The forex market typically operates 24 hours a day, five days a week, from Monday to Friday. However, some brokers offer the option of weekend trading. This refers to the practice of trading currencies during the weekend when the markets are technically closed. Weekend trading typically involves using derivatives such as CFDs (Contracts for Difference) to speculate on price movements in the underlying assets.
Weekend trading is made possible through the use of over-the-counter (OTC) markets, which allow traders to buy and sell currencies outside of regular market hours. These OTC markets usually have wider spreads and lower liquidity.
Weekend trading is considered to carry higher risk due to the lack of liquidity and increased volatility. Traders should exercise caution and proper risk management techniques. Additionally, not all brokers offer weekend trading, so traders should check with their broker before attempting to trade during the weekend.
Gap trading strategy
While weekend trading volume is relatively lower, trading opportunities do exist. One way to start trading on the weekend is by using the Gap Trading strategy.
What is a gap trading strategy?
The gap trading strategy is based on the speculation that the opening price on a Sunday will have returned to Friday’s closing price. The gap is the difference between Friday’s closing price and Sunday’s opening price.
Why do gaps occur?
Gaps primarily occur due to fundamental factors like major news or important geopolitical events. One such example is the Ukraine-Russia crisis which had a massive impact on the Russia Ruble and possibly the reason for a gap or large spike in the value of the currency between the close of the market on Friday and the opening of the market on Sunday. Other reasons for gaps include product announcements, investor sentiment, profit announcements/warnings, etc. Gaps also appear in the forex market but not as frequently as in other markets because currencies are traded 24/5.
Types of gaps
Four types of weekend trading gaps are the Common gap, Breakaway gap, the Continuation or Runaway gap, and the Exhaustion gap.
- Common gap: this gap usually occurs when the difference between Friday’s closing price and Sunday’s opening price is minimal. Common gaps are typically caused by normal market volatility. They don’t usually make for appealing trading opportunities. The gap is usually temporary as it is filled fairly quickly.
- Breakaway gap: breakaway gaps usually signal a new trend, i.e. when an asset gap is away from the price pattern and triggers a breakout. It is often large in scale and sees high volumes, making it difficult to fill.
- Runaway or continuation gap: this type of gap usually occurs in the middle of a trend. It indicates an increase in the speed of a bullish or bearish pattern in the same direction. May be caused by a particular news announcement and is often accompanied by high trading volumes.
- Exhaustion gap: exhaustion gaps typically occur near the end of a trend, signalling the trend may be coming to an end. These gaps tend to fill quickly and the trend starts reversing. These gaps are often accompanied by low trading volumes.
Other gaps include ex-dividend gaps, suspension gaps, and opening gaps.
What does a gap being filled mean?
When a gap is filled, it means the price is returning to its original level before the gap occurs. Many factors come into play for this to happen. This includes price corrections, support and resistance, and price patterns.
Disadvantages of weekend trading
Weekend trading comes with risk and is generally not recommended for inexperienced traders or those without a proper understanding of the financial markets. While there are some advantages to weekend trading, there are also several disadvantages. These include:
- With the markets closed, trading volumes are lower during the weekend, which can lead to wider spreads and limited liquidity. This can make it difficult to execute trades at desired prices and may result in increased slippage.
- With fewer participants in the market, weekend trading can be more volatile than during regular trading hours. This can lead to increased risk and potential losses for traders.
- Companies don’t usually make new announcements over the weekend that could impact market prices. This may make it more challenging to make properly informed trading decisions.
- Some brokers may charge higher fees for weekend trading, which can eat into profits.
- Weekend trading can be risky as there is a chance of gap openings on Monday when the market opens. This means that prices can move significantly from where they closed on Friday, potentially leading to unexpected losses.
Getting started with weekend trading
There are various ways to get started with weekend trading. Here are some of them:
Pick your trading platform
There are a variety of online trading platforms that permit weekend trading. Select one that is widely used by global traders, and offers the assets you want to trade.
Learn everything you can about the markets
If you’re new to trading or lack experience, gaining as much information as possible about the financial markets is key. Learn everything that you can about the factors that impact asset prices like economic data, geopolitical events, and company news.
Build a trading plan
A trading plan should incorporate elements like your trading style, trading strategy, tolerance for risk, entry and exit points, and position sizing. The plan will help you to stay focused, and mitigate losses that could come as a result of trading blindly.
Practice with a demo account
Consider signing up for a demo account to practice trading with virtual money. A demo account will help you acquire essential trading skills and test your trading plan without using real money. When you’re ready to start trading with real money, start with a small amount. Then, gradually increase your position sizes as you gain more experience, skills and confidence.
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T4Trade Academy
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Disclaimer: This material is for general informational & educational purposes only and should not be considered investment advice or an investment recommendation. T4Trade is not responsible for any data provided by third parties referenced or hyperlinked, in this communication.
