
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. For example, let's say a forex dealer specified that the daily cut-off was 5 p.m. every day, and a trader placed two forex trades on the evening of Dec. 31 — one at 4:50 p.m. and another at 5:10 p.m. Since the daily cut-off is 5 p.m., the first trade would be booked as taking place on Dec. 31, while the second would be recorded as a Jan. 1 trade, taking place in a new calendar year, since it took place after the 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. Although the forex market trades 24 hours a day, the market and its intermediaries require a specified beginning and end to each trading day. For example, in the scenario above, the trade done at 4:50 p.m. will have a settlement date of Jan. 2, assuming Jan. 1 and Jan. 2 are not weekends, and the trade done at 5:10 p.m., will settle the following business day.

What Is the 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 administrative, logistical, and financial reasons including accounting and bookkeeping, data integrity, and interest credits or debits.



Understanding the Daily Cut-Off
Although the forex market trades 24 hours a day, the market and its intermediaries require a specified beginning and end to each trading day. This allows them to properly record trade dates and define settlement periods. It also establishes a moment in time where dealers will make or take payments based on comparative interest rates of the currencies being traded.
Because the forex market is decentralized and is not based on a physical or even virtually distinct location where trading is regulated, each individual forex dealer must implement this cutoff themselves. There is no regulation about when or how this should happen. For the purposes of data integrity and comparability across charting platforms, dealers naturally establish a daily cut-off similar to the change of the day in a meaningful time zone. But what is meaningful to one clientele may not be as meaningful to another, thus the differences between one dealer's chosen daily cut-off and another dealer.
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 p.m. will have a settlement date of Jan. 2, assuming Jan. 1 and Jan. 2 are not weekends, and the trade done at 5:10 p.m., 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 that roughly corresponds to midnight in the U.K. or Europe. However, some emerging market currencies will cut-off earlier in the day, especially for those trades that are non deliverable.
Example of the Daily Cut-Off
For example, let's say a forex dealer specified that the daily cut-off was 5 p.m. every day, and a trader placed two forex trades on the evening of Dec. 31 — one at 4:50 p.m. and another at 5:10 p.m. Since the daily cut-off is 5 p.m., the first trade would be booked as taking place on Dec. 31, while the second would be recorded as a Jan. 1 trade, taking place in a new calendar year, since it took place after the daily cut-off. Imagine another trader made the exact same trades at the exact same times, but with a different forex dealer who used a daily cut-off time one hour earlier. In this example, the first trader has records establishing trades in two different calendar years, while the second trader has both trades in the same calendar year. Such a distinction may be arbitrary, but as this example points out, it could have meaningfully different tax consequences.
Related terms:
Dealer
A dealer is a person or firm who buys and sells securities for their own account, whether through a broker or otherwise. read more
Foreign Exchange (Forex)
The foreign exchange (Forex) is the conversion of one currency into another currency. read more
Forex Market
The forex market is where banks, funds, and individuals can buy or sell currencies for hedging and speculation. Read how to get started in the forex market. read more
Forex (FX) , Uses, & Examples
Forex (FX) is the market for trading international currencies. The name is a portmanteau of the words foreign and exchange. read more
Opening Bell
The opening bell is rung on the trading floor of the New York Stock Exchange (NYSE) to signify the start of the day's trading session. read more
Overnight Limit
The overnight limit is the maximum net position in one or more currencies that a trader is allowed to carry over from one trading day to the next. read more
Overnight Position
Overnight positions refer to open trades that have not been liquidated by the end of the normal trading day and are quite common in currency markets. read more
Settlement Period
In the securities industry, the settlement period is the amount of time between the trade date—when an order for a security is executed, and the settlement date— when the trade is final. read more
Trade Date
A trade date refers to the month, day, and year that an order is executed in the market. read more