Excerpts from the article — (I have added the bold-type for emphasis)
The Japanese financial market will be closed for 10 full days, due to the May 1st Japanese imperial transition. The event will be the longest market closure since the Second World War.
With the event widely expected, firms are making preparations for it ahead of time. That said, a bit of extra mindfulness about poor liquidity conditions during the Asian session between the 27th of April and the 6th of May is warranted.
“The upcoming 10 day holiday in Japan could very well present liquidity issues in the broader market, especially during the 5 pm EST rollover, also known as the witching hour,” said Jeff Wilkins who is the Managing Director of IS Risk Analytics.
Just got this message from IC Markets (Aust)…so it’s serious…
Dear Trader, WARNING: Potentially hazardous market conditions - Japanese golden week
Japan has an extended spring vacation, ‘Golden Week’, from 27th April to 6th May. This will be the longest market closure since the end of World War II, creating potentially hazardous market conditions due to the low liquidity expected across all markets during Asian hours.
Low liquidity, especially during Asian hours, can create extreme market movements aka ‘flash crashes’. Recent examples of these include:
• 3rd January 2019 - JPY crosses +10%
• 7th October 2016 – GBP crosses -10%
What does this mean?
There will definitely be lower liquidity during Asian market hours. This will mean really slow markets and wider spreads during Asian hours with the potential for extremely fast-moving markets and extreme price moves.
What should you do?
IC Markets urges all its clients to take precautionary measures before the holidays. This includes assessing and reducing risk exposures, setting stop levels, especially on JPY crosses. Furthermore, additional funding may protect clients from large adverse movements in the market.
In order to protect clients from poor liquidity & sharp adverse movement, IC Markets reserves the rights to change the leverage on all symbols, without giving further notice, should the need arise.
We will carefully monitor market conditions, and should there be any further changes, we will contact you via email, the trading platform, or post changes on our website.
Several different scenarios are possible. For example –
(1) JPY pairs could be the only pairs impacted — because the market shut-down affects Japan only.
(2) Other APAC (Asian-Pacific) currency pairs (for example, AUD, NZD, SGD, HKD, and CNY pairs) could be affected, along with the JPY pairs — because the APAC currencies trade heavily alongside the yen in the same time period (during the Tokyo business day).
(3) Trading in all currency pairs could be affected during the normal trading hours for the Tokyo Session (2300-0800 GMT), and especially during the two-hour period surrounding the daily rollover (say, 2100-2300 GMT) each day — because that’s the time of day when banks normally transfer their trading books (open positions and open orders in all pairs) from their New York branches to their Tokyo branches.
(4) The whole thing might amount to nothing, depending on (a) the extent to which market participants avoid (or not) the Asian Session trading hours, and/or (b) the extent to which Singapore and Hong Kong are able to make up for the lack of liquidity in Tokyo. Recall that in recent years, the Singapore and Hong Kong markets have both overtaken Tokyo in size, as measured by daily trading volume.
(5) Worst-case scenario: Nothing dramatic happens for several days, leading market participants to conclude that this was all a false alarm, leading them to become complacent, and leading them to increase their exposure to market risk. And then, out of nowhere, a flash-crash occurs, triggered by high-frequency trading algorithms. Vast sums of money change hands, as winners enjoy unexpected windfalls, and losers pay the price.
The following chart (also Oanda) shows what an extreme flash-crash would look like.
This was Oanda’s GBP/JPY 1-minute chart, as it appeared over the weekend. Similar crashes appeared on Oanda’s AUD/JPY, CAD/JPY, CHF/JPY, and NZD/JPY charts at that time. Oanda’s USD/JPY and EUR/JPY charts did not show anything similar.
On Monday, Oanda revised the 5 charts which had previously shown catastrophic crashes.
Here’s what the revised GBP/JPY 5-minute chart looked like on Tuesday – the 11,235-pip “crash” previously shown was revised to 10 pips
I did not see anomalies like these on other platforms. I have no idea what’s was going on with Oanda.
Your image (Oanda AUD/JPY 15-min chart) is showing the following numbers:
O : 78.134
H : 79.788
L : 78.112
C : 78.143
I’m not seeing numbers like those elsewhere.
For example, here are 2 screen-shots of the NetDania AUD/JPY 15-min chart — the first without mark-ups, and the second with cross-hair on the 17:00:00 (5 pm New York) candle and the data box for that candle –
I find that this is one very educational post. I have never before heard about term flash-crash and it was very interesting to read about it. Actually, I have never experienced that one market is closed for so long, so probably this is reason why I haven’t heard about this term
