Weekend gaps: why prices jump when the forex market reopens

The forex market closes at 5 p.m. New York time on Friday and reopens at 5 p.m. New York time on Sunday. Events over the weekend, from elections to geopolitical news, can mean the first price on Sunday is some distance from Friday's close. That jump is a gap.

Why gaps matter

During the weekend there are no trades, so prices can't move gradually to reflect new information. When dealers start quoting again, the first price already includes everything that happened.

For a trader holding a position, that means:

• The position is repriced at the new level immediately.
• Stop-loss orders caught inside the gap are triggered and fill at the first available price, which can be well beyond the stop level.
• Pending entry orders inside the gap can also be filled at a worse price than planned.

Liquidity at the open

The first hour after the Sunday open is usually thin, because only a few financial centres are active. Spreads can be several times wider than normal, and the initial quotes may not reflect where the market settles once Asian and then European trading picks up. Gaps sometimes close again as liquidity returns, but there is no guarantee.

Holidays and events

Gaps can also happen:

• After public holidays in major financial centres
• Around scheduled weekend events, such as elections or referendums
• In CFDs on stock indices, when the underlying exchange is closed overnight

Some brokers raise margin requirements before high-risk weekends and warn clients in advance.

Crypto keeps trading

Many brokers offer crypto CFDs that trade seven days a week. Weekend moves in bitcoin can be large while currency markets are shut, so margin on crypto positions can come under pressure on a Saturday.

Managing gap risk

• Reduce position size before weekends if you hold trades through them.
• Remember that a stop-loss limits losses in normal markets, not through gaps. Slippage explains why.
• Guaranteed stop-loss orders, where offered, protect against gaps for a fee.
• Check the economic calendar and the news on Friday for scheduled weekend events.
• Negative balance protection, required for retail clients in the EU, UK and Australia, caps losses at your account balance; see negative balance protection.