Forex trading is one of the most popular forms of investment that has been gaining a lot of attention in recent years. With the advent of technology, it has become easier for traders to speculate on the movements of currencies from the comfort of their homes. However, as with any form of investment, there are certain times when it is not advisable to trade forex. One of these times is on a Friday. In this article, we will explore the reasons why not to trade forex on a Friday.
The forex market is open 24 hours a day, five days a week. This means that traders can trade currencies at any time of the day or night, except during the weekends. However, the forex market is not always active throughout the 24-hour period. There are certain times when the market is more active, and other times when it is less active. These periods of activity are known as trading sessions, and they are characterized by different levels of volatility and liquidity.
Friday is the last trading day of the week, and it is usually characterized by low liquidity and volatility. This is because many traders close their positions before the weekend, which reduces the number of market participants. As a result, the market becomes less active, and the movements of currencies tend to be less pronounced. This lack of volatility and liquidity can make it difficult for traders to execute profitable trades.
Another reason why not to trade forex on Friday is that there is a higher risk of gap openings on Monday. A gap opening occurs when the price of a currency opens significantly higher or lower than the closing price on Friday. This can happen when there is a major economic event or news release over the weekend that affects the currency markets. If a trader has an open position on Friday, they may be exposed to the risk of a gap opening on Monday, which can result in significant losses.
Furthermore, trading on Friday can lead to emotional trading. Many traders may feel the need to make up for any losses incurred during the week, and as a result, may take unnecessary risks or make impulsive decisions. This can lead to losses and can have a negative impact on the trader’s overall performance.
In addition, many market participants, including institutional investors, tend to avoid trading on Friday. This can result in a lack of liquidity in the market, making it difficult for traders to execute trades at their desired prices. This can lead to slippage, which is the difference between the expected price of a trade and the price at which the trade is executed.
In conclusion, trading forex on Friday is not advisable due to the low liquidity and volatility in the market, the higher risk of gap openings on Monday, the potential for emotional trading, and the lack of participation from institutional investors. Traders should avoid trading on Fridays and instead focus on trading during the more active trading sessions during the week. By doing so, traders can increase their chances of executing profitable trades and minimizing their risk of losses.
