forex spreads: why do they peak at 22:00 GMT?

VITO LOMELE

New Member
Hi! I noticed that the spread for currency pairs sky rocktes to 5x bigger around 22:00 GMT and then slowly goes down back to normal levels within 1 hours. Does anybody know why? Thanks!
 

financeguy

Active Member
Hi! I noticed that the spread for currency pairs sky rocktes to 5x bigger around 22:00 GMT and then slowly goes down back to normal levels within 1 hours. Does anybody know why? Thanks!
22:00 GMT = 5pm NY
That's when one day officially ends and becomes the next (for most currency pairs), keeping in mind FX is a 24 hour market. Spot FX is generally a currency transaction settling in 2 business days. When the date rolls over to the next, so does the value date of spot, meaning there is more time value in the interest rate differential than there was just before the date roll. A spot currency transaction a minute before this time settles a whole business day before a spot transaction a minute after this time. This effect can be particularly pronounced on Wednesday evenings, when the value date of spot moves from Friday to Monday, adding a weekend of carry. Spreads widen temporarily because dealers need a moment to roll their systems and price new spot correctly to avoid dealing on a rate not perfectly reflective of the correct new value dates and forward points to those dates. Years ago, traders could quickly trade new value spot on Wednesday just after 5pm NY at the same rate spot was trading before the value date changed, and then take profit once the market adjusted to the correct pricing, but now it is a very well understood concept and automated dealing platforms prevent these issues from arising by widening spreads over the turn as they shift pricing.
 
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