Why Is the Forex Market Open 24 Hours a Day?

The forex market is open 24 hours a day, five days a week, because the forex exchanges in North America, Europe, Asia, and Australia are open at staggered and often overlapping times. There is always a forex exchange somewhere in the world that is operating during the work week, so the forex market itself is open from 5:00 p.m. ET on Sunday to 5:00 p.m. ET on Friday.

Key Takeaways

• Forex can be traded using exchanges in different parts of the world from 5 p.m. ET on Sunday until 5 p.m. ET on Friday.
• The ability to trade forex over 24 hours is mostly due to different international time zones.
• Forex trading opens daily with Australia and Asia, then Europe, followed by North America.
• As one region’s markets close, another’s opens or has already opened and continues to trade in the forex market.

How the 24-Hour Forex Market Works

Foreign exchange markets, or forex markets, are international currency markets where currencies are bought, sold, and exchanged. They are made up of participants from around the world, including:

• Commercial banks
• Companies
• Central banks
• Investment management firms
• Hedge funds
• Retail forex brokers
• Investors

Because the forex market operates in multiple time zones with overlap between one region’s market closing and another opening, it can be accessed any time of day during the work week. It is closed on weekends. The international scope of currency trading means there are always traders making and meeting demands for a particular currency.

While the forex market is available 24 hours per day, currencies in several emerging markets are not traded the entire time the markets are open. As of 2022, the most recent year in survey data released by the Bank for International Settlements, the eight most traded currencies in the world are the:

• U.S. dollar (88% of trades)
• Euro (31% of trades)
• Japanese yen (17% of trades)
• British pound (13% of trades)
• Chinese yuan renminbi (7% of trades)
• Australian dollar (6% of trades)
• Canadian dollar (6% of trades)
• Swiss franc (5% of trades)

All eight of these currencies are traded continuously during trading sessions. Only 21 currencies are traded at least 1% of the time.

Important

Despite the highly decentralized nature of the forex market, it remains an efficient transfer and far-reaching mechanism for those who wish to speculate from anywhere on the globe.

Speculators typically trade in pairs crossing between these eight currencies from any country in the world, though they favor times with heavier volumes. When trading volumes are heaviest, forex brokers will provide tighter spreads (bid and ask prices closer to each other), which reduces transaction costs for traders.

Institutional traders also favor times with higher trading volume, though they may accept wider spreads for the opportunity to trade as early as possible in reaction to new information they have.

Why Forex Trading Is Important

Currency is needed around the world for international trade by central banks and global businesses. Central banks have particularly relied on foreign exchange markets since 1971, when fixed-currency markets ceased to exist because the gold standard was dropped. Since then, most international currencies have been “floated” rather than tied to the value of gold.

The ability of the forex market to trade over a 24-hour period is mostly due to different international time zones and the fact that trades are conducted over a network of computers rather than any one physical exchange that closes at a particular time.

Securities such as domestic stocks, bonds, and commodities are not as relevant or in need on the international stage. As a result, they are not required to trade beyond the standard business day in the issuer’s home country. But currency continues to be traded long after a currency’s local forex market closes. For example, the “closing rate” of the U.S. dollar for a day is simply the rate when the market closed in New York. That number can continue to change as trades go through other forex markets around the world.

7.5 trillion

The amount that is traded on the forex market each day.

Forex Market Hours Explained

The forex market can be split into four main regions: Australia, Asia, Europe, and North America, with several major financial centers within each of these main areas.

Australia and Asia are composed of Sydney and Tokyo. Europe is composed of major financial centers such as London, Paris, Frankfurt, and Zurich. The North American exchange is in New York and represents traders from Canada, South America, and Mexico. Banks, institutions, and dealers all conduct forex trading for themselves and their clients in each of these markets.

Forex trading hours are based on when trading is open in each participating country. While the timezones overlap, the generally accepted trading times for each region are:

• Australia (Sydney): 5 p.m. to 2 a.m. EST (10 p.m. to 7 a.m. UTC)
• Asia (Tokyo): 7 p.m. to 4 a.m. EST (12 a.m. to 9 a.m. UTC)
• Europe (London): 3 a.m. to 12 p.m. EST (8 a.m. to 5 p.m. UTC)
• North America (New York): 8 a.m. to 5 p.m. EST (1 p.m. to 10 p.m. UTC)

Note

Eastern Standard Time (EST) is the time zone New York City is in from the first Sunday in November to the first Sunday in March. EST is UTC-5. From March to November, New York is in Eastern Daylight Time (EDT) which is UTC-4. The opening and closing times for other markets may also shift relative to UTC depending on whether they observe daylight savings time.

The period when the European and North American trading sessions overlap (London afternoon and New York morning) is the busiest and accounts for most trading volume.

What Time Does the US Forex Market Start?

The U.S. forex market opens at 8 a.m. ET, Monday through Friday.

What Time of Day Should I Trade Forex?

The best time for most traders is when the London and New York exchanges overlap. However, you can trade at whatever times work best for you since markets will be open 24 hours a day during the work week. You cannot trade forex during the weekend break when markets are closed.

When Should You Not Trade Forex?

Forex traders generally avoid bank holidays, days when news impacts currency values, central bank news release days, or other illiquid days.

The Bottom Line

Currency is necessary for central banks, international trade, and global businesses. Due to the different time zones in which major financial centers are located around the world, the forex market operates as a 24-hour market during the work week. This satisfies the need for transactions across various time zones. As a result, there is no point during the trading week that a participant in the forex market will not be able to make a currency trade.

Read the original article on Investopedia.