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The 24 Hour Forex Market

One of the main reasons the forex market has become so popular, especially now that retail accounts are available for online trading via forex brokers, is the fact that the market trades continuously 24 hours per day, five days a week.

Basically, you can start trading at the Sydney open on Sunday at 5 PM EST and then trade forex 24 hours a day until 5 PM EST on Friday when the market in New York closes.

In addition, a live order to execute a forex trade can be left with your broker which can be an active order all week.

This allows for the forex market to trade at the right level to fill your order at, no matter what time of the day or night it is.

Trading Stock Versus Trading Forex

A GTC or Good ‘Til Cancelled stock order must lie inactive every night until the broker goes in to work the next day on the exchange where the order was originally taken. The order stays with the broker and does not go to a global network for execution on another exchange somewhere else in the world.

A forex order, on the other hand, can be kept track of as the order follows the market around the world. For example, assuming a trader places an order to sell Euros against U.S. dollars at 1.2500 and enters the order at 10:00 AM EST.

The market is trading at 1.2350 when the New York session closes, but the broker places the open order with their California office which then passes it on to the Sydney, Australia office.

The order continues being passed around the world through the broker’s offices in Asia and the Middle East to the open in London, until the order lands back in New York, if not filled overnight.

The order can even go around the world all week long if the market does not trade in the desired range. Nevertheless, a sudden sharp move can fill the order, which is the sort of price action that some forex traders bank on. Read a lot more on forex price actions here.

Most Active Forex Trading Periods

The busiest forex session with the most liquidity is the overlapping European session when the United States market opens at the beginning of the New York session and joins Europe, which is at the end of their trading day. The two markets are both open for four hours of trading between 8 AM EST and 12 Noon EST.

As the U.S. market closes in New York, the markets in Australia and Asia begin to open, with Sydney and Tokyo overlapping between 7 PM and 2 AM EST.

Moving further on in time during the trading day, Tokyo then overlaps with London between 3 AM and 4 AM EST.

When more than one market is open at the same time, a larger volume of trades and a greater level of liquidity usually exist. These conditions often give a forex trader a better opportunity to profit in the market.

The cycle then repeats every weekday until the close of business on Friday at 5 PM EST.

The Forex Market Never Closes

Holidays in the forex market are at best partially observed. When one country is celebrating a holiday, generally other countries may not be, as is often the case with national or religious holidays.

Also, because of the differences in cultures, while a bank holiday can be observed all over Asia for example, the forex market will usually be open in Europe and the United States.

This can either present opportunities for some traders or times to avoid trading for others, depending on the trading style you employ.

Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.

How does the foreign exchange market trade 24 hours a day?

The forex market is the largest financial market in the world, trading around $1.5 trillion each day. Trading in the forex is not done at one central location, but is conducted between participants by phone and electronic communication networks (ECNs) in various markets around the world.

The market is open 24 hours a day from 5 p.m. EST on Sunday until 4 p.m. EST on Friday because currencies are in high demand. The international scope of currency trading means that there are always traders across the globe who are making and meeting demands for a particular currency.

[Note: If you're interested in day trading in the forex market, Investopedia's Forex Trading For Beginners course provides an excellent introduction to day trading to help you get started on the right foot.]

Currency is also 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 that time, most international currencies have been "floated" rather than tied to the value of gold.

Economic and political instability and infinite other perpetual changes also affect the currency markets. Central banks seek to stabilize their country's currency by trading it on the open market and keeping a relative value compared to other world currencies. Businesses that operate in multiple countries seek to mitigate the risks of doing business in foreign markets and hedge currency risk.

Businesses enter into currency swaps to hedge risk which gives them the right, but not necessarily the obligation, to buy a set amount of a foreign currency for a set price in another currency at a date in the future. They are limiting their exposure to large fluctuations in currency valuations through this strategy.

The ability of the forex to trade over a 24-hour period is due in part to different international time zones and the fact trades are conducted over a network of computers, rather than any one physical exchange that closes at a particular time. For instance, when you hear that the U.S. dollar closed at a certain rate, it simply means that that was the rate at market close in New York. That is because currency continues to be traded around the world long after New York's close, unlike securities.

Securities such as domestic stocks, bonds and commodities are not as relevant or in need on the international stage and thus are not required to trade beyond the standard business day in the issuer's home country. The demand for trade in these markets is not high enough to justify opening 24 hours a day due to the focus on the domestic market, meaning that it is likely that few shares would be traded at 3 a.m. in the U.S.

The forex market can be split into three main regions: Australasia, Europe and North America, with several major financial centers within each of these main areas. For example, Europe is comprised of major financial centers such as London, Paris, Frankfurt and Zurich. Banks, institutions and dealers all conduct forex trading for themselves and their clients in each of these markets.

Each day of forex trading starts with the opening of the Australasia area, followed by Europe and then North America. As one region's markets close another opens, or has already opened, and continues to trade in the forex market. These markets will often overlap for a few hours, providing some of the most active period of forex trading. So for example, if a forex trader in Australia wakes up at 3 a.m. and wants to trade currency, they will be unable to do so through forex dealers located in Australasia, but they can make as many trades as they want through European or North American dealers.

The Bottom Line

Currency is a global necessity for central banks, international trade and global businesses, and therefore requires a 24-hour market to satisfy the need for transactions across various time zones. In sum, it's safe to assume that there is no point during the trading week that a participant in the forex market will not potentially make a currency trade.

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