Labor holiday is coming, banks will be closed. Should we trade forex or not? We’re free at home and have nothing to do. Is it good to utilize this free time in trading?
Many traders ask such questions from experts. Because passionate traders know the value of free time. Whenever they get some free minutes, they want to spend these hours trading.
Experts say not every day is good for trading. Not every moment is right for opening trade and not every trade is winning. Time, days, and strategies play a vital role in making your trade successful. Trading is all about deciding the right thing at the right time.
There are many days in which trading forex is not advisable. Bank holidays are also regarded as the worst days to trade forex.
How do bank holidays affect forex?
Bank holidays hugely impact forex trading. In the absence of banks, the forex market is mainly illiquid. Low volume is traded and volatility is higher. This makes the trading riskier.
It’s better to spend bank holidays or public holidays with your family. It may have a good impact on your family life as well as trading. Trading obsession is not a good habit. When the market is not in your favor, take a rest.
What Do Bank Holidays Mean In a Forex
Bank holidays are the days when financial institutions are closed. These are business days but off days for banks. Such days might be international holidays or federal holidays.
In some countries, after yearly closing, physical branches of banks remain closed operationally.
Though one can’t say bank closing means all online transaction operations will be closed. In many banks of developed countries, the online operation of banks remains open even on bank holidays. American bank holidays are federal holidays. In forex, banks are major controlling bodies.
When there is a holiday in banks, forex activity still remains operational. But market conditions are not easy for traders to participate in.
5 Impacts of How Does Bank Holidays Affect Forex
What are the effects of bank holidays on the forex market?
Bank holidays have a huge impact on forex. They are the main regulating entities. When banks are absent it is difficult to understand price movement.
Below are 5 ways through which bank holidays can affect forex:
1. Banks Are Main Governing Bodies
How can you understand the business of a bank when the main operating body is absent? The same is the case with trading on bank holidays. It becomes difficult to understand what happens in the market.
When the main participant such as a bank is absent how can smaller participants like traders perform well? So, it’s a better idea to stay away and stay safe.
2. Traders Are Unable To Understand Price Move
Under normal conditions when banks are operating, it is easier to understand the movement of price. Through technical analysis, charts, and other tools traders can make the right prediction about price moves.
But when a bank is absent, it becomes hard to understand whether the price will go up or down at the same rate. It is also observed that price changes happen rapidly.
3. Technical Analysis Don’t Work Well
On working days, the price is usually stable. So, technical analysis, charts, and other tools seem to work pretty well.
But when the bank closes due to holidays, it becomes difficult to understand price movement through technical analysis. The reason is that price movement is so rapid to predict. Within seconds it may jump high. It’s risky for traders.
4. Low Liquidity with Higher Spread
When banks are closed, the amount of daily transactions reduces. This makes the traded volume lower. Hence liquidity also tends to be lower. This in turn increases the spread.
During Friday night, the spread tends to be higher. This is the time when banks transfer from one center to another. To discourage the activity of brokers, banks deliberately increase the spread. This makes trading costly and risky.
5. Difficult To Determine Direction of Market
When liquidity is lower, it becomes difficult for traders to understand the direction of the market. About 90% of your predictions can go wrong during bank holidays.
It is always difficult to predict whether the market will go in your favor or against you. If you love your capital, it’s better to stay away.
What Are the Risks of Trading On Bank Holidays
Why do experts advise staying away from trading on bank holidays?
There are several risks attached to trading on bank holidays. The major risk is lower liquidity and high volatility. For this reason, the price shows unexpected movement. The spread is also out of control most of the time. This can make your losing rate rise higher. It is better to be cautious.
Below are 4 potential risk factors that can affect trading on bank holidays. Let’s discuss:
1. Low Liquidity
One of the major risks is lower liquidity during bank holidays. Because banks share a low volume of trade assets. When activity is low, liquidity tends to be lower.
The illiquid market has always an unexpected effect on price moves. If you trade these days, your losing rate would be higher. You may not be able to understand price moves according to your expectations. So, it’s better to take off.
2. High Volatility
Another major reason that makes trading risky these days is high volatility. When liquidity is lower, the volatility will automatically be higher.
Only experienced traders who can handle the high volatile market situation successfully should trade this time. For newbies, it is strictly not advisable to trade on off-bank days.
3. Unexpected Price
During bank holidays, the price forecast is 90% wrong. You may think the price will go up but in reality, the price goes down.
It is also observed that indicators and other tools also don’t work properly on off days. That’s why it’s better to stay away from trading in these risky hours.
4. Unexpected Spread
During bank holidays, the spread tends to be higher or unexpectedly lower. When banks shift their centers near closing business hours, they deliberately increase the spread.
The reason for this increase is to stop the brokers of third parties from using illegal ways. So, trading during bank holidays can cost you much in terms of spread.
If you want to know when the banks of your country will be closed, check this post Forex Bank Holidays.
Most Asking Questions
Should you trade forex on bank holidays?
No, it is not advisable to trade forex on bank holidays. The reason is low liquidity, high spread, high volatility, and unexpected price moves. For fresh traders, it is riskier. Only those who are experts in handling sudden market moves should jump in trading during bank absence.
How do banks affect forex?
Banks directly control prices and interest rates. When interest rates are high, the borrowing power of people decreases. When interests are low, people borrow frequently.
This determines the value of the currency of the respective country. Therefore when banks are closed you will see sudden spikes in price. This makes forex trading risky.
Can you trade forex on holidays?
The forex market is open for trading from Monday to Friday night. However, you can’t trade forex from Friday to Sunday night and US holidays. However, the time of forex market opening varies in countries. It is available from 5 pm ET Sunday to 5 pm ET Friday
It is unfair to underestimate the role of banks in forex trading. Both banks and forex trading are inevitable to each other. Forex can’t survive without bank control. Though banks can survive without forex. So, banks are big bodies and major participants.
If banks are not there, forex would be a dull, illiquid, and non-tradable market. The main role of banks is to bring liquidity to the market by engaging buyers and sellers. That’s why the best strategy to trade forex is to trade in the direction of the bank.