Why Forex is a 24-hour market
The ability to access and trade foreign currency is a valuable tool in an increasingly globalised world. Traders in traditional investment markets are used to opening and closing trades daily. The stock market provides one example. In contrast, the market involving foreign currency exchange is different. Forex is a 24-hour market, meeting the constant worldwide demand to buy and sell international currencies.
It is the largest financial market around, operating in a digital marketplace. Historically, physical exchanges dominated the trading landscape. Now, decentralisation is the driving force behind forex being a true 24-hour market. It’s dependent only on access to an internet connection. An exchange with specific opening times is no longer required.
A connected world
The demand from traders looking to deal in international currencies is constant. This is a major factor in why forex operates 24/7. A forex day – and consequently a forex week – follows the time zones across the globe. Starting with the markets opening in Australasia, it then moves across Europe. Finally, the day finishes in North America. Gone are the limitations of the working hours of a physical exchange. In our connected, digital world there is no need to wait until a local broker opens its doors in the morning. Currencies can be bought and sold across the globe at any given time. The hours that the major markets overlap tend to be the most active.
Supply and demand
This 24-hour demand for currencies stems from a number of sources. One of the primary ones is business. Currency is needed for international trade. Businesses also use currency swaps to limit their exposure to currency valuation fluctuations.
Since the gold standard ended in 1971, fixed-currency markets became a thing of the past. As a result, central banks also became dependent on foreign exchange markets. They could use them to maintain stability within domestic economies. Today, these central banks can intervene to appreciate or depreciate their local currencies. Decisions are dependent on the economic climate they face. Indeed, it is not just central banks who use forex either. Banks across the board engage in forex trades with other banks and on behalf of their clients.
Although a 24-hour market, forex is still primarily used between Monday and Friday. Even though digital transactions allow traders to chase the global markets, brokers tend to shut for the weekend. For most commercial and government traders, this means that the week is complete on a Friday. They close with the North American markets.
Yet, trading is still possible outside of the traditional marketplace hours. Individual parties who want to trade online can frequently still buy and sell positions. If you want to try this, look out for premiums you might have to pay. Also be aware that the withdrawal of the major players marks a significant reduction in FX market liquidity. Of course, this is only until the opening of the Australian exchange on Monday morning. It heralds the return of the 24-hour market for another week.