What it means
Unlike a stock exchange, the forex market has no central building or closing bell. Trading is done directly between banks, dealers, companies and individuals over electronic networks, so it continues as long as at least one major financial centre is open.
The week effectively starts on Sunday evening in the US when Sydney opens, and it ends on Friday evening in New York. There are four main sessions, which are Sydney, Tokyo, London and New York, and each overlaps with the next for a few hours.
Liquidity, which is how easily a currency can be bought or sold without moving its price, is highest when sessions overlap. The London and New York overlap is usually the busiest, because the two biggest centres are trading at once and many of the world's largest pairs involve the dollar, euro and pound.
Prices tend to move more during active hours and can be quiet at other times. A currency tied to a particular region, such as the yen or the Australian dollar, often shows more movement during its home session.
The practical use for a business is timing. A treasurer who needs to convert a large amount may prefer to deal when liquidity is high, as spreads (the gap between buying and selling prices) are usually narrower and the price is less likely to jump.
The exact clock times change when countries move their clocks for daylight saving, so traders should check the current hours for their own time zone. Weekends are thin, and a news event on a Saturday can cause a price gap when the market reopens.
In practice
Real-world examples.
Example
A US importer needs to buy 2,000,000 euros. The treasurer asks her bank to deal in the morning New York time, when London is still open, to get a tighter spread. The bank confirms the rate within seconds, and the purchase is settled at the standard date.
Example
A Sydney-based exporter receives payment in US dollars and wants to convert straight away. She trades at the start of the Asian day, when her local bank is open and the Australian dollar is most active. She avoids waiting until late in the day, when fewer local dealers are available and quotes may be wider.
Example
A retail trader in Dubai notices that his strategy performs poorly during the late Asian session, when prices barely move. He decides to trade only when the London session is open. After the change, he finds that his orders fill closer to the quoted price.
Case study
Seen in the real world.
Northwind Imports is an illustrative, fictional company in Chicago that converts large dollar sums into Japanese yen each month. For years, its accounts clerk placed the orders late in the afternoon, whenever the paperwork was finished.
The treasurer reviewed the quotes and found that the spread at that time was noticeably wider than it was in the morning. The difference cost around $300 on each $1,000,000 converted, which added up to several thousand dollars over a year. The treasurer also noticed that orders placed just before a major economic announcement were more expensive still.
In this illustrative case, the company changed its process so that conversions were requested in the morning window when more markets were open. The saving was modest, but it required no new software or hedging products. The clerk simply added the conversion to her morning checklist, and the treasurer reviews a sample of fills every quarter.
Watch out
Common mistakes.
- Assuming the market is equally active at all hours, when volume and price movement vary greatly by session.
- Placing large orders at quiet times, when thin liquidity can lead to wider spreads and bigger price jumps.
- Forgetting that clock changes for daylight saving move the session times, so a schedule that worked in summer may be an hour out in winter. It is safer to anchor your plan on which financial centres are open than on a clock time.
Questions
People also ask.
Is the forex market really open 24 hours?
It is open around the clock on weekdays, but it closes at the weekend, and individual brokers may pause for short maintenance windows. Check your broker's published hours before planning a time-sensitive trade.
What is the best time to trade?
Many traders prefer the overlap of the London and New York sessions, because activity and liquidity tend to be highest then.
Why does the market close at the weekend?
Because the main financial centres are all closed, so no major bank or dealer is available to make prices. Any quotes that do appear at that time are usually thin and unreliable.
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