I have noticed that the spreads are always higher on Sunday when the market first opens compared to the rest of the week. Why is this?
For example, if a typical spread on the EUR/USD is 3.2, why does it range around 5.0 to 5.5 when the trading desk first opens on Sunday?
It’s just like everything else in the world, supply and demand issues.
That’s the shortest answer I can come up with without going into great detail.
This is what is known as a [I]dynamic spread[/I], “dynamic” because it is subject to change, versus a “fixed” spread, which is not no matter the market context.
Not all brokers use them, but of those that do, you’ll see spreads widen on Sunday evening, Friday afternoon, and on specific pairs just before and during release of economic data that impacts either currency. Brokers do this to maintain a liquidity balance because there are either (in the case of Sundays/Fridays) fewer participants or a sudden burst in order flow (as in the case of news releases) where an atypically high number of market participants are entering and exiting the market at once.
Me and my suspiscous mind. I was thinking that the brokers were just gouging us during times of unusually high or low voulme. :rolleyes:
In all seriousness, brokers are in business to make money (which they deserve) so this makes perfect sense.
Thanks for your input!