Daily cut off in the forex market
All the regular options around the globe trade only for a limited time in the day. This includes the Dow Jones also. On weekends as well the markets remain closed. One of the biggest disadvantages of this system is that many people who are employed in any other sector but are interested in trading in the Forex market, find it difficult to do so. Either they have to start trading using their office systems or they have to depend on some other broker to get their options done.
This is where Forex differs from the conventional market. The forex market is a global market played across different countries. Since each country is in a different time zone, and the common thing among them is they are trading different ratios of currencies. So even if you come back late from work, you can still dabble in the forex market if you have an hour to spare.
Since the forex is a 24 hour market, it is difficult to settle transactions compared to the daily market as the market never closes. It is for this reason that there is a daily cut off in the forex market.
In a never sleeping market like Forex, daily cut off holds huge importance. Unless there is a cut off, it would not be possible to make out which day or period the transaction has been made. Without this, it is very difficult for banks around the world to reach a settlement with the investor.
Let's assume that your cut off is at 7pm. Now suppose you have two transactions that have taken place at 6.30 pm and at 7.30 pm. The daily cut off ensures that your 6.30 transaction is considered as the same day transaction, while your 7.30 pm transaction is the next day's transaction.
The major advantages of having a daily cut off are:
- Early settlement time
- Less of confusion in the various settlements
With the daily cut off in place, you can make your market forays accordingly keeping in mind the possible settlement times for the transactions. It is best to keep a daily cut off period according to your convenience so that you can make final changes in your investment before it.
Intraday and Overnight Possession of Currencies
Another important concept related to daily cut off is, for how long the trading period persists. Since, Forex market is always unpredictable time also plays a very crucial role. An intraday position is when you buy or sell your currency during a timeframe of 24 hours once the normal shift of the market makers has started.
On the other hand, overnight position is when the trading phase lasts even after one business day of the market makers gets over. An intelligent and expert investor knows every trick to make more than the maximum possible profits. And these people also take into account the time of the day when they are investing money in the market and their trading periods.