Assessing the risk of open positions on weekends

There are several reasons not to leave a position open over a weekend in most markets. In FX, one reason is purely financial in as far as the margin requirement to fund that position doubles or more. As you are probably aware, the margin is set by the ‘broker’ in the FX markets. In the regulated futures markets the margin is set by the clearing house and/or the exchange.
This must surely be a sign that holding a position over a weekend is, or can be, dangerous. The danger comes from the fact that the markets are closed and hence any stop loss would be ineffective if the market were to gap over your level. This applies equally to the futures market or any market that does close from one session to the next. Interestingly, a market can even gap over a price level intraday!

A perfect example was seen in the EurUsd pair. That market finished at 1.30396 at the end of one week and opened at 1.30567. The actual prices may be different on your trading platform. This was a gap on the open of .00171 (even though I marked it as .0015 on the chart). No big deal perhaps, although the actual $$ difference will have depended on the size of position you had held over the weekend.

Historically, the largest gap on the open over a weekend that I have seen has been 300 pips in the Yen. Painful or mega-rewarding! That depends on which side you were on!

Trading is a tough game at the best of times, so why take the extra gamble when it is not necessary to do so.

 

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