Forex Weekend Trading

Forex weekend trading has seen conventional working week hours extended over Saturday and Sunday. This article will explain how to use the popular weekend gap trading strategy. We’ll also unpack everything you need to trade forex during the weekend, including brokers and key trading times.

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Forex Weekend Trading Hours

The forex market traditionally operates 24/5, closing at 5 pm EST on a Friday and reopening at 7 pm EST on a Sunday. This is because institutional forex traders and banks predominantly operate Monday to Friday, taking time over the weekend to rest.

However, the forex market is decentralised and technically trading hours run 24/7. And while weekend volume might be lower, the market does still present opportunities. In particular, a growing number of retail investors are trading the weekend gap.

Gap Trading Strategy

The forex weekend trading strategy that capitalises on gaps is about anticipating Sunday’s opening price will have returned to Friday’s closing price. The ‘gap’ is simply the price differential between the price when the traditional forex market closes on a Friday evening, and the price when it reopens on a Sunday. A major news story, for example, could trigger a gap.

Gaps do require significant volume though, and with major players out of the game during the weekend, it’s the closing gaps we’re 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 capitalise on the error.

Types Of Forex Gaps

There are three types of forex gaps that are important for this forex weekend trading strategy:

  • Breakaway gaps – These occur when price diverges from a pattern or exceeds crucial support or ceiling levels. Price usually moves with serious momentum, often out of the consolidation phase, leaving a gap.
  • Continuation gaps – These happen during a price pattern and suggest a surge of buying and selling, with traders all believing in the market’s direction.
  • Exhaustion gaps – These occur towards the end of a price pattern and signal an attempt to hit new highs or lows. Exhaustion gaps normally follow a sudden surge and have an abnormal rise in volume which turns sharply. Essentially, nobody else is entering the trade, so price falls abruptly, signalling the end of the trend.

Gap Trading Strategy In Action

Choose A Currency Pair

Open up your forex weekend trading platform and choose a currency pair that’s widely traded. The EUR/USD is the most liquid, accounting for 28% of global forex transaction volume, and it’s the least volatile, so it’s ideal for a weekend gap strategy. Alternatively, the USD/JPY and GBP/USD are sensible options.

Setting Up

Now look at the closing price at 5 pm EST on Friday. Let’s say, for example, it was 83.00. We can use this to establish whether the gap can be traded when the market opens on Sunday.

Gap Size

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 83.80 (83 x .01 = .80) or down at 82.20. Tweak the percentage size in line with your risk appetite.

Take A Position

When the Tokyo market opens at 7 pm EST on Sunday, enter a trade if the open is at least 83.80 or 82.20. Your profit target is Friday’s closing price of 83.00. So, if the market opening gaps up to 83.80, you can sell the pair and exit the trade when the price reaches 83.00.

Alternatively, if the market opens at 82.20, you could buy the pair and exit the trade when the price returns to 83.00. You want to keep the trade open until the gap fills or your chart suggests the gap is going to keep growing.

What You Need To Start Trading Forex On Weekends

To get started forex weekend trading, you’ll need several ingredients:

  • Broker – Many online forex brokers do not operate during the weekend. So, do your research to find a reliable and licensed trading broker that does. For guidance on finding a FX broker, see here.
  • Platform – Weekend forex trading requires careful technical and fundamental analysis. Choose a platform you’re confident using and that has all the tools you need. MetaTrader 4 (MT4) is the most popular forex platform and will meet the needs of beginners and experienced traders.
  • Strategy – In the absence of many of the big players, the forex market operates differently on a Saturday and Sunday. With that in mind, you need a strategy that capitalises on the different market conditions. The weekend gap strategy detailed above is the most popular technique.

Pros Of Forex Weekend Trading

There are several benefits to trading forex over the weekend:

  • Strategies – With a different market environment, certain strategies may be more effective on the weekend, such as trading gaps.
  • Additional trading time – Trading during the weekend gives retail investors more hours to try and accumulate profit.
  • Availability – The weekend forex market gives those with other jobs and busy schedules an opportunity to trade.

Cons Of Forex Weekend Trading

Before you start trading forex over the weekend, it’s worth being aware of certain limitations:

  • Execution risk – Due to low liquidity during forex weekend trading hours, there is a risk orders aren’t filled at the price ordered.
  • Increased spreads – Brokers increase spreads to reduce their risk and compensate for lower trading volume. This may cut into potential profits.
  • Volatility – The weekend forex environment is different from the weekday market, with erratic price movements. At market close, for example, a large number of trades are being closed, which often causes volatility. Whilst volatility brings with it an opportunity for greater profits, it also means potentially large losses.

Final Word

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.

FAQ

Can you trade forex over the weekend?

Yes – forex trading is possible over the weekend. The most commonly used strategy is the weekend gap technique, which looks to profit from the change in price between when the market closes on a Friday and when it reopens on a Sunday.

What happens to forex trades over the weekend?

Forex positions held over the weekend may incur rollover charges. This is interest earned or paid based on the interest rates of the two countries’ currencies that you hold. Online brokers normally publish a calendar of rollover times and charges.

What are forex weekend trading hours?

Technically, forex weekend trading hours run around the clock, with no specific opening and closing times. With that said, large institutional investors and banks typically do not operate over the weekend, so there is significantly less volume from Friday 5 pm EST through to Sunday at 7 pm EST.

What strategy can you use to trade forex over the weekend?

The weekend gaps strategy is the most popular technique used over the weekend. Traders seek to profit from movements in price between the close of the market on a Friday and the price when the market reopens on a Sunday.

What do you need to trade forex over the weekend?

To trade forex over the weekend, you need an online broker that operates during weekend hours. You also need a reliable trading platform, an effective strategy and the time to conduct your analysis and take positions.