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 FTSE when the underlying market closes on Friday, but rumours emerge on Saturday that the prime minister is going to resign. If the rumours are confirmed you believe the FTSE will fall, so want to reduce your exposure.
On Sunday morning, we quote a weekend FTSE price of 6700. Rather than wait for the weekday market to open, you decide to sell £5 of our weekend FTSE at 6700. In this scenario your £5 long position on the weekday FTSE is now offset by your £5 short position on the weekend FTSE.
A few hours later the prime minister announces their resignation, and our weekday FTSE market reopens on Sunday night at the lower price of 6600. However, as you hedged your long weekday position at 6700 by trading on our Sunday FTSE 100, you’re protected against the losses involved with closing at the weekday market opening price of 6600.
Any Sunday positions must be held until 10.40pm (London time) to rollover into a standard weekday contract, and thus net off against your existing weekday contract.