Why The US Cash Open Is Important?

Due to the increase in volatility and volume and the US & London cash open it's important times for FX traders to keep track of each day.
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An experienced currency analyst that specialises in short term sentiment and news driven trading.
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We have a quick question from Niroshan asking what we mean by the US cash open and how does it affect the market?

Thanks for the question Niroshan. So, the US cash open is simply the time of the day when the US stock market opens up. As you know you get cash markets and futures markets, the futures market trades both during market and after-market trading hours, but the cash market or underlying instruments for those futures markets only trades during their relevant exchange hours.

For example, you can trade the e-mini S&P500 futures throughout the day, but the S&P500 index or cash index only trades during the relevant stock exchange trading hours, which in the case of the US cash open is 14:30 UK time and runs until 21:00 PM UK time.

Now, whether it’s the US cash open or the London cash open, the reason why the cash open is important for traders has to do with volatility. What can often happen at the cash opens is that we see some head fakes as the underlying equities open up, and the reason why this can happen is because pre-market orders get executed at the open which can see equities rise and fall at the open but can then be followed by sharp reversals of those moves as new order hits the market which might be more in line with the overall sentiment in the market.

Now apart from some possible head fakes, the new orders hitting the market for underlying assets can create additional volatility and volume in the market, which might be in line with the current sentiment or not.

So, what that means, is that it can get a bit messy due to all the volatility and the increased volume and as traders we need to be aware of that so that we can either prepare for a possible spike in movement which might put our current trades at risk.

It’s especially helpful to know that we might see some choppy price action during those times when we are planning to enter the market. So, if you are planning to take a trade, and you see that you are an hour or two away from a cash open, it might be worth waiting to get that out of the way before you commit to a new trade to get that out of the way.

There is of course a good way for us to know where cash markets will open by keeping tabs on the futures markets, but with pre-market and new orders hitting markets simultaneously, the market might not be following the same trend as the futures market had, which means it’s an important time when new traders might take the market in another direction.

Now, there is no way in knowing when or how this might occur, or when possible head fakes might occur, which makes it a very tricky time of the day for markets, especially risk assets, and is why we always want to be aware of it.

So, hope that helps with the question Niroshan, any other questions don’t hesitate to let us know.

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