The foreign exchange market, also known as Forex, is the largest and most liquid financial market in the world. It operates 24 hours a day, five days a week, with trading beginning on Sunday at 5:00 pm EST and ending on Friday at 5:00 pm EST. However, many experienced traders avoid trading on Sundays and Mondays, and here’s why.
Limited liquidity
Liquidity refers to the degree of ease with which an asset can be bought or sold without affecting its price. In the forex market, liquidity is a crucial factor as it affects the bid-ask spread, which is the difference between the buying and selling price of a currency pair. High liquidity means a smaller spread, which makes it easier for traders to enter and exit a position.
On Sundays and Mondays, the forex market is not as liquid as it is during the rest of the week. This is because many banks and financial institutions are closed during the weekend, and they do not open until Monday morning. As a result, there is less trading volume, which can lead to wider bid-ask spreads, slippage, and increased volatility. Therefore, traders who trade on Sundays and Mondays are at a higher risk of experiencing losses due to unfavorable market conditions.
Market gap
Another reason why traders avoid trading on Sundays and Mondays is the market gap. A market gap occurs when the opening price of a currency pair is significantly different from its previous closing price. Market gaps can be caused by various factors, such as political events, economic news, or unexpected market developments.
On Sundays, the forex market opens with a market gap, which means that the opening price of a currency pair can be significantly different from its closing price on Friday. This can lead to sudden and unexpected market movements, making it difficult for traders to predict the market’s direction accurately. Moreover, market gaps can trigger stop-loss orders, resulting in significant losses for traders.
Low trading opportunities
Trading opportunities are scarce on Sundays and Mondays, as the market is not as active as it is during the rest of the week. As mentioned earlier, many banks and financial institutions are closed during the weekend, and they do not open until Monday morning. As a result, there is less trading volume, which means that there are fewer trading opportunities.
Moreover, many traders use Sundays and Mondays to analyze the market, prepare their trading plans, and set up their trades for the rest of the week. Therefore, they are not actively trading, which can lead to a lack of market participation and low trading volume.
Conclusion
In conclusion, experienced traders avoid trading on Sundays and Mondays due to limited liquidity, market gaps, and low trading opportunities. These factors can lead to unfavorable market conditions, increased volatility, wider bid-ask spreads, slippage, and significant losses. Therefore, it is advisable for new traders to avoid trading on Sundays and Mondays until they gain more experience and understand the market’s dynamics.
