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IS THE FOREX MARKET OPEN 24-7?
The forex market is the largest and most active financial market in the world. According to Finance Magnates, the global forex market is almost $2 trillion worth in 2019, 12 times higher than the futures market and 27 times higher than the equities market. So does the forex market have the same trading hours as other financial markets? This article will provide a detailed answer to the question.
The answer depends on how you understand the definition of the forex market.
According to Wikipedia, the forex (foreign exchange or FX) market is “a global decentralised or over-the-counter (OTC) market for the trading of currencies.” Trading forex doesn’t take place in a central location but is done between participants via electronic communication networks (ECNs) in major financial centres across the world.
In that online forex market, participants include large international banks, commercial companies, retail traders and even brokers. In reality, they don’t intend to deliver or take the delivery of a quote currency itself, yet they are more interested in gaining profits from price fluctuations. Therefore, when you trade forex on customised trading platforms (e.g. MetaTrader 4 or MetaTrader 5) offered by brokers, you can conduct some foreign exchange transactions 24 hours a day and in 5 days (from 10 PM GMT+0 on Sunday to 10 PM GMT+0 on the next Friday).
On the other hand, the forex market is generally understood as the market where a base currency will be sold to concurrently buy a quote currency. Accordingly, you can wonder: if you swap GBP (pounds) for JPY (yens) to prepare for the upcoming trip to Japan, are you participating in foreign exchange trading? The answer is YES. Trading forex is the process of selling one currency to buy another. So the given example is the simplest form of forex trading.
Participants, in this case, can be commercial companies that buy foreign currencies for commodity purchase or ordinary residents who plan to travel in the future. They unintentionally conduct forex transactions and may exchange currencies in local banks or bureaux de change within certain opening hours. Especially the latter locations can be open all day in airports and even over time. So trading forex can be, in nature, done 24/7.
However, in this article, we are talking about online forex trading as a job which takes responsibility for opening a position, checking an economic calendar, using indicators and orders to predict price movements and protect the trade before exiting the trade in a proper time. Answers for three following questions mostly focus on this aspect. Hence, as a forex trader, you should get to know that the online forex market you are in can be open 24 hours a day but is closed on weekends.
Can You Trade Forex 24 Hours a Day?
It relies much on which currency pairs you are about to trade. Normally, currency pairs are divided into three groups: major, minor and exotic pairs based on their daily trading volume.
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Of which, major pairs include the most globally traded currencies and the hefty 85% of forex transactions are conducted on such 7 major pairs as EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD and NZD/USD. They are very liquid and have very tight spreads. Meanwhile, minor or cross currency pairs don’t entail the US dollar, but mostly involve Yen, Euro and British pound. Those crosses are a bit more volatile with slightly wider spreads.
Those currencies come from countries that have a politically and economically stable status. So those valuable assets are in high demand and constantly traded 24 hours a day.
Exotic pairs, however, include a major currency and a currency of an emerging economy. They have lower liquidity, higher volatility and larger spreads, so fewer traders are willing to trade those less popular currency pairs. So any trades related to such pairs are limited to specific trading time. For example, CHF/PLN (Swiss Franc/ Poland Zloty), EUR/PLN or EUR/NOK (Euro/ Norwegian Krone) allow forex traders to join the market from 9.15 PM to 8.57 PM GMT+0, according to FinmaxFX.
Brokers usually offer a list of currency pairs and their trading hours. So if you pick up any pairs, checking their possible trading time to attend the market is a necessity.
Having said that, no speculators are capable of trading forex all day because sitting in front of the monitor and glueing their eyes on price changes are daunting and don’t even make them earn more. More importantly, traders should determine the best time for trading. Generally, there are four trading sessions as London, New York, Tokyo and Sydney sessions which have different opening and closing hours. Forex traders should conduct transactions whenever those sessions are open at the same time. Especially the best trading time happens when London and New York sessions overlap, from 1 PM to 4 PM GMT+0.
Can You Trade Forex Over The Weekend?
As mentioned in the first question, you can exchange currencies in several exchange venues on Sundays and Saturdays for travel purpose or commodity purchase.
Nevertheless, trading forex on online trading platforms to earn profits only occurs when the forex market is open at 10 PM GMT+0 on Sundays and closed at 10 PM GMT+0 on the next Fridays. The forex market is inaccessible in weekend breaks because institutional investors – typically banks, commercial and investment management companies – who contribute over 90% of forex trading volume are closed in those days as well.
Assume that the $5 trillion volume is traded daily, the absence of those liquidity providers over the weekend means only $500 billion traded between retail investors if they agree to trade on weekends. This forces retail brokers to impose higher bid-ask spreads to compensate for risks induced by the lack of liquidity. Besides, the release of economic and political news over the weekend may make risks more serious, not mentioned that brokers need employees to monitor unexpected technical situations and systems.
Consequently, both forex brokers and traders end up feeling discouraged to trade on weekends. Therefore, in most cases, brokers cannot process your buying or selling requests but holding your positions instead.
Why The Forex Market Is Open 24 Hours a Day
The forex market is not organised domestically or in a certain physical location like other securities, but takes place online in major financial centres of three primary regions as North America, Europe and Asia Pacific area. Accordingly, this currency trading market works on different time zones of four trading sessions, hence can be accessed at any point of a day:
|London||8 AM to 5 PM GMT+0
(3 AM to 12 PM EST)
|New York||1 PM to 10 PM GMT+0
(8 AM to 5 PM EST)
|Tokyo||12 AM to 9 AM GMT+0
(7 PM to 4 AM EST)
|Sydney||10 PM to 7 AM GMT+0
(5 PM to 2 AM EST)
In other words, there is always at least one session being open and there are several hours in which two trading markets will cross. Therefore, currencies can be internationally traded 24 hours a day. For example, when a forex trader in London gets up at 7 AM GMT+0 and wishes to trade currencies, he or she cannot do that with forex dealers in Australia as the London session starts opening at 8 AM GMT+0. However, the trader can open positions through forex brokers in Asia.
Although the forex market allows speculators to trade currencies 24 hours, not all time zones are suitable for trading. Looking at the picture below, you can see that London and New York sessions are the two busiest trading times. Especially when the overlap of both phases happens, the highest trading volume is recorded. This proves that forex traders should enter trades from 1 PM to 4 PM GMT+0 as this is the best time to trade on currencies.
However, not all currencies have the same 24-hour trading. Major pairs and the majority of minor or cross currency pairs have gained in higher popularity and credibility as countries where they come from are politically and economically stable. Those currencies make forex traders less wary of high volatility and low liquidity. In the real-time market, their values are less prone to changes, so they are often traded in a high trading volume and offered with tighter spreads. Realising that risks and costs of trading popular currencies are much less than rewards, investors will make higher demands on them, which allows them to be transacted all day.
By contrast, exotic currency pairs which include a major currency and another from the emerging markets (e.g. Hong Kong, Singapore or Poland) record the lower trading volume and wider spreads. Therefore, speculators only conduct forex transactions on those pairs in specified time zones. To illustrate, those who work with FinmaxFX and plan to trade any major currencies such as the US dollar, pound or euro against Czech Koruna (CZK) only start trading from 7.17 AM to 2.14 PM GMT+0.
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