The "Friday Effect" is often mentioned in connection with the Forex (Foreign Exchange) market. It is used by some traders to guide the direction of their trades, particularly in a weak market.
What is It?
The Friday Effect is the inclination of the market to rally as closing time approaches at the end of the week -- particularly on the last day, according to Saurabh Mukherjea, head of India equities at Noble Group; a British investment bank.
What Causes It?
Traders and brokers like to close trades before the end of the week as they can get overtaken by events if the market suddenly changes direction during the Australian, Asian or European trading hours. They are then unable to react until the U.S. market opens.
Other Causes
There is also an idea that brokers do not want to upset the Asian markets when they open after the weekend, according to InTheMoneyStocks. If the main markets close on a downturn, the Asian markets may follow suit, depressing the market further.
Other Friday Events
Friday is often the day for bad news to be released--the theory being that it will get forgotten over the weekend. There are also some regular important news announcements, such as the monthly release of the non-farm payroll figures.
Warning
Despite the fact that the Friday Effect is very often seen in the market, it should not be relied on for trading purposes. There are many other factors that can influence the closing price.
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