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 EXPERT PANEL |
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Expert panel
The best time to trade
Steve Mater, CFD Head of Sales MF Global
Are there particular times in the trading day when it’s a better time, or worse time, to trade? For example, some people say the mornings aren’t good times to place trades for some reason. I’ve also heard some traders say that they don’t hold a position overnight or over the weekend. Why is this?
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Today's expert: Steve Mater, MF Global | Australia’s stock market commences trading at 10am with the opening auction. Shares open in alphabetical order with the final matchings (the matching of bids and offers) finishing at 10.10am. A similar scenario occurs in the closing auction which takes place from 4pm - 4.10pm.
Some traders may avoid the morning auction because they believe the market has not found its overall direction for the day and a trend has not yet been set. Volatility, which some love and others hate, is further increased by buyers and sellers entering the market during the auction period and the period following the auction, between 10am and 10.30am. The first 20 minutes following the opening auction is a volatile time and once again many professional traders avoid this. An old adage known to many brokers is that mums and dads open the market, professionals close the market.
Avoidance of the auctions and other volatile times of the day are, presumably, based on two different types of traders – short and long term traders.
The short-term trader might enter the market after 10.30am and look for a very short-term directional move until 3-4pm, and then close their position so as to minimise risk by not holding it over-night. They are also looking to keep costs to a minimum and are not interested in paying interest (cost of carry) on the position.
However, the medium to long term traders have a very different outlook but are still faced with similar concerns as the short term trader, being risk and to a lesser degree costs. They may open a position at the opening auction price, as they are not concerned with where the market will trade during that session, but are rather looking for long term movements and trends over days, weeks or months.
Holding a CFD position overnight or over the weekend leaves a trader vulnerable to risk, in particular, exposure to other influential factors such as geo-political issues, economic data announcements and general market movements. Holding an overnight position means that your local CFD position cannot be closed until the following trading day.
It’s important for a CFD trader to realise that at the close of trading on the ASX some Asian markets are still open, European markets are just beginning to open and will trade until the early hours of the following day and the US will not open for several hours still. It’s easy to see that a lot can happen during that time frame. Bad fundamentals, Fund activity or worst still, a terrorist attack may all lead to negative movements in the market. Being long CFDs over the 9/11 terrorist attacks for example would have resulted in major losses by many traders. A similar situation occurred more recently in February with the meltdown of the Chinese market.
One of the most important issues when trading CFDs is determining what level of risk the trader can absorb. If they are not comfortable with the risk of international markets affecting their trade then they should close their position each day.
More articles from this week's newsletter:
ANZ: will the new CEO sing in tune?
Companies to benefit from the rise of the grey nomads
What is the ideal mix of companies?
Trading: is your bargain stock a lemon?
Investing in a toppy market
Stock of the week: TPI
Inflation: when is 'core' not so core?
Analyst report: gold bull seasonals
Investing: Paying the cost of confidence
Disclaimers: The views expressed in this article are those of Steve Mater, a representative of MF Global and is not intended as general advice. This does not constitute a recommendation nor does it take into account your investment objectives, financial situation nor particular needs.
Our panel of experts are available to answer any questions you have on products and strategies, or simply to explain a particular term. The team consists of experts on CFDs, forex, shares, options, warrants, futures and ETFs. If you've got a question, you can post it at: Your 2 Cents, in the 'Ask the Expert' section.
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