (Who Trades Forex?) we had actually pointed out that currency trading is primarily done to facilitate trade and travel. Further, we had also stated that institutional financiers contribute 93% of the overall trading volume. This indicates that of the $5 trillion worth transactions performed in the foreign exchange market, retail traders represent just about $350 billion worth of deals. It is among the main reasons for the currency market to remain closed throughout the weekends
Why Forex brokers prevent trading on weekends?
Barring Middle East, around the world, almost all the financial institutions remain closed throughout the weekends. A minimum of, trading desks of most banks will not function. This implies that $4.7 trillion worth of liquidity will be non-existent on the weekends. If a retail broker still allows trading to occur through its platform, then it could likely deal with 2 concerns. Firstly, a broker acting as a market maker will have no choices to hedge the danger as the major counter-parties (banks and other banks) are away from the trading desk. The broker can not use tight spreads due to absence of liquidity. The spread of a currency pair is inversely proportional to its liquidity (the spread decreases when major players attempt to outbid each other to get their trades executed).
To compensate for the loss of liquidity, minimize risk, and act as a counter-party to a trade, a Forex broker must increase the spread significantly (a spread of 20 pips was typical when OANDA was providing weekend trading before disabling the function). A boost in spread would discourage retail traders from getting in a trade. Even more, an FX broker needs to utilize some people to keep track of the scenario during the weekends. Furthermore, to keep the systems working during weekends, a broker will sustain additional infrastructure related expenses (power, uplink, and so on). Ultimately, the company might not have much to get by offering weekend trading. In addition, if the marketplace opens with a big gap on the subsequent day, then it may result in a huge loss to the broker. Considering that the reward is seldom worth the threat, retail brokers choose not to provide weekend trading.
Exists a method to trade on weekends?
Theoretically, a high net worth individual with a huge trading account can negotiate with a Forex broker to place trades on weekends. However, considering the liquidity and spread elements, it is barely a sensible method to trade.
Weekend closure also permits Forex brokers to carry out weekend maintenance of the systems (e.g., InstaForex traders may have the experience of seeing the loss of connectivity for about 2 hours after midnight GMT time on Saturday). Professional traders, who can assess the pattern of a currency pair with sensible accuracy, will not have any requirement to put an order throughout the weekend. They would rather do it on Monday (GMT) when the next session opens. In case of newbies, it would be much better to have a rest, evaluate efficiency, fine tune the technique and come back fresh when the marketplace opens on Monday.
