Forex Daily Cut-Off

DEFINITION of Daily Cut-Off

In the Forex market, the daily cut-off is a specified point in time set by a Forex dealer to stand as the end of the current trading day and the beginning of a new trading day. This is done for primarily administrative and logistical reasons, because although the Forex market trades 24 hours a day, the market and its intermediaries require a specified beginning and end to each trading day in order to record trade dates and define settlement periods.

BREAKING DOWN Daily Cut-Off

For example, let’s say a Forex dealer specified that the daily cut-off was 5:00 pm every day, and a trader placed two Forex trades on the evening of January 1 – one at 4:50 pm and another at 5:10 pm. Since the daily cut-off is 5:00 pm, the first trade would be booked as taking place on January 1, while the second would be recorded as a January 2 trade, since it took place after the daily cut-off.

The daily cut-off date is important in that it sets the value date for the specific trade. Because spot trades are settled T+2, the trade date is required. For example, in the scenario above, the trade done at 4:50 pm will have a settlement date of January 3, assuming January 2 and 3 are not weekends, and the trade done at 5:10 pm, will settle the following business day. So, despite the trades being just 20 minutes apart and on the same day they will settle on separate days.

Most currencies will have a daily cut-off of late afternoon eastern time. However, some emerging market currencies will cut-off earlier in the day, especially for those trades that are non deliverable.

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