What is Daily Cut-Off?
Daily cut-off is a term signifying the end of the trading day for foreign exchange markets.
How Does Daily Cut-Off Work?
For example, let’s look at the markets for Japanese and American currencies. Foreign exchange traders in Japan and the United States are in vastly different time zones and are often 14 or more hours apart when trades take place. Accordingly, when an investor initiates a trade in the United States, it may already be “tomorrow” in Japan, which can create challenges for recording the dates and times of certain trades.
Because the foreign exchange markets operate 24 hours a day, seven days a week, foreign exchange dealers therefore specify a daily cut-off times (say, 4 p.m.) so that investors can understand how their trades will be dated.
Why Does Daily Cut-Off Matter?
Because the exchange markets are 24 hours, the daily cut-off does not signify when the markets “close.” It signifies, rather, when one trading day ends and the next begins. This helps traders keep and report accurate records, and it also helps them calculate the correct amount of interest in related trades.