Effects of Bank Holidays on Forex Pairs

Local holidays significantly influence the forex market. The majority of FX transactions are conducted within their framework, giving them substantial control over the value of their country’s fiat currency.

During nationwide closures, notable effects can often be observed on the nation’s legal tender and trading volume.

Let’s look at some of the negative things that may happen to a currency when all its local banks close, when there is a public/national holiday:

1. The trading volume of the affected currency reduces

A nationwide closure limits domestic (in-person) transactions involving the local fiat money.

This minimised market activity can lower trading quantity and liquidity.

It makes the legal tender more vulnerable to volatility.

2. Dramatic or unpredictable price movements

Furthermore, when fewer players are involved in trading, we see market behavior become very dramatic and inconsistent.

Low participation levels may lead to subdued price changes or cause sharp and unexpected price swings (intense fluctuations).

3. You may experience wider spreads and slippage

Bank closure can also lead to unexpected slippage and spreads in markets involving the local money.

You may experience a high cost of trading pairs involving the affected legal tender.

Additionally, your stop loss orders may be triggered at prices worse than what you speculated.

4. Currency value may depreciate (if the closure prolongs)

Lastly, an extended or sudden bank shutdown can signify a deeper economic or political instability.

A situation like this may prompt investors to lose confidence in the currency. They may withdraw/sell their funds or investment.

And consequently, the value of the currency would become weak.

(However, this point strongly depends on the nation’s economic outlook & investor perception).

It is important to note that the overall negative effect or impact of bank closure on forex pairs is primarily dependent on the size and importance of the country in the global market.

FAQs

Can you trade forex on a bank holiday?

Yes, it is possible to trade FX on a bank holiday because the foreign exchange market remains operational throughout the week.

But trading conditions may differ.

You must be open to experiencing low liquidity and unusual price movements.

What does it mean if it’s a bank holiday?

It means a day when financial institutions (including banks) are closed in a particular region due to a public holiday.

On such a day, in-person banking services are unavailable.

How many hours can you trade on a bank holiday?

Trading hours remain unchanged during a bank holiday. The FX market is active from Monday to Friday.

However, the level of participation and volume may be lower in the regions where banks are closed, which could influence trading outcomes.

Do banks trade forex every day?

Banks usually engage in trading on regular business days (excluding weekends & national holidays).