The Forex Market & Its Unique Gaps
One key difference between Forex and the stock market is that the former runs 24 hours a day. Forex trading takes place constantly, throughout the day and only stops on weekends, and only because the volume of orders is too low. So technically, the Forex market is never actually closed for business.
The main effect of this can be witnessed on a Forex chart. There are no gaps on such charts. Now a gap on a chart can be described as the time period dividing the opening of one session and the closing of its predecessor. When the gap between the two sessions is pretty big, it is signified by a physical gap on the chart.
On a stock market related chart, there are several gaps because trading usually comes to a halt in the afternoon and resumes the next morning. If an organization’s earnings are announced after the close, its price on the next day could either be higher or lower than the previous day’s close. Any sudden news with real significance that causes ripples in the view of the market’s value can end up creating a gap on the chart.
On the other hand, a Forex chart does not contain any gaps at any point on a weekday as it always remains open and operating. But, a gap almost always pops up between the closing price on a Friday and the opening price on a Sunday.
For example, pull up a chart on a week’s trading. Since the Brexit negotiations are about to begin, the EUR/GBP chart would be particularly significant. Depending on the latest comments or events or postures, the chart will show that the EUR/GBP has opened lower or higher on a Sunday when compared to its closing price on the Friday.
Whenever traders notice a gap on the chart, the first thing they do is search for the market to move back and fill up the gap. For example, if the price closes on Friday at 1.2500 but opens at 1.2525 on Sunday, traders will usually move back down to 1.2500 to fill up that gap. They then proceed to evaluate the news and its impact on the change.