Does markets closing/opening affect our trades?

Or rather, a more appropriate title would be how does market closing/opening affect our trades, because I am sure they do.

For instance, if a particular pair is rallying and a market is about to close, can we expect profit taking? But we can also expect shorts covering, don't we? Where does that bring us to, or just a net effect and nothing happens?

When London closes, what additional impact does it have on the GBP and/or EUR? And when Tokyo is done, what additional impact will it have on the JPY?

Just curious, hoping to hear from other fellow traders here.

hi,

yes they are

I have here two examples:

point 1 :- before the market closing time, for example on Friday night, the spreads will go oddly very high.

for example EUR/TRY spread on normal hours is in average 200 points, while on Friday closing will be more than 900 points.

point 2 :- the swap for any pair will be killer to your profit on Friday night bcz it is swap for three days at one time

for example, my broker is giving me on the EUR/TRY pair a positive swap on short trades of the value USD0.29 for each 0.01 lot ( USD0.1)
so if I have 0.06 lot size trade, I will get +5.07 USD as a profit of the swap in Friday night.

however, if my trade was buy of the same pair my loss will be three times in the swap, so i do not buy this pair.

another example is AUD/USD , on recent, the long and short will give -ve swap, that is meaning if you keep your trades open on Friday night, then you will lose swap .

i include here some of my trades as an example.

thank you

so, i do like to close the in profit trades before the closing hours of the market on Friday night and to open some "ODD" trades to gain profit from the swap overnight as shown above to minimize the loss bcz of the swap.

for some trades, i am waiting for many days till the swap and the profit are giving me positive results as shown here in this example

i opened the trade on 17 and i close it on night of friday when the profit and the swap are showing +ve value

it is a a part of my strategy RSB

Hey Kovan, do you know how Sell-Side Equity Traders execute large institutional orders? If you know, relate that to how market opening & closing affect trades in FX, you will find similarity.

In case you don't, please let me know, I will explain in another post Sorry, doing some analysis now after market closed, preparing for the new day.

The moment the market opens with a gap one realizes that they definitely do, especially when that gap is large.

Hey Samer1970, thanks so much for sharing! That was very insightful.

Narafa, I would be glad if you could take the time to explain, cheers.

Kovan, sure. I am sorry for not doing so yesterday. I am done with trading today anyway, so plenty of time

Anyway, Sell Side Equity Traders work out large institutional orders throughout the trading session based on certain criteria & guidelines.

Early in the morning, i.e. before the trading session opens, they check everything around the market, news, announcements, earnings, their research department reports, etc...This is mainly to gauge the general sentiment for the day. (This is generally called getting the "Color of the market" for the day).

Next thing, they start talking to their institutional clients and start to get their order flow for the day from them. Now Institutional Investors already know what they want to do today before the market opens. Before the market opens, they prepare all their orders (Buys and Sells) and split them into chunks and send over to different brokers for execution (Where they land on traders desks early in the morning).

Sell Side Traders receive those orders and start grouping them together. They will also speak with each other within the same firm in a quick meeting to assess the execution strategy of the day so that they are all in Sync throughout the day.

Usually, there are certain specific instructions and guidelines for execution, like don't trade more than 20% of the stock volume at any point in time, get better price than VWAP or work the order on TWAP (VWAP is volume weighted average price and TWAP is time weighted average price "a moving average essentially).

Once the session starts, they start executing their orders in almost a systematic fashion depending on the structure of the orders they have.

For example, let's say that a Sell Side trader gets the following from Fund A:

 

1. A buy order for stock A (500,000 shares)
2. A buy order for stock B (250,000 shares)
3. A sell order for stock C (150,000 shares)

They also got the following from Fund B:

 

1. A Sell order for stock A (100,000 shares)
2. A Buy order for stock B (100,000 shares)
3. A buy order for stock C (25,000 shares)

So in fact, when they group, they will find out that they must buy 500k and sell 100k of stock A, they should buy 350k of stock B and buy 25k and sell 150k for C.

Strategy of execution for stock A:

Sell order starts first and be aggressive at the open (Attract liquidity for 500k buy order) so almost 20-25% of 100K will be executed at the open (During first half hour) while holding back the buy 500k (Very minor executions to happen at the open).

Guess what will happen? The sell orders at the open will put pressure on the price and might attract some sellers, where the trader can actually slowly buy from them parts of the 500k order.

Mid of the session, slow execution of 500k buy order leaving the rest of the 100k sell order till the end of the session.

Price slowly goes up as the traders buy order lifts price throughout the day (Slow accumulation).

This might also induce some buyers to the market and attract liquidity, whereby the trader can switch again between orders and start aggressively executing the sell order (Getting better prices now for it).

Finally towards the end of the session, the trader finalize executing the remaining parts of the 500k buy order.

This typically is the price swings you see throughout the day and it's largely dependent on the imbalance between the supply and demand as well as the different intervals of the session as the executing traders work out those orders. The real purpose behind those price swings are really the intention of traders executing large orders to hide their bias (to prevent the rest of the market from knowing the direction he is on, this is mainly to ensure best execution overall execution for their clients).

In the case of stock B, the orders are all buy orders, so the trader in that case does not have any choice but to start buying from the very first moment, so they will start light and in equal intervals will execute a certain amount of the order which will exponentially increase as the session nears it's closing.

Every hour or half hour, the trader will assess the order flow he is seeing in the stock trying to assess if he workout the rest of his order at better prices or whether he should be just lifting the offers.

There are also order book tactics that they use in order to trick the market & try to hide their real intentions, but that's something else.

When you compare this to the FX market, you will find it quite similar (Although there are some differences) since it's an OTC market and the banks take the other of the trade, but the tactics would be the same, how? The executions and the orders workout are done by Buy-Side traders (Hedge Fund traders, corporate traders, etc...), so they do the same tactics mentioned. Add to the complexity what the banks are doing as well and you get those wild unpredictable intraday swings you see everyday.

By the way, those human traders are mostly replaced by algos, but the algos pretty much work with the same strategies humans used (They were created & programmed by the same traders and use the execution methodologies which they used to use anyway, it only happens that they are more efficient and can handle as many orders as like while a human can only manage executing orders in max 6-9 stocks at a time).

So, beginning of the session is very important to know what potentially the order flow might be. The end of the session is useless and can be the most dangerous period to trade as it can be quite volatile.

Session opening can be tricky and it almost always is, I would say in 60-70% of the time, it's very tricky. However, it's opening of the session price action which can give you a clue as to what might happen in the meat (in the middle). In many cases, what happens at the session open is opposite what you would expect at the end (Except for those very strong trend days), but again it depends on the overall order flow of the day.

The bottom line is that institutional investors come to the trading day where they know what exactly they will be doing throughout the day, so the overall price action of today is pretty much known (It's rare when order flow comes in during the session, this happens in the case of unexpected events or from event driven algos, although even those event driven algos actually have their orders ready before the session opens as well, but they always can adjust depending on their parameters).

Hope this helps.