As the forex market is decentralised and spans multiple continents, it operates almost continuously throughout the year. While it remains open even during most national holidays, there are some significant exceptions, like Christmas and New Year’s Day, when it shuts down. However, the local bank holidays can be particularly tricky for forex traders.

Banks play a significant role in the forex market. They facilitate a massive volume of daily forex trades and influence currency valuations. When local banks in a country are closed for a national holiday, it directly impacts the liquidity of that country’s currency.

While the broader forex market remains open, local bank holidays can reduce liquidity for specific currency pairs. For instance, if it’s a bank holiday in Japan, trading the Japanese yen (JPY) might be less liquid than on a regular business day. Reduced liquidity can translate to wider spreads and increased slippage, both of which can elevate trading risks and reduce profitability.

The impact of trading on bank holidays is more noticeable on less liquid currencies. For example, the euro versus the Czeck korona or US dollars versus the Korean won. 

Risks of trading forex on bank holidays

Trading forex on national bank holidays presents a mix of potential risks and opportunities. While some traders prefer to avoid these days due to the associated uncertainties, others view them as unique chances to capitalise on atypical market conditions.

Reduced Liquidity

With local banks closed for their national holiday, the trading volume for that country’s currency can drop significantly. This can lead to less market depth and increased vulnerability to large price swings. Reduced liquidity often translates to wider bid-ask spreads, making trades more expensive to execute.

Increased Volatility

Lower liquidity can also result in heightened volatility. With fewer market participants, orders of a relatively large size can cause substantial price changes. This can lead to the possibility of gapping – when the price jumps from one level to another without any trades occurring in between.

Limited Market Depth

With fewer active traders and orders in the market, traders might find it challenging to execute large orders without impacting the price. Stop-loss orders might not guarantee the desired exit price, leading to potential slippage and worsening losses.

Unpredictable News Impact

While local banks might be on holiday, the global news cycle continues. Any significant international news or events can influence the currency, but with reduced local participation, the reactions might be unpredictable.

Opportunities when trading forex on bank holidays

While there are several significant risks associated with trading on bank holidays, there are some opportunities for experienced traders.

Capitalising on Volatility

For seasoned traders, increased volatility can be a boon. If they can accurately predict the market’s direction, the larger price swings can offer more substantial profit opportunities within a shorter time frame.

Reduced Competition

With many local institutional traders out for the holiday, retail traders might find reduced competition, potentially allowing for a more straightforward identification of market trends driven by global players.

Potential for Gaps

Traders anticipating gaps might position themselves accordingly, hoping to benefit from sharp price movements. For example, traders might set limit orders at strategic points to capitalise on potential gapping. 

How to follow forex market bank holidays

There are many popular tools to monitor upcoming market holidays, such as Myfxbook.com and Tradingview. But you can also find this information from the platforms we offer.

In MetaTrader 4, if you right-click in the News tab in the terminal section, you’ll see a context menu with the option ‘Economic Calendar’. Clicking this item will launch the MetaQuotes economic calendar on the MQL5 website.

Another much more convenient way is to track upcoming holidays in the cTrader platform, which has an integrated calendar in the active symbol panel. cTrader automatically filters events based on the active symbol you’re monitoring.

Upcoming market holiday events from cTrader.

Summary

Trading forex on local bank holidays is a double-edged sword. While the unique market conditions can present enticing opportunities for profit, the associated risks can be magnified. Traders must be well-informed, apply prudent risk management strategies, and perhaps more importantly, recognise when to stay on the sidelines.

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