Forex Weekend Trading

Forex weekend trading turns the tide on the standard Monday to Friday working week. Investors use the additional time to capitalize on unique trading opportunities in the currency markets. In this guide, we cover how to trade the ‘weekend gap’. We also look at strategies, forex brokers, trading hours, volume and more.

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 decentralized and technically trading hours run 24/7. So whilst weekend trading volume might be lower, the market does still present opportunities. Opportunities that a growing number of retail investors are taking up.

Gap Trading Strategy

Trading the gap is a strategy centered around the anticipation that Sunday’s opening price will have returned to Friday’s closing price. The ‘gap’ is simply the 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 during the 2022 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.

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Types Of Forex Gaps

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

  1. 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.
  2. 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.
  3. 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

To trade the weekend gap, you will need to follow a few simple steps:

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 around 28% of global forex transaction volume, and it is the least volatile, making it 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.

Forex weekend trading guid

Filling The Gap

When a gap has been ‘filled’ it means that the price has returned to the original or ‘pre gap’ level. Gaps are often filled and it can happen for a number of reasons:

  • Irrational Exuberance – the initial spike may have been driven by over or underestimations, when the market ‘realises’ the influences are not significant enough to sustain the change, it corrects itself.
  • Price Pattern – refers to the classification of gaps and can be used to determine whether a gap will be filled or not. Continuation or breakaway gaps are less likely to be filled because they signal the direction of a trend as opposed to signalling the end of a price trend like Exhaustion gaps. Exhaustion gaps are often filled.
  • Resistance – when a price moves suddenly it does not leave behind any resistance or support.

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.

What You Need To Start Trading Forex On Weekends

To get started forex weekend trading, you will 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 that you are 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 capitalizes on the different market conditions. The weekend gap strategy detailed above is the most popular technique.

Understanding Gap Risk

Gap risk refers to being ‘caught out’ by a gap i.e. you do not correctly anticipate the directional price movement. 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.

Gap risk is lower in the forex market vs stocks or other equities because it is technically open 24/7. 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.

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.
  • Flexibility – 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 is 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 volumes. 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.

Things To Remember

There are a few things it is worth keeping in mind when trading the weekend gap in the forex market:

  • When a gap is moving to be filled it is unlikely to change direction due to the fact that there is no resistance or support.
  • Trading forex weekend gaps requires a bespoke strategy. Do your research, ensure you understand the market, and opt for a broker and platform that are going to support you.
  • Retail investors tend to be behind irrational exuberance but institutional investors can have a role to play (if it will help their portfolios).
  • Exhaustion gaps and continuation gaps predict price movement in two different directionsensure that you know which is which and which you are going to trade.
  • Never risk more than you can afford. As with any instrument or market, ensure your forex weekend trading strategy is underpinned by robust risk management.

Final Word on Forex Weekend Trading

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.

How Do You Trade Weekend Forex Gaps?

To trade weekend forex gaps you will first need to find a broker that facilitates it. You will also need a bespoke strategy and a good grasp of global news. Experience helps too.

How Often Do Gaps Happen In Forex Trading?

To get an understanding of how frequent gaps occur, looking at historical data is a great place to start. It varies between currency pairs, but if we look at averages, it is fair to say that a forex price gap will occur roughly once every 5 weeks.

How Is The Size Of A Forex Weekend Price Gap Measured?

The size of a gap is determined by the distance in pips from the opening week’s price vs the price of the closing week’s.

What Is A Gap Fill In Forex Weekend Trading?

A gap is considered ‘filled’ when the price returns to the enter range of the close of the previous week’s session.

Is A Smaller Forex Gap More Likely To Be Filled Vs A Larger Gap?

Yes, the smaller the gap the more likely it is to be filled. The likelihood of it being filled is greater still when the forecasted fill is in the direction of a long-term market trend.