Why is the Forex market closed on weekends?

Why is the Forex market closed on weekends

Although a common perception of the currency market is that it never closes, at least in theory, it is very difficult to find any traders working on Sunday. The novice trader will also notice that the trading activities have stopped with the forex brokers disabled for their weekend platforms. However, things are somewhat different as we will explain in the next few lines.

Why is the Forex market closed on weekends

Senior participants in the Forex market

In one of our previous articles (from forex trading?) We mentioned that the main purpose of currency exchange is to facilitate trade and travel operations. We also pointed out that institutional investors contribute about 93% of total trading volume. This means that of the total turnover of $ 5 trillion a day, individual Forex traders do not represent more than $ 350 billion of this huge figure. These figures are also one of the main reasons for the closure of the currency market over the weekend.

Why forex brokers do not prefer trading on weekends

With the exception of the Middle East, financial institutions around the world are almost closed during the weekend. At the very least, most of the banks' trading desks stop working these days, which means that about $ 4.7 trillion of normal liquidity in the Forex market will not be available on weekends. Thus, even if the Forex broker wants to allow trading through its platform, it will face two major problems. The first problem is that it will have to act as a market maker without any risk hedging options, as the main counterparties (banks and major financial institutions) will not be available during that period. The second problem is that the brokerage firm will not be able to provide reasonable prices because of the lack of liquidity. The size of the spread is inversely proportional to the available liquidity (the spread decreases when the major players in the market compete for deals from broker clients).

Thus, the broker will have to raise the spread significantly to compensate for the lack of liquidity and reduce risk and act as a counterparty to the deal (OANDA imposed a spread of up to 20 points when it provided customers with the possibility to trade over the weekend before they stopped providing this service later). This large increase in spreads will, of course, weaken the demand for traders during the weekend. In addition, the brokerage company will incur additional costs associated with the infrastructure (eg, electricity, telecommunications, etc.) if its systems remain operational during the weekend. In the end, the broker will not get a good return on trading services over the weekend. Also do not forget that the market may often open up a price gap which will also cause heavy losses to the brokerage firm. In other words, a low yield that does not justify the risk is the main driver that drove almost all brokerage firms to take a break on Saturday and Sunday.

Is there another way to trade on weekends?

In theory, any wealthy investor who is able to execute large volumes can negotiate with his broker so that he is allowed to place deals over the weekend. But even if this opportunity is available, trading during this period will not be a wise decision because of tight liquidity and high spreads.

Forex brokers also allow maintenance of their systems (for example, InstaForex traders will notice that the company is always disconnected from its platform for about two hours after midnight on Saturday GMT). In addition, professional traders who have the ability to predict the direction with high accuracy do not need to put their deals on weekends, as they think it would be better to wait until the opening of the Monday session to get a clearer picture of the situation in the market. For starters, the weekend is a chance to take a break, evaluate performance and refine the strategy until they start to have a better mindset with the market opening on Monday.