Hedging with weekend trading
One key use for weekend trading is to offset potentially negative movements in a market that you have an open position on over the weekend.
Say you are long €5 on our weekday Germany 30 when the underlying market closes on Friday, but rumours emerge on Saturday that the chancellor is going to resign. If the rumours are confirmed you believe the Germany 30 will fall, so want to reduce your exposure.
On Sunday morning, we quote a weekend Germany 30 price of 12950. Rather than wait for the weekday market to open, you decide to sell €5 of our weekend Germany 30 at 12950. In this scenario your €5 long position on the weekday Germany 30 is now offset by your €5 short position on the weekend Germany 30.
A few hours later the chancellor announces her resignation, and our weekday Germany 30 market reopens on Sunday night at the lower price of 12850. However, as you hedged your long weekday position at 12950 by trading on our Sunday Germany 30, you’re protected against the losses involved with closing at the weekday market opening price of 12850.
Any Sunday positions must be held until 11.40pm CET to rollover into a standard weekday contract, and thus net off against your existing weekday contract.