A Weekend Gap, in financial markets, refers to a noticeable difference between the closing price of an asset on Friday and its opening price on Monday. In crypto, where markets operate 24/7, this term more specifically applies to significant price discrepancies that develop between the close of traditional financial markets on Friday and their reopening on Monday, impacting crypto assets that are often traded against fiat pairs. Its purpose is to highlight price dislocations caused by market-moving events occurring when traditional markets are closed, but crypto markets remain active.
Mechanism
The operational logic involves comparing the last traded price of a crypto asset (often a major one like Bitcoin) before the weekend trading slowdown in traditional finance with its first traded price as traditional markets resume. During the weekend, lower liquidity in some crypto trading pairs, or specific news events, can lead to substantial price movements that are not immediately arbitraged away by institutional capital, which is less active during these times.
Methodology
The strategic approach to addressing weekend gaps involves monitoring global news flows and market sentiment during off-hours, particularly for assets highly correlated with traditional finance. Principles include adjusting risk parameters for weekend positions, utilizing options or futures to hedge potential price movements, and observing the opening of traditional markets for immediate price discovery. This methodology helps traders anticipate and react to price shifts that can occur in crypto markets when a primary liquidity source is temporarily absent.
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