How Does the Forex Market Trade 24 Hours a Day?
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When it comes to Forex (FX), what many people don't realise is that the foreign exchange is the largest financial market in the world. It is estimated that Forex trades around $3 trillion each day, according to Reuters. This article will explore the features of the FX market, providing all the information you need to know exactly how 24 a day trading is made possible in FX.
How Does 24-hour Forex Trading Work?
Unlike the stock market, the Forex market is open 24 hours a day, although you have to consider that the market is closed for the majority of the weekend. The Forex market opens at 10pm GMT on Sunday, and is open continuously throughout the week, until it closes at 10pm GMT on Friday. Traders around the world are always making and meeting the demands for a particular currency, and because currencies are in such high demand, the Forex market is open 24 hours a day.
This means that traders can trade Forex 24 hours a day, without a break. Forex has the ability to trade over a 24-hour window, because of the different time zones around the world. Forex runs on a network of computers that are constantly trading currencies at all hours of the day, and throughout the night, rather than closing at a particular time. 24-hour Forex trading is also possible as it is an over-the-counter (OCO) market, which doesn't have a centralised exchange. People can engage in trading at any time, yet there are some periods of high volatility.
Who Participates in 24 hour Forex Trading?
Central banks and worldwide businesses are always in need of currency. Money makes the world go round, and currency is always needed around the world for international trade. Since 1971, central banks have relied on foreign exchange markets to operate. Each day the Forex market opens in Australia/New Zealand, and then the rest of Asia, followed by Europe, and then North America.
Once one region closes, another region opens and continues to trade currencies on the Forex market. 24-hour Forex trading provides traders with the ability to trade at almost any time of day. In other words, trading Forex is available at almost any time; however, most brokers do have trading breaks. Trading breaks usually last for minutes in the currency market, and they give traders a chance to take a break too.
Everyday different economies fluctuate. This is due to political instability and other changes. Central banks aim to stabilise their country's currency value by trading their notes on the open market, and keeping a similar value compared to other currencies around the world. Due to the importance of currencies, and fluctuating economies, Forex trades 24 hours a day, and because of this, Forex remains one of the most popular markets to trade in.
Where Does 24-hour Forex Trading Take Place?
There is no physical exchange involved during 24-hour Forex trading. Forex trading takes place on the internet. Since Forex is the world's biggest market for trading currencies, it is served by Forex brokers for Forex traders. Forex trading is performed in pairs. Every week the currency market launches in New Zealand on Sunday (which is their Monday). In any other market you are not able to trade assets until someone else around the world is available to buy and sell trades from you. In the currency market you are able to trade Forex 24 hours a day.
What Are the Features of the Forex Market?
Forex is a highly leveraged market. You can invest little money and control a lot. There is a lot of potential for making profits (and losses) during a 24-hour Forex trade. This gives many types of investors, both small and big, the flexibility to take part in the market and help the currencies flourish. It is important to know which are the most active trading periods in which you can trade. Central banks, along with traders and brokers worldwide are able to trade Forex online 24 hours a day. Forex trading hours operate around the world like this:
- New York between 01:00 pm – 10:00 pm GMT
- At 10:00 pm GMT Sydney comes online
- Tokyo opens at 00:00 am and closes at 9:00 am GMT
- London opens at 8:00 am and closes at 05:00 pm GMT
The Forex market has the potential to bring an investor a potential return on their investment (remember that the opposite can easily happen too). It also has room for beginners to learn how to trade with a small investment. All markets have risk, and the Forex market is no exception.
The beauty about Forex is that you can trade Forex 24 hours a day and have the flexibility to move currency more often. It is important to understand trading in Forex and be able to come up with trading strategies that can help you to trade more efficiently. Whether you trade on the market yourself, or go through an online broker, it is possible to become successful in making profits with Forex.
Do Traders Need to Trade Forex 24 Hours a Day?
It's not really possible for anyone to trade 24 hours a day – you'll get tired and start making bad trades. Even though the market is open 24 hours a day, it doesn't mean that you should actually trade every single hour of it. In fact, about half of the trading day there are unlikely to be any big market moves. It of course depends on the currency pair being traded, yet in general, the most active trading times start when the London trading session opens, and the best trading period occurs when the New York and London sessions cross.
This is of course mostly suitable for day traders. In addition to this, the previously mentioned market session overlap is mostly suitable for the major currency pairs, especially the ones that have the EUR, the GBP, and the USD currencies as part of their quote. As a rule, there is usually some volatility for JPY pairs whenever the Tokyo market opens. Trading Forex all day long doesn't really make sense. Market sessions are most useful for day traders, scalpers, swing traders, and breakout traders. If you are into positional trading, this won't really be particular relevant to you.
What Happens on Holidays?
This is an interesting question. Generally, we can subdivide holidays into local 'days off', and global ones. Whenever there is a local holiday, trading doesn't usually stop. This is because there is an enormous amount of liquidity to back up almost any currency pair, especially the major ones. When it comes to exotic currency pairs, and some crosses, you can actually see some pairs being disabled.
For example, RUB pairs are not traded during Orthodox Christmas, as there is absolutely no liquidity when the Russian market is closed. We refer to global holidays only because this is when trading is stopped everywhere. This does not necessarily mean that the whole world is taking a break, rather, it means that trading on this day (or within the given hours) is not possible. An example of such a holiday can be Christmas. Even though it is not celebrated in the largest parts of the world (geographically speaking), it is celebrated in almost all major financial hubs, so Forex is not traded during this period.
When Should You Trade Forex?
The answer is rather simple – whenever you feel it is appropriate. You should not primarily base your trading strategy on the trading sessions, as the time simply indicates the possible volatility, and not certain exit or entry points. If you are into day trading and your main trading instruments are the GBP/USD currency pair (also known as the Cable) and the EUR/USD currency pair, you would definitely experience the highest volatility during the overlap of the New York session and the London session. This is the time mostly favoured by scalpers, as sometimes you can literally make just a few trades within a minute.
Forex trading is fun and it could be performed any time, but you should also know that it is risky, especially if you have limited knowledge about Forex trading. Before you begin trading Forex online, it is recommended that you take a look at the risk disclosure documents, as well as the various terms and conditions, to understand how Forex trading functions, and what the possible risks involved are.
Once you get a good sense of the market, we would suggest that you open a demo account to try trading paper money at first. This will also help you in gaining experience with the 24 hour mode format of the Forex market, the session overlaps, and the volumes generated per session. Should you require any additional information about Forex market hours, or trading in general, make sure to check out articles and tutorials, which cover an extensive range of trading topics.
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.