Trading Rollover with Global Prime
Trading around roll-over carries high levels of risk and can come back to bite you if steps are not taken to manage your risk.
Please see below for more information.
Market Open/Market Rollover
It is important to be aware of the Market Rollover period and how this can impact your trading.
The daily market rollover occurs at 00:00 (New York Time - GMT +2/3) and is a period in the trading day when the interbank market is less liquid as market participants stop pricing for daily operation processes. During the reset period, the liquidity in the underlying market is significantly reduced as the banks are getting reconnected to the trading session. Consequently, spreads across all FX and Metals products noticeably widen during this time when compared with more liquid periods throughout the trading day. What persists is a general period of increased market volatility until a steadier stream of pricing from liquidity providers has returned generally 30 minutes to an hour after roll-over.
In addition to widened spreads, traders can also expect to see volatile market movements and gaps in pricing that are not typically seen throughout the trading day. Whilst this may be seen as an opportunity by some, it is a fundamentally risky period in the trading day and open positions may be adversely affected by the increased volatility. As a protective measure against the unpredictable pricing that is characteristic around the market rollover, Global Prime institutes a daily 3-minute break in trading from 23:59 (New York Time - GMT +2/3) - 00:02 (New York Time - GMT +2/3) where no orders can be placed, and pre-existing orders cannot be executed during this time. The market rollover period is not something that is unique to Global Prime, it is a wider market phenomenon and is a reality of trading in the interbank market.
Stop Loss/Take Profits/Limit Orders
Global Prime's limit orders function as 'Triggers' in contrast to guaranteed limit orders. This means that when the market reaches the stop-loss or take-profit level, the system will trigger the order into the market, and it will be filled at best available price in the market. During normal market conditions, limit orders are generally filled at the requested limit price however, during roll-over as a result of the reduced liquidity, stops and take profits can be filled at significantly different levels then what has been requested.
Why? The reason is due to the lack of liquidity in the underlying market which means there is not many participants pricing around this time. Therefore, if the limit order or stop-loss level is reached and the order is triggered, the requested price may no longer be available which can result in adverse or partial fills, VWAP’s and slippage.
In a time like market roll-over where spreads are wider than usual, the next best available price may not necessarily be a favourable price for traders and there is a chance that they can be filled at a significantly worse price than the price limits that they have set. Accordingly, traders should be aware of this when leaving positions open and opening new positions during the market open and roll-over periods and take steps to mitigate the potential for adverse fills, volatility, and slippage.
Market Liquidity: Major Pairs v Minor Pairs v Exotic Pairs
On your trading platform you will see that our FX Products are broken down into 3 categories:
- FX Major Pairs
- FX Minor Pairs
- FX Exotic Pairs
The fundamental difference between these 3 categories is the volume by which these pairs are traded.
A pair is considered a Major pair because it is more commonly traded than a Minor pair or an Exotic pair. A higher trading volume for a specific pair attracts more price competition from liquidity providers as they compete for this demand. Major Pairs which are highly liquid, can typically be traded in large quantities without fundamentally impacting the exchange rate. A welcome by-product of this increased demand is lower spreads and less overall volatility. Major pairs include pairs such as EURUSD, AUDUSD, USDCAD which have an average spread of 0.16, 0.28 and 0.67, respectively.
In contrast to this, Minor and Exotic pairs are less commonly traded than their major counterparts. However, it is important to note that the difference between a minor and exotic pair in terms of volume can be large. For example, Minor pairs such as AUDCAD or EURCAD (average spreads of 1.12 and 1.47) have a much higher level of trading volume than Exotic Pairs such as EURSEK or USDZAR (average spreads 27.76 and 85.04). As there is lower demand for these pairs, spreads tend to be wider to compensate for the risk of a Seller not being able to quickly find a buyer and vice versa. Providing that there is less pricing competition and trading activity, these Markets can be more prone to erratic movements and price gapping as the exchange rate is more sensitive to market activity.
The impact of these spread differentials is magnified at a time of general market illiquidity such as Market Rollover, where you can expect to see spreads that are normally tight, widen as there is less pricing than usual and spreads that are usually wide, widen significantly.
Please feel free to ask our support team for a comparison of our spreads with the competition.