The Turkish lira and the weekend gap

[Fairman]

The Turkish lira and the weekend gap

USDTRY is a pair that illustrates how fragile an exotic can be. It trades with a spread of 20 to 100 pips on retail platforms, and it can jump on political news in a way that no technical analysis predicts.

Weekends are the most dangerous time. News breaks on a Saturday, and when the market opens on Sunday evening, the pair gaps by hundreds of pips. Stops don't help, since there's no price to execute at until the gap.

The currency has also shown a pattern of sudden devaluations following central bank decisions or political events. Each time, accounts holding the "safe" side of the trade took heavy losses.

The positive swap on long lira positions looks attractive and has lured many traders into carrying the pair. The carry income can be wiped out by a single day.

For a scalper, the pair offers a very large spread and a wild ride, and for most, the best decision is not to trade it.

Any strategy that works on it should be tested with an assumption of a one-in-a-hundred-days gap of several hundred pips.

Is a pair with a known devaluation tail ever worth scalping, or does the carry hide the risk?