Timing is everything

Because 5 p.m. ET is considered by many to be the beginning of the forex trading day, it is also the time many market makers have chosen to charge or collect interest on open positions. Currency traders who pay no attention to interest charges or credits might be surprised at the amount they arepaying, while those who do focus on this aspect of trading are often able to use interest credits to their advantage.

In order to avoid interest-rate charges, orders should be entered just after 5 p.m. ET when using this strategy. That time equates to 22:00 Greenwich Mean Time (GMT), which is the standard measurement of time used by currency traders. It is important to note that GMT does not recognize Daylight Savings Time, which is known as “Summer Hours” in the UK. Therefore, the time of day for order entry for this strategy will be 21:00 GMT when Daylight Savings Time is being observed.

Why do forex traders use GMT as a reference point? Imagine you are in the western United States, on a conference call with traders located in London, New York, and Singapore. One participant mentions that important news is expected to hit the wire at noon. This can create confusion, because you may not know which participant made the comment or where that person is located. However, if one of the participants states that important news is due to come out at noon GMT, there is no misunderstanding about the time. All the traders on the conference call will be prepared for possible short-term market volatility at the time of the news release.

This strategy — the “boomerang” — uses the euro/U.S. dollar currency pair (EUR/USD), which is attractive for short-term trading strategies because it has a tight spread. When using short-term strategies, every pip matters and a slightly wider spread can mean the difference between success and failure.

As a result, trading this strategy on platforms with variable spreads is problematic, because spreads tend to widen during illiquid times of day. Because the strategy is implemented at a time of low liquidity, a fixed-spread platform is recommended when using this strategy.

This is a brief “slingshot” style of trade that is designed to capture a quick profit and is intended for use at one specific time of day only.